knog
knog
Sep 14, 2017

Nike and amazon in ground-breaking deal

Paul Sherratt, of Solutions for Sport, takes a closer look at the implications that the deal may have.

On June 21st Nike announced that they would be selling products directly through amazon.com, joining adidas and Under Armour who already have a large storefront presence.

The result? Competing sports businesses lost over $1 billion in market value in just one day as the stock market predicted how badly the deal might affect other major Nike sellers.

Of course it doesn’t come as any big surprise to those of us that have seen the huge changes affecting our marketplace, and it isn’t as if Nike hasn’t had a robust directto- consumer strategy for years, with over 1,000 Nike retail stores, a dedicated Nike.com website and weighty presence on Zappos.com, an Amazon affiliate.

Nevertheless many sports brands have been struggling for years as to how best to deal with amazon without affecting their traditional retail channels so, perhaps, with Nike now making the move will it lead to many more brands adopting this approach?

Certainly amazon are actively targeting sports as a key category recognising that they may not present the goods in the most customer friendly way but that the huge traffic to the site and convenience of purchasing product puts them in an incredibly strong position.

Strained relationships Assuming then that more brands will follow does this further threaten the traditional retail channels and tarnish an already strained relationship that many brands face with the independent sports retailer?

While it is true that many dealers have learnt to compete with the likes of Sports Direct and, indeed have also found ways to counter the brands direct to market strategy, will the Nike deal be the final straw?

Certainly, as the brand continues to exert increased pressure on more and more dealers – upping the lower limit spends, dictating range plans and purchase patterns – so the independent continues to question whether they can live without the brand and whether alternative suppliers (with more attractive margins) can fill the gap that delisting Nike may lead to.

Among specialty retailers that I work with, Amazon.com is a thorn in their side. It looms large as the category killer for any product segment they deal in. While many specialty retailers have found a way to coexist with Amazon through its seller partnership offering, they still get irked when one of their major brands goes over to the Amazon dark side. The result is they give less support on the customer front lines for those brands. This potential fallout may negatively impact brands, even market leaders like Nike.

Its a question that looms large in many retailers’ minds and reflects a pattern that is becoming more and more apparent with brands initially focussing on the specialist sector only to slowly move towards a directto- market strategy and ultimately ending up competing with the very retailers that enabled them to get into that position in the first place.

Increasingly the supplier brands hold all the cards and the independents are left out in the cold.

Not just about growing revenues

Looking deeper at the the Nike/ amazon deal the brand insists that the relationship isn’t necessarily about growing volume. Instead, Nike’s goal is to work more closely with amazon to crack down on thirdparty sellers - a move that clearly demonstrates an increased desire to further control the access that consumers have to Nike goods.

Interestingly, Nike is already the number one brand on amazon with third parties selling through marketplace so the latest move will prevent this practice and bring those sales directly into Nike as well as removing third party sellers who consistently sell Nike on the platform without authorisation.

This fits with Nike’s broader plan to tighten its grip on brand and image as it focuses more on directto- consumer and moves away from wholesale.

So what future?

Certainly it seems that many specialist retailers are increasingly looking for alternative suppliers who have are focussed on a fairer supplier-dealer relationship and who recognise the importance that these dealers have in driving brand presence and recognition.

If these dealers maintain consumer trust then to offer credible alternatives to the “big brands” becomes achievable, is likely to lead to increased margins and provide a way of circumnavigating the amazon (and mass dealer) pressures that they feel around the larger suppliers.

“Today specialty independent retailers need to make their brand partners understand the vital role they play in building customer awareness and loyalty. Now that the old 4Ps model of marketing based upon Product-Price-Promotion- Placement has been replaced by the new 4Es model, where Experience replaces Product, Exchange becomes Price, Evangelism is now Promotion and Placement is Everyplace, the supplier-dealer relationship must change. Most especially it’s not about selling product anymore, but providing a customer experience,” writes marketing specialist Pamela N. Danziger.

Those brands that fail to recognise this fundamental shift may, in the short term, see revenue gains through the likes of amazon, but may see the brand roots eroded as specialist independents over time shift towards suppliers who embrace a partnership model.

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