Why Nike Left Amazon (And Why It Was Smart)
Nothing in this post is meant to be investing advice. Full disclosure, I own stock in Nike and Amazon.
For years, Nike has been one of the most well-known brands in the world. Even though the company is now more than 50 years old, it still does a great job of appealing to the youth with great commercials.
But some people argued that Nike being one of the best brands in the world doesn’t mean as much as it used to. Platforms like Amazon were said to be causing the “ death of brands “. Before the Internet, consumers would buy whatever products they saw on TV and magazine advertisements. Now, customers are able to select the cheapest option with reasonably good reviews on Amazon. Consumers didn’t need to pay a price premium for Jordans anymore.
Looking at what’s happened with Nike in the past few months proves this narrative isn’t true.
Why Nike left Amazon
Let’s back up for a second and talk about why Nike left Amazon last year. Before 2017, there were no Nike products on Amazon. Anyone who was looking for Nike shoes would just see a bunch of counterfeit options.
So naturally, Nike wanted to fix this problem and make sure that potential customers who were looking for Nike would actually see Nike products. So they partnered with Amazon in 2017 to get their products on the platform. Seems like a pretty good deal, right?
Well actually, it was a really bad deal for Nike. Counterfeit products would still appear above actual Nike shoes in searches. The real winner was probably Jeff Bezos. Amazon got a commission from every sale that Nike made on the platform. But that wasn’t even the worst part of the deal.
Amazon got valuable data from Nike customers, which Amazon has used to hurt companies who sold their products on the platform in the past. It works like this: If Amazon sees that tons of customers are making searches and spending lots of time looking at a specific pair of Jordans, Amazon can manufacture a competing shoe and make sure that it places above those Jordans in search results. While Amazon was never accused of doing this with Nike specifically, there’s no way Nike leadership wanted to risk something like this happening.
So in November of 2019, Nike’s experiment with selling on Amazon ended. Nike didn’t want to have to get on Amazon and miss out on valuable data just to still get beat by counterfeiters and have Jeff Bezos come out with some weird Air Jordan copy that’s sponsored by J.R. Smith or something.
How Nike is taking control of its brand
Getting off of Amazon is part of a bigger strategy for Nike. Nike is making a smart transition for the Internet era and building relationships with customers that don’t require a middleman like Amazon.
The company is serious about this transition. At the beginning of this year, the company appointed a new CEO, John Donahoe, the former CEO of eBay. If I had to guess, he’s probably not an expert on making shoes. But he is an expert on selling products online.
It seems like Nike’s strategy is working. According to Bloomberg, about 68% of Nike’s annual sales come from wholesale channels, down from 81% in 2013. Those numbers show that Nike isn’t selling as many products as it used to through partners. That means the company is sharing less of its money and its data with the Jeff Bezoses of the world.
Instead of being dependent on partners to sell shoes, Nike now uses mobile apps to collect more data on consumers. For example, Nike has fitness apps like Nike Training Club. The app offers home workouts for a subscription. Nike is able to get valuable data on how customers are working out and are able to push them towards relevant products. It’s a genius way to sell directly to the customer while also pushing the Nike brand image of achieving greatness through sport.
In addition, Nike is becoming more selective with the companies that it still works with. Back in 2017, Nike was working with 30,000 retail partners. That same year, the company announced that it was focusing its efforts on 40 partners like Nordstrom and Foot Locker. These companies would give Nike its own section in stores. That way, Nike is able to position its brand as special and above other shoe companies.
Now look, it’s not all good news for Nike. The company’s sales last quarter dropped almost 40%, despite a 75% increase in online sales. But hey, it’s hard to put up good results when 90% of your stores close outside of China and South Korea. The strong growth in digital is a great sign that Nike will have more direct relationships with customers when this is all over.
Should every company follow the Nike strategy?
Based on what happened with Nike, it seems like the smart move for every company is to get off Amazon and sell directly to the customer through mobile apps. But it’s not that easy.
Traditional non-tech companies only have a chance of getting people to download their apps if they have very strong and well-known brands. Personally, I hate downloading apps on my phone unless I really need them. I can’t see myself downloading an app from a shoe company that isn’t Nike.
On the other hand, having a great brand doesn’t mean that every move that you’re going to make is automatically successful. Nike has made moves in the digital space that haven’t worked out. Back in 2013, the company released the FuelBand, a wearable device that was meant to count your calories kind of like an Apple Watch. It was discontinued after just 3 years. At the end of the day, it’s hard for a company like Nike to make technology that competes with actual technology companies.
In the past few years, Nike has focused on what it’s good at: selling shoes and helping people become better versions of themselves through exercise. Instead of trying to compete with Apple, they just used tech to achieve this goal. It took some time, but the company has figured out how to do what it was already doing before the Internet even better.
In conclusion
While Nike’s sales might be down right now, the company’s making good moves in the digital space. So it looks like Amazon hasn’t killed off brands yet.
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Originally published at https://sundayspecial.substack.com.
