The Amazon Effect   //   November 15, 2019

Nike’s Amazon departure highlights bubbling brand tensions

Nike’s decision to part ways with Amazon highlights the changing dynamics between the e-commerce giant and brands. And it could be a big loss for Amazon.

Earlier this week, the sneaker brand announced that, after two years of having a brand presence on the e-commerce platform, Nike decided to stop selling on Amazon. “As part of Nike’s focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail,” wrote a Nike spokesperson in a statement to CNBC.

For Nike, Amazon was likely just a sales channel — albeit a big one. For Amazon, however, its Nike partnership represented how businesses of all sizes would work on the platform. A growing movement of direct-to-consumer brands have proven they can live without being on the platform, and Amazon needed to show that larger businesses can successfully partner with it. Over the last two years, Amazon has been making a concerted PR push to show off how well it works with other companies, and the benefits it provides to brands who work directly with the platform. That Nike tested Amazon out and ultimately decided to part ways send a message that businesses may not need to play around with it.

Amazon has been trying to woo brands big and small to be more present on the platform. In 2017, it launched the brand registry as a way for sellers to have a more official presence on the site and fight counterfeits. It also began piloting certain tags — like “top brand” — to help differentiate big players from smaller ones. Most important, it was also a way to entice more third-party sellers. That has been Amazon’s strategy, despite the growing DTC movement. In a letter to shareholders last May, Jeff Bezos said that third-party sellers made up 58% of the company’s gross merchandise sold in 2018, which equaled $160 billion. The company has also said it’s spent $15 billion this year on tools to help these third-parties, reported GeekWire.

For large businesses, deciding whether to go on Amazon involves a highly variable calculus. On the one hand, companies want to meet customers where they are, and shoppers are certainly on Amazon; the platform represents over 37% of U.S. online sales in 2019, according to eMarketer.

But for brands there’s a flip-side: Amazon provides little control or data to the companies who sell on the platform, all while taking a sizable cut of the revenue that comes in. A recent Modern Retail survey of retailers found that only 8% were satisfied with Amazon’s dashboards and seller services. Ditto the data Amazon provides. All this put together highlights the dynamics at play with brands like Nike, and whether or not they should sell directly on Amazon.

Nike’s decision is notable, precisely because it represented an advantageous partnership for Amazon. And the move will likely be fodder for some difficult discussions at other brands. When Nike opted to have a curated presence on Amazon in 2017, said Marketplace Pulse founder Juozas Kaziukėnas, it gave a signal to other brands that they should probably also participate. “Now that it didn’t work,” he said, “it ends up being the opposite example — these big brands can choose to not sell on Amazon.”

The reason why a big brand would opt to work with Amazon in this capacity has to do with better visibility. Shoppers would more easily be able to navigate the platform to find the products they want, rather than being bombarded by thousands of third-party sellers — some of whom are almost certainly selling counterfeit products. But, said Kaziukėnas, the problem never got any better; “Shopping for Nike products on Amazon was terrible five years and is a terrible experience today,” he said. Ultimately, what Nike needed from Amazon was a way to make for a more curated presence, which didn’t pan out. “It’s showing the lack of innovation on Amazon’s part,” he said.

The issue for Nike was likely a lack of control. The company said about 30% of its sales are direct-to-consumer, and it wants that to increase. As a result, it’s investing in its own sites and apps and weaning itself away from third-parties. It is in an advantageous place to make such a move. “Nike is one of the most preeminent consumer brands in the world,” said Mark Powers, CEO of the Amazon consultancy Podean. “It has so much brand power.”

That translates into not necessarily needing to meet the consumer everywhere; people are so intent on copping a pair of Nike kicks that going to the brand’s website — even waiting longer than 24 hours for shipping — is something at which they wouldn’t balk. So, the fact that Nike doesn’t feel like it needs a brand presence on Amazon isn’t surprising, said Powers. But the message it sends to others isn’t great for Amazon’s bottom line.

Some, however, maintain that Nike’s decision was shortsighted. “When brands disengage with Amazon, they lose the curation of their brand,” said Eric Heller, evp of marketplace services at Wunderman Commerce. While Nike may have sneaker name recognition, consumers still turn to Amazon for product discovery. Brands like Nike, he went on, “benefit from having a single way their brand is perceived.” If Amazon’s marketplace becomes crowded with sellers hawking product in ways the brand doesn’t like, Nike’s overall cultural cachet will suffer.

This decision, said Heller, likely didn’t take into account certain hard-to-enumerate factors relating to brand awareness. “There’s this intangible value of having your brands well-represented on Amazon,” he said.

Whether or not it was a wise decision, Nike’s departure will send a signal to other leaders in the space about how best to play with the 800-pound gorilla. Who the loser is, remains to be seen. Said Heller, “I would argue that Nike needed Amazon more than Amazon need them.” Kaziukėnas had another perspective: “Amazon needs Nike, Nike doesn’t need Amazon.”