This morning Seeking Alpha analyst Clark Schultz posted that Nike might be looking to sell on Amazon. My immediate response was “Hell No.” My secondary response was, “Nah son!” My final response was that I’m very rarely wrong and when I wrote this, I was making a prediction:
The above article was one of the first in a series of discussions I’ve had about why Amazon is the most dangerous company in the world. I then did a video showing the inside of my dashboard and why I closed a half a million dollar a year shop on the Amazon platform.
This idea that Nike will sell on Amazon directly is not smart at all and the immediate discussion point that should be given is that Nike has built its DTC business in a way that doesn’t require Amazon as a distribution outlet online. Unfortunately some analysts don’t see it this way. They are looking at Nike and saying that, “(Nike) needs the business. Wholesale in the US is not getting better.” NPD Analyst Matt Powell. Matt Powell’s statement is reinforced by data he has contributed to Amazon in regard to sportswear. What Matt Powell is failing to grasp is that a Nike and Amazon relationship is not a third party company analyzing data. It’s Nike supplying Amazon with the SKUs and information directly from the source. It’s similar to what brands like Kleenex and Energizer did for Amazon by opening shops on the platform.
There is a real problem with this and it’s one not being discussed on investment sites right now. As Foot Locker and Finish Line vye to improve e-commerce, a Nike alignment with Amazon could literally remove the search factor for those companies. This alignment with Amazon is a smack in the face to companies already carrying footwear and apparel from the Swoosh. The question becomes how much merchandise will Nike make available to Amazon? Will it also supply footwear? If they do supply footwear does Zappos officially get chopped? Will this footwear be shipped to fulfillment centers utilizing FBA?
If the merchandise is available to Prime members how will this affect NDC, Swoosh and other aspects of Nike’s DTC? How will smaller outlets like DTLR, City Gear, and Jimmy Jazz be affected by Nike footwear and apparel being readily available via Amazon.com? These smaller companies are already discounting both online and in stores, having to compete against Amazon could be terrible for those companies.
I introduced to the dialogue that Amazon currently has private labels disrupting the market. Matt Powell responded that “those brands aren’t disrupting anything. Amazon needs a brand name to play here.”
Let’s consider the damage Amazon will wreak on CPG brands with the acquisition of Whole Foods and how Amazon has disrupted companies like Wal-Mart with their dashboard button feature.
When a company controls the delivery of merchandise to its consumers the way Amazon does, it doesn’t need to be the “brand” or have a “name”. Amazon has solved this issue of “brand” name by launching Amazon Prime Wardrobe. If Amazon has a direct relationship to Nike, how long will it be before Amazon launches sportswear and apparel that subverts not only Lululemon, adidas and Nike? If you don’t think it will happen look at how Amazon purchased Zappos, mined the data and Zappos is not nearly the company it was before it was acquired by Amazon. While I realize that Nike is a powerful company, distributing through a company at the expense of relationships with other companies seems like the workings of a company throwing darts in the dark.
Amazon Prime Wardrobe eliminates the issue with buying apparel online. More important, Amazon Prime Wardrobe will function in the same way as Amazon Essentials, Amazon Basics, and Amazon Elements has functioned. When Amazon launched their private labels in Basics, Essentials and Elements, brands like Duracell and Energizer were at the front of the market when a customer looked to buy batteries online. Those brands had been carrying their items on Amazon for years supplying Amazon with their data.
Here is an article on how that has turned out,
https://techcrunch.com/2016/11/03/amazons-private-label-brands-are-killing-it-says-new-report/ and a quote in case you don’t want to click through:
“But even though today, Amazon Elements products are only available to Prime members, it has already gained a 16 percent market share in terms of dollars sold, among the top 10 brands of baby wipes. That puts it just behind Huggies (33%) and Pampers (26%).
In addition, Amazon Elements wipes have seen 266 percent year-over-year growth, and customers who view Amazon’s product are three times more likely to purchase than the category average, the new report states.”
I made a statement this morning to Jason Belzer on Twitter that Amazon + Nike, “Would signal Nike’s death as Amazon is launching private labels and Nike would supply them with the data needed to build their athleisure.” Now this statement was extreme. A company like Nike that controls 50% of a market is not going to die. However in that hyperbole is some truth. All great empires are dismantled in a subversive fashion. Amazon + Nike would deliver Nike an immediate return in wholesale, but long term that play could unravel the company’s own very successful efforts in building NDC and DTC. It wouldn’t be a very smart move in the long term.
The story here isn’t in the design of the apparel being delivered from Amazon’s Private label apparel companies. It’s in the way search is being manipulated to reinforce Amazon’s own labels. That quote above should make things very clear, “Amazon’s product are three times more likely to purchase than the category average.” Amazon just moved into apparel and has yet to deliver its sportswear. When they do, you better believe they will place their items at the top of the search category every time.