A Closer Look At The Amazon-Nike Partnership

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A recent Bloomberg report suggests that Nike (NYSE:NKE) has entered into a partnership with Amazon (NASDAQ:AMZN) to sell its products directly on the latter’s platform. Currently Nike products available on Amazon’s e-commerce site are sold by third party sellers through the Amazon Marketplace. Nike also sells its products to Amazon’s subsidiary Zappos.com.  However,  sales via third party sellers increases the risk of counterfeit products ending up on the e-commerce platform and the reported partnership between the two players is likely to ensure that customers get access to genuine Nike products on Amazon.com. Amazon is increasing its focus on apparel and fashion and the company recently launched “Prime Wardrobe” a service for its Prime members where they can order a “box” of apparel to try before buying. (Read Prime Wardrobe: Amazon’s Next Move To Conquer The Fashion Retail Market). The Amazon-Nike partnership, if formalized, is likely to create a win-win situation for both companies. Amazon would get a stronger foot holding in the fashion retail segment. According to a recent Goldman survey, male millennials named Amazon as their favorite retailer in all segments except shoes and athletic, where Nike was the leader. Direct access to Amazon’s platform will give Nike a better engagement with millennials who already frequent the former’s platform for their retail needs. This can give Nike’s online business a boost and additional traffic to Amazon.

Higher Revenue, Reduction In Counterfeit Products

One of the key advantages for Nike to sell directly on Amazon’s platform is to reduce counterfeit products of its brand on the platform. Currently third party sellers bring Nike’s products to Amazon and the risk of these products being fake is high. Also, via Amazon, Nike will get access to millennials and experts estimate that this can result in a $300-$500 million in additional revenues.  Further, Nike will also get better control on how its products are displayed and sold on Amazon’s platform.  Nike has an ambitious goal of reaching $50 billion in revenues by 2020 and its e-commerce channel is likely to be a key factor contributing towards this goal. The company’s online sales are growing and in Q3 2017 the company’s digital commerce and new store expansion drove an 18% growth in its direct to customer channel. Nike expects to achieve about $7 billion in sales from its e-commerce channel by 2020 and its partnership with Amazon is likely to drive these revenues. Footwear is the most significant division for Nike which accounts for nearly 50% of its revenues. By 2020, we expect Nike’s revenues to reach $43 billion with footwear accounting for nearly $26 billion of these revenues.

The Amazon-Nike partnership appears to be a win-win for both companies. While Nike’s products are already available on Amazon, the risk of buying a fake product from a third party seller might be turning buyers away. With this risk no longer there, millennials would prefer to buy Nike products from their favorite retailer and this should drive revenues for both companies.

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