The deal was regarded as a big win for both parties: Nike gained a better grip in regulating the sale of fakes from third-party sellers and official products bought wholesale by unlicensed distributors on Amazon. On the other end, the deal gave Amazon a sizable new source of revenue in the apparel and footwear market — a sector where the tech company was keen to expand its influence.
But last month, Nike announced that it was ending this agreement. For Nike, Amazon had not given the brand the control it sought — with Nike finding that it was losing out to unlicensed third-party distributors who would often benefit from superior reviews compared to Nike’s own listings.
Nike, instead, wants to focus on fostering its ongoing direct-to-consumer sales where possible — with a spokesperson explaining to media outlets that “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.”
Counterfeit goods on Amazon is an important issue. Almost 50 percent of all sales on Amazon come from third-party sellers, with more than 1 million new sellers joining the marketplace this year alone. Earlier this year the White House issued a trade memorandum that sought to protect U.S. brands against counterfeiting in online marketplaces like Amazon, eBay and Alibaba. According to the Counterfeit Report, more than 150,000 phony products have been identified on Amazon in the last seven years.
Amazon’s Transparency Program is a key weapon in the battle against counterfeits in the marketplace. The scheme attaches a barcode to a branded product to prove its authenticity, but it means that every product that the brand enrolls in the scheme, not just the ones that go through Amazon, must now be equipped with this code during manufacturing. For a company the size of Nike, this presents a huge logistical challenge.
This isn’t to say adhering to this scheme would be impossible for a brand with Nike’s resources. But it is an undertaking that has made the brand weigh up the value of being on Amazon — with Nike ultimately deciding it would pull away from the marketplace as it looks to take complete control of its brand. For a brand like Nike, the effectiveness of the transparency program is simply not worth the investment, as currently, the scheme is more effective for smaller brands with less inventory.
So who loses when one of the world’s biggest brands clashes with the world’s biggest marketplace?
It’s important to remember that Amazon is more than just a sales channel — it’s an invaluable research tool. Today around 79 percent of all consumers use Amazon as part of their purchase journey, so having access to Amazon as a data point offers brands and retailers insights into the purchase journey that is second-to-none. While Nike has the luxury of being able to invest time and money into compiling its own data, via loyalty schemes such as NikePlus, Amazon’s offering is excellent for companies who do not have the same resources.
Amazon provides invaluable data because it tells merchants what people want to buy. More than 66 percent of product searches now happen on Amazon — compared to only 20 percent on Google. The Storefront is constantly evolving to offer retailers new tools and insights into how shoppers are engaging with their brand and products. Brands can use these insights to drive traffic to Storefronts and upsell products — a technique that is hugely underutilized by brands.
Nike must also be conscious that, as they depart the marketplace, Amazon has already recruited third-party sellers with Nike products so that the merchandise is still available on the site. Now it has withdrawn its first-party presence, Nike has reduced its ability to control how its brand is being represented. Even if it wasn’t a profitable sales channel for the brand (many of Nike’s customers would use Amazon for research before purchasing directly from a Nike store), it is incredibly important to meet these customers with first-party, brand-centric information during their research phase — as research shows nine in 10 consumers use Amazon to check prices.
If Nike were able to separate its stock, selling luxury items like sneakers on its own sales channels and more functional product lines on Amazon, it would be able to maintain brand presence while directing customers to its own site. More practical items such as bags and accessories are less likely to be faked and would ensure that Nike still shows up in Amazon searches. This would allow Nike to leverage Amazon as an influence tool and reward customers for loyalty, as holding back higher ticket items gives them an incentive to shop with Nike directly.
No matter the size of your brand, Amazon remains an incredible vehicle for getting your product in front of audiences. The traffic alone speaks for itself — with more than 300 million active users on Amazon — and Nike is missing out on the opportunity to ensure its brand is represented correctly.
In truth, the biggest problem Nike faces is that it is Nike. A brand that is so globally popular and powerful will always face issues with third-party trade and counterfeiting. But by cutting Amazon out, Nike will miss out on being able to influence consumer perception when they browse for Nike products, whilst also losing a valuable first-party presence and the ability to garner the rich data and user insights from the platform. Nike has bypassed Amazon to bet on its own channels, it already has a loyal customer base and will no doubt invest efforts into creating tailor-made digital environments to cater to them.
Amazon is more than just a sales channel. And other brands, without a strong customer loyalty program, who think they can follow in Nike’s footsteps will learn this the hard way.
Kole Ogundipe is client strategy director at digital marketing solutions provider Croud.
Read more from WWD:
WATCH: Industry Leaders on What Makes a Fashion Brand Successful