Nike’s decision last week not to sell directly to Amazon sent shockwaves through the market. The move, part of Nike’s reimagining of its retail strategy, followed a two-year pilot program with the brand serving as a wholesaler to the online giant.
Analysts said the departure is part of a larger shift where direct-to-consumer brands are rethinking their business models and looking for ways to better engage with shoppers — online and with physical stores and activations. Some observers expect more brands to follow Nike’s lead.
And while Nike’s departure may give the sportswear brand more leverage in pricing as well as how it directly controls distribution, it will not eliminate third-party selling of Nike goods on Amazon. And while Nike ended the pilot program, the company still uses Amazon Web Services for its e-commerce and other cloud-related capabilities.
For other brands eyeing how Nike’s departure plays out, Tony King, an e-commerce expert and chief executive officer of King & Partners, described the move as “a great example of a brand prioritizing long-term brand strength ahead of short-term transactions.”
“Nike clearly understands the importance of an elevated consumer experience, and a direct relationship with their client — owning the relationship between brand and customer is the most important part of the retail equation,” King told WWD, adding that smaller brands can glean some insights from the split. “Obviously it helps that Nike has enormous demand, and it’s not hard to find their products on nike.com etc. — the customers will come to Nike. I do believe there are lessons to be learned here for smaller brands; I wish more brands would take a long-term approach to brand building and not just be thinking short-term sales.”
So what does it take to ween a brand off of Amazon? “Selling any brand through any third party leaks brand value. To me, it’s always been a stop-gap strategy to get some sales as you build the brand,” King explained. “Selling direct allows you to create a truly differentiated shopping experience. Most importantly, and quite obviously, you need to make sure your direct-to-consumer channels are running as perfectly as possible. Your site should be well merchandised with all of your products, the UX has to be flawless, the platform and integrations all working perfectly, and customer service and logistics have to be completely optimized and efficient.”
Jonathan Cherki, e-commerce expert and ceo of Contentsquare, said there are other consequences to consider when brands sell via online marketplaces.
“Marketplaces don’t afford brands the same level of control over the end-to-end customer experience as D2C sales,” Cherki told WWD. “By entrusting others to sell their products or services, businesses are not only settling for lower margins, they’re essentially giving away crucial customer intelligence they could be using to elevate and personalize the brand experience.”
Cherki said “when you’re competing on experience — as brands are today — owning the relationship with your customers so you can better meet their needs and expectations, and strengthen your community at the same time, is crucial.”
The ceo expects more brands to follow Nike’s lead. “Competing with major disruptors such as Amazon can be a daunting process, and yet we’re seeing a wave of new D2C brands that are doing exactly that,” Cherki said. “If you look at what many of these brands have in common, you’ll see a real focus on building authentic relationships with a customer base they truly understand, and at the same time innovating new retail models and ways of imagining the customer experience.”
Cherki added that it is “not only the Nikes of the world that have access to a sophisticated understanding of their audience and to the tools needed to create standout experiences. Today, anyone can leverage customer behavior to design meaningful experiences both online and off-line. And with customer journeys increasingly omnichannel, being able to connect touchpoints to deliver a consistent experience across channels is also key.”
To make it work, Cherki echoed King and said today, the “baseline expectation” is a seamless, digital customer experience. “So being able to ‘hear’ your customers’ digital feedback — ie. being able to read from their taps, swipes, clicks, hovers and scrolls what frustrates them and what delights them — is the first step,” Cherki said. “The next step is turning this digital feedback into the right business decisions.”
He said brands should consider keying into next-generation “behavioral metrics,” which include “attractiveness, engagement and exposure.” Doing so allows them to “measure their customers’ digital happiness in real-time to better meet their needs,” Cherki said.
But departing Amazon doesn’t guarantee having full control of a brand. The “problem with Amazon,” said Bruce Anderson, cofounder and director of strategic development at eEnfore, a division of Cyber Investigation Services LLC, is its third-party retail, or TPR, program.
“Through that program, virtually anyone can sign up to sell any product through the Amazon web site,” Anderson said in a report this week. “This program is highly lucrative for Amazon — in the second quarter of 2019, for example, over 50 percent of sales on the site came from its 10 million-plus army of TPRs.
“Unfortunately, the TPR population is rife with counterfeiters and unauthorized retailers who peddle products in the online marketplace at rock bottom prices [often far below a brand’s Minimum Advertised Pricing policy],” he noted.
Anderson explained that for brands to compete in an environment “where the seller offering the lowest price on a given product becomes the featured seller for that product [a process known as ‘winning the buy box’], brands and their authorized sellers must continually lower their own prices in order to garner sales.”
Over time, Anderson said this results in “massive price erosion and serious damage to a brand’s reputation.”
“By removing itself from direct sales on Amazon in favor of other online sales channels, Nike will undoubtedly regain pricing control over the products it sells,” Anderson explained. “It will not, however, do anything to stem the tide of unauthorized TPRs on Amazon. They will continue to obtain Nike products through illicit means and sell those products via Amazon at sub-MAP pricing. And, given that Amazon is the go-to web site for American shoppers, Nike may find that those consumers do not immediately follow the company to its new online venues.”
To stem this problem, Anderson said Nike needs to have a “zero-tolerance policy” with “rogue sellers” and then monitor unauthorized sale with the help of a solution provider. From there, these sellers can be identified, and then enforcement and legal steps can be taken. The work is investigative in nature, since the TPR program allows sellers to have “fictitious storefront names,” Anderson said, adding that enforcement teams are needed to uncover their identities.
“Once personal identities are obtained, the enforcement team — working hand in hand with the brand — can begin cease and desist efforts directly against the individuals who are causing the problem,” Anderson said. “If those demands don’t stop sellers in their tracks, then further legal action can be pursued against the sellers individually. Not surprisingly, not many TPRs want a legal battle against a monolith like Nike — thus, they tend to disappear quickly once this personalized pressure is applied.”
In regard to counterfeit goods in particular, Nike is the most knocked-off brand in the world, according to the Organisation for Economic Co-operation and Development. Raids by law enforcement officials occur regularly, and the most recent involving Nike was in October and involved the seizure of nearly 15,000 sneakers in Los Angeles worth more than $2 million.
Industry experts say the growth of counterfeit products has paralleled the growth of e-commerce itself. But there are technologies entering the market — including blockchain — which brands hope can help mitigate the production and distribution of fake goods.