Would you get into bed with Amazon? That is a question that many brands have been obsessing about over lately as the titan of e-commerce is building even bigger market share in the US market  as well as globally. This June, Nike has decided to give it a try and run a pilot offering select products on Amazon.com .
This partnership appears at the same time as the new Nike consumer direct offense strategy. The tag line “A FASTER PIPELINE TO SERVE CONSUMERS PERSONALLY, AT SCALE”  presents the three key elements of this strategy (also known as the “triple double” strategy):
- “2X Innovation: To double the cadence and impact of innovation, the Company will lead with more distinct platforms and scale innovation faster, will edit-to-amplify to give consumers better choices and will create new aesthetics spanning both sport and style;
- 2X Speed: To double speed to market by reducing the average product creation timeline by over 50 percent through investments in end-to-end digital capabilities to serve consumers faster; and
- 2X Direct: To double direct connections with consumers and shape the future of retail led by Nike.com and all new owned and partnered NIKE Consumer Experiences.” 
While the partnership with Amazon offers potential benefits to Nike on multiple fronts, it seems to be (partially) in conflict with “2x Direct” since it creates strong digital channel other than Nike’s own platform and therefore potentially dilutes direct (online) sales for Nike.
The situation showcases the issue many brands are facing as Amazon continues to grow. Estimates show that Amazon will reach 50% market share of US e-commerce by 2021 . While many brands, especially the larger ones, would prefer to sell their products through their own platforms to gain better control over the customer experience throughout the entire value chain (including the supply chain), develop ownership of the customer relationship and maintain better margin, Amazon is becoming too large to ignore even for these mega-brands.
Goldman Sachs’ believes that Nike could add between $300 million to $500 million of revenue in the United States  due to the partnership with Amazon. However, the same partnership creates significant risks for Nike. The shorter-term risks are related to distortions to current (retail) supply chain that is already under a lot of stress , as well as cannibalization of own online sales that Nike is trying to drive through its “2x direct” strategy. The longer-term risks are both the behavior of Amazon as a business partners, especially as the sales on Amazon grow, as well as consequences of the own sales cannibalization.
Amazon is incentivized to be collaborative partner to Nike in the shorter run, as it is looking to acquire more premium partners for its platform. For example, one of the building blocks of the partnership is Amazon’s help to rid its platform of Nike counterfeits that might be negatively affecting the Nike brand. The key question is though how this partnership will evolve over time as Amazon sales potentially become important to overall Nike’s performance and other, similar brands become available through Amazon as well. Some of Nike’s key competitors, such as Under Armor, are already present on the platform .
Additional risks stem from lack of learning about own customer that are shopping through Amazon, instead of Nike.com. Selling products on its own platform allows Nike to distill learning about customer preference and customer behaviors, which is not the case with purchases carried out through Amazon. The distilled learning in turn allows Nike to better design products and optimize customer journeys. Therefore, lack of learning can result in downward spiral of direct online sales.
Nike will therefore have to work very carefully to maintain balance of power with Amazon and attempt to drive their customers towards their own, direct platform.
My two recommendations to the management would be along the lines of clear product / line differentiation and creation integrated customer experience:
- Create clear product line separation and allocate lines to different channels to drive specific customer behaviors in each channel, e.g. by allowing sale of premium products only in select channels
- Create omni-channel customer experience tied back to Nike.com to attract customers to the own platform despite purchasing in other channels (e.g. Amazon), e.g. by offering discounted cross-sell deals
There are many open questions related to the collaboration, e.g.:
- How is the Nike-Amazon partnership consistent with the direct-to-consumer part of the triple double strategy?
- What will be the long-term impact of the collaboration on the Nike brand? Will it be positive or will it destroy the brand?
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1 Wahba, Phil. “Amazon Will Make Up 50% of All U.S. E-Commerce by 2021.” Fortune, April 10, 2017. http://fortune.com/2017/04/10/amazon-retail/ , accessed November 2017.
2 Soper, Spencer. “Amazon Will Sell Nike Shoes Directly Through Brand Registry.” Bloomberg Technology, June 21, 2017. https://www.bloomberg.com/news/articles/2017-06-21/amazon-said-to-sell-nike-shoes-directly-through-brand-registry , accessed November 2017.
3 Nike Inc. “NIKE, INC. ANNOUNCES NEW CONSUMER DIRECT OFFENSE: A FASTER PIPELINE TO SERVE CONSUMERS PERSONALLY, AT SCALE” press release, June 15, 2017. Nike website, https://news.nike.com/news/nike-consumer-direct-offense, accessed November 2017.
4 Nike Inc. “NIKE, INC. IS ACCELERATING A CONSUMER-LED TRANSFORMATION TO IGNITE ITS NEXT PHASE OF LONG-TERM GROWTH” press release, October 25, 2017. Nike website, https://news.nike.com/news/nike-inc-is-accelerating-a-consumer-led-transformation-to-ignite-its-next-phase-of-long-term-growth, accessed November 2017.
5 Ganesan, Gayathree. “Nike close to selling directly on Amazon: Goldman Sachs.” Reuters, June 21, 2017. http://www.reuters.com/article/us-nike-strategy-amazon-com/nike-close-to-selling-directly-on-amazon-goldman-sachs-idUSKBN19C21C?il=0 , accessed November 2017.
6 Ganesan, Gayathree. “Nike-Amazon deal may hurt sporting goods retailers: analysts.” Reuters. June 30, 2017. https://www.reuters.com/article/us-nike-amazon-com/nike-amazon-deal-may-hurt-sporting-goods-retailers-analysts-idUSKBN19L2LO , accessed November 2017.
7 Amazon.com . https://www.amazon.com/Under-Armour/b?ie=UTF8&node=2602933011 , accessed November 2017.