Will Nike and Ikea's retreat from Amazon backfire?
Last week, Nike U-turned on its direct seller arrangement with Amazon to instead focus on “elevating consumer experiences through more direct, personal relationships”. It’s a surprise unravelling that has raised eyebrows, but just how much do brands stand to lose by turning their back on the world’s biggest retailer?
Nike has confirmed it will stop selling its trainers and clothing on Amazon, ending a pilot programme it began in 2017. The sports giant has previously accused the marketplace of failing to get a grip on the volume of counterfeits on its site, with concerns about potential brand damage being reported to have ultimately fuelled Nike’s nix.
"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,” said the business in a statement.
"We will continue to invest in strong, distinctive partnerships for Nike with other retailers and platforms to seamlessly serve our consumers globally.”
Meanwhile, Ikea recently revealed to The Drum that it had also backtracked on a direct seller pilot with Amazon. The flat-pack giant had been running a short trial around smart lightbulbs in the US – but chief digital officer Barbara Coppola has confirmed that the experiment is no longer operating.
Though the Swedish retailer has ambitions to double its global online sales to 10% in the next 12 months, Coppola said it was currently “not collaborating” with Amazon from a direct selling perspective but didn’t go into detail about why.
However, it’s understood the company remains open to working with third-party sellers in the future.
Relinquishing brand 'curation'
When it comes to Nike’s retreat, Maureen Hinton, retail research director at Global Data, says the move is a case of Nike wanting “complete control of its brand”.
However, Eric Heller, chief knowledge officer at WPP’s Amazon Centre of Excellence, tells The Drum that sneaker behemoth may not get what it’s looking for by cutting ties.
“[Things will get worse for Nike] by not being on Amazon,” he says, adding that while the platform likely wasn't perfect, Nike u-turning on its deal will only “exacerbate” its own challenges.
He points to Birkenstock – which stopped selling directly on Amazon three years ago – as a case study of what happens when brands remove themselves from the Amazon equation.
“Birkenstock is the best example of what will happen to Nike. A search on Amazon for Birkenstock Arizona – one type of shoe – shows 601 results. This is what happens on Amazon when you pull off.
“Amazon has no incentive to curate the brand and create an experience, [so] they let it go,” he adds.
For some brands, Heller points out, Amazon is used as a direct sales channel, for others, it’s a launch channel, and – crucially – for some, it’s an influence channel.
“One of the reasons I believe this will be a mistake for Nike is because it will cause the brand to lose its influence, as well as removing the ability to curate a brand that needs curation,” he explains.
“When there are 11 running shoes and a customer doesn’t don't know what to buy they will go with the one with the best reviews, information and reputation online.”
While Heller is critical of Nike’s decision, Birkenstock’s chief exec David Kahan is in support of the withdrawal, saying: “When the largest brand in the entire footwear business can’t find a way to make it work, it clearly makes a statement.”
Will others follow?
According to a May 2018 Adeptmind survey, nearly half (46.7%) of US internet users start product searches on Amazon compared with 34.6% who go to Google first. This, Heller argues, underscores how vital it is for brands to be present and curating their image on Amazon, regardless of the challenges it poses.
“The data is fairly incontrovertible: when you disengage with Amazon, the curation and impression of our brand on Amazon declines,” he states.
Amazon has been working hard to forge deeper, more direct sales relationships with advertisers in recent years, treating them like wholesalers and giving them control of their branding within its walls. The likes of L’Oréal have opened up their own storefronts on the platform, reaping the benefits of having a virtual sales counter on a platform that is set to account 13.7% of global retail sales by the end of 2019, with a 52.4% share of the US market.
However, on the back decisions taken by Nike and Ikea some analysts have suggested in spite of Amazon’s scale, more advertisers might turn away. Jefferies analyst Randy Konik is among them, saying that while Amazon has a delivery speed advantage, that advantage “has compressed”.
“With Nike leaving the Amazon platform… it strengthens our view that retailers/brands won’t be displaced by Amazon,” Konik predicts.
“The move shows us that strong brands realize that traffic driven to their own site (e.g. Nike.com) is self-sustaining, more profitable, and actually brand-enhancing, while traffic and incremental revenue from Amazon.com is less profitable but also less brand enhancing. We believe many strong apparel (and even non-apparel) brands will continue to avoid or curb their relationships with Amazon in the future.”
Echoing Konik is Larry Pluimer, a former Amazon exec who now runs Indigitous, a consultancy for brands selling on Amazon. He says Nike’s U-turn is a “huge setback” for Amazon.
“It may very well may influence other brands — or at minimum, eliminate Amazon’s trophy that it points to when recruiting other brands,” he says. ““This was the Jedi contract of the Amazon retail division.”
Heller disagrees, stressing that none of WPP’s clients that he’s spoke with since the news broke have suggested they are mulling a move from Amazon.
“Who do you think needs the other one more?,” he asks.
“Customers will still be able to buy Nike products on Amazon. Amazon will still be selling. And Nike will be thinking [about] how to maintain quality and perception on this vital channel. A lot of brands will watch this closely. What you'll see is that there's a higher quality and fidelity to the experience if you engage. And if you don't it just becomes a dog's breakfast.”
Additional reporting by Jen Faull