What is the significance of Nike partnering with Amazon as an authorized retailer? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Bob Reisner, President & CEO at Nassau Business Funding & Services, Inc., on Quora:
Nike partnering with Amazon is yet another sign that, storefront retail as it has been traditionally known, is continuing on the road to collapse.
Oddly, it really started with WalMart but now continues with Amazon leading the way.
Once upon a time, product manufacturers (‘brands’) were king of the hill. Selection was limited, prices fixed and retail was small and widely dispersed. Manufacturer profits were large and retailers much less so. The rise of WalMart (and some similar companies) changed this. Massive purchasing power, equally massive distribution and massive retail presence changed the balance. Manufacturers/brands suddenly needed specific retailers like WalMart (and Target and Macy's, etc.) because they had locked up the consumer (or most of them).
It became a virtuous circle for WalMart. Low margin brought lower prices which brought consumers to the store. Consumers drove sales and volume, profits followed. Negotiations with manufacturers (or new knock off manufacturers) gained even lower costs for WalMart which brought lower prices which brought even more consumers… and on and on.
Manufacturers had only poor choices: continue to sell to declining traditional retailers, get into retail directly, or get with the WalMart program. And if you didn’t get with the WalMart program, another manufacturer would replace you — and likely permanently replace you in the WalMart channel.
Amazon is just the next WalMart. Amazon has mastered this new ‘internet’ retail distribution channel like WalMart did the ‘discount’ retail channel. Amazon’s combination of price, distribution, delivery and best of breed platform has gathered up a prime class of customer, and it’s implementing its own version of the virtuous circle. More and more activity is tied to the Amazon brand and experience rather than the manufacturer brand, and the Amazon virtuous circle is becoming more dominant on the Internet every day.
Nike & Amazon
Nike is just another manufacturer/brand. It has a name people trust and it makes a product. A product that has limited manufacturer owned retail (storefront and internet) and strong ties to a declining traditional storefront retail channel. Amazon has made enough inroads into a customer set that Nike needs that Nike has little choice. It needs its products in the Amazon world or it risks irrelevance.
If Nike is absent from the Amazon channel, it risks:
- Its customers losing interest.
- Its prospects just not ‘seeing’ the brand.
- Resellers and ‘gray’ product distorting the brand image and customer experience.
Like a lot of brands in the newer retail channels, Nike helps up lift the Amazon image. For a time. The long run is a transference of the Nike ‘good will’ to Amazon. Once Amazon becomes the dominant, or one of the dominant shoe channels, Nike becomes just another vendor that will/must do whatever it takes to stay in the channel and to move product.
Over time this means Nike will take actions to preserve margins and to meet the needs for lower prices on Amazon. Like less marketing expense, fewer skus, larger production runs, cutting quality corners, etc. Eventually it will also give up margin.
If Amazon/WalMart eventually account for 50% of USA retail sales (a distinct possibility knowing that WalMart is already at 25%), every brand will need to be in the WalMart/Amazon system to survive. Even the top tier brands like Nike.
We’ve seen this story a lot over the last thirty-plus years. It’s just that stronger companies ‘fall’ much later than the weaker more commodity like companies. It’s now time for Nike to begin the walk down the worn path of accommodating the big retailers.
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