For years, Nike products were sold by third parties on Amazon. Although all changed in 2017, it couldn’t last.
The problems were caused by Nike’s market power.
Nike Joins Amazon
Amazon wanted more than the Nike gray market goods they had been selling. Those were the sneakers, for example, that flooded the market after a bankrupt Sports Authority liquidated its inventory at bargain prices. The people who bought them could use a repackager and then sell them on Amazon.
Hoping to strike a deal, Amazon had been flying top execs to Nike’s HQ in Beaverton, Oregon. Then, in 2017 Nike said yes. It would give Amazon a try.
In return, Amazon let Nike create an identity on its site through its own page. The key perhaps though was the promise to prohibit anyone from selling what Nike offered. They said they would clamp down on the gray market. Meanwhile Nike never completely committed; it never sold its most coveted products on Amazon.
Nike Leaves Amazon
Within two years the negatives accumulated. Nike wanted more pricing power and control over the consumer. After all, on Amazon, you might buy a pair of sneakers and then some shampoo. On the Nike App or website, they could guide the consumer from one Nike product to another. Furthermore, they wanted more detailed sales data than they got from Amazon. And, the counterfeit and third party sellers were like a leaky dam. Plug one hole and others flooded the market.
Last month Nike announced they would no longer sell their products directly to consumers on Amazon.
Our Bottom Line: Nike’s Market Power
For an oligopoly like Nike, the “Everything Store” could not work. As a very large firm, an oligopoly competes against a small number of similar companies. Think Coke and Pepsi, Kellogg and General Mills, or yes, Nike and Adidas. They mass produce, they advertise to large audiences, they compete through product differentiation rather than discounting. Instead of the market, they have power over what they charge consumers and market entry and exit are difficult.
Usually on a competitive market continuum, the power of an oligopoly places it close to the monopoly end. However, on Amazon, Nike lost some power and moved to the left:
You can see how Amazon could diminish a big seller’s power and boost the little ones. And that is precisely what Nike wanted to avoid.
My sources and more: Yesterday’s walk was a pleasure (even in the rain) because of this podcast from The Journal on Nike. Then, if you want to read about the details, do take a look at Bloomberg and WSJ.
