Why Analysts Say You Shouldn’t Get ‘Too Excited’ About the Nike-Amazon Partnership

After producing a fourth-quarter earnings beat after the market close Thursday, Nike Inc. confirmed that a partnership with e-tail giant Amazon is indeed in play.

During a conference call with investors, Nike president, chairman and CEO Mark Parker said that the firm is executing a new pilot program with Amazon in the U.S. to offer “a limited Nike product assortment.”

As we do with all of our partners, we’re looking for ways to improve the Nike consumer experience on Amazon by elevating the way the brand is presented and increasing the quality of product storytelling,” Parker explained. “We’re in the early stages, but we really look forward to evaluating the results of the pilot.”

The confirmation from Nike’s chief comes days after a Goldman Sachs client note, distributed by analyst Lindsay Drucker Mann, suggested that Nike was moving closer to formally selling its wares on the website. Drucker Mann had said that such a move could boost Nike’s revenue in the U.S. by $300 million to $500 million, or 1 percent of its global sales.

The news sent athletic retail stocks tumbling as investors and some analysts expressed concern that Nike would give powerhouse Amazon access to some of its most premium products at the expense of other retail partners. As has been the case for much of the past few months, headlines about Amazon’s growing dominion abounded — drawing both criticism and praise surrounding Amazon’s influence and the future of retail and big-name brands such as Nike.

But now that Nike has provided more color on the partnership, some market watchers say it’s not — at least initially — as groundbreaking as some had anticipated.

Big potential … but don’t get too excited just yet,” Susquehanna Financial LLLP analyst Sam Poser wrote today, noting Nike’s emphasis on offering only a limited product assortment on Amazon and focusing more on elevating the brand’s customer experience on the site.

He added, “No details were provided with regards to actual terms of the deal, including whether or not Amazon would remove unauthorized third-party Nike listings … We continue to believe a full-scale deal would have to include the removal of third-party Nike listings given how protective Nike is over its brand.

What’s more, “since Nike is only dipping its toe into the water,” Poser warns, “the removal of unauthorized resellers may not be a part of the deal.”

Further, given Amazon’s “reputation as a transactional retailer with no interest in brand building,” Poser said he has doubts whether Amazon will ever agree to the removal of unauthorized third-party Nike sales from the site. (However, The Wall Street Journal this week reported that in exchange for selling directly on Amazon, Nike won concessions from the to site rein in counterfeits and restrict unauthorized sales.)

Canaccord Genuity Inc. analyst Camilo Lyon said he doesn’t believe the Nike-Amazon launch — which he described as being “on a small scale” — will impact the brand’s premium distribution partners.

Nike’s intent is to elevate its brand presentation and storytelling across all channels, and we suspect Amazon will replace the distribution that does not do just that,” Lyon wrote. “Overall, we remain of the opinion that this partnership does not pose a threat to premium distribution, such as Foot Locker or Dick’s Sporting Goods.”

Meanwhile, Poser notes, that if the Nike-Amazon deal does develop into a larger partnership, there could be a “significant sales opportunity.”

However, there are significant risks involved,” he added. “Amazon would be the only customer that Nike wouldn’t have significant leverage over, given Amazon is three times larger than Nike from a sales perspective. So if Nike ever felt that Amazon was not presenting its brand properly, Nike would have very little ability to apply pressure in order to force Amazon to improve presentation.”

During Nike’s conference call, Andrew Campion, EVP and CFO, also provided the firm’s outlook for fiscal year ’18.

For the full year, the company expects to deliver currency-neutral revenue growth in the mid- to high-single-digit range. Reported revenue is expected to grow in the mid-single digits. SG&A is forecast to grow in the mid-single-digit range, inclusive of costs related to the brand’s recently announced Consumer Direct Offense realignment.

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