Nike announced this week that they will be withdrawing from their two-year pilot trial with Amazon to take full control of their own D2C selling strategy. They will also simultaneously be placing some of their wholesale agreements with third party retailers ‘under review’ as they seek to take greater control of their global product distribution.
On the face of it this news would appear to counter to the logic of the new multichannel retail world with Amazon now accounting for 37.7% of all online sales in the US market, and 51.6% in the UK. The logic followed that Amazon was too big to commercially ignore and brands could not realistically prosper without being listed on this key global online retail platform.
Whilst Amazon offers both massive scale and audience reach in virtually every market they operate in, there is clearly a growing concern amongst established brands that ultimately these clear benefits no longer outweigh the longer-term threat to their business model.
As D2C sales become increasingly important, as the online market continually grows and generational buying habits migrate towards direct buying, Nike have signalled that they would rather now standalone and dictate their own pricing and service business model than be listed on Amazon.
Amazon clearly offers volume sales for almost any product brand but there are two material trading caveats that are becoming increasingly troubling in the changing multichannel retail world: Amazon set their retail pricing dynamically using their own algorithm which often undercuts both direct and indirect competition, and Amazon own all the customer data for all transactions on their platform for the purposes of remarketing. As D2C online selling is forecast to become 30% of all retail sales by 2030 these trading factors are now becoming under increasing scrutiny and concern.
Nike are pursuing an aligned global strategy looking ahead, by growing both their own branded store presence and by taking full control of their D2C marketing. They are setting an industry precedent that may precipitate a fundamental change of thinking about how other brands deal with Amazon in the decade ahead.
Looking into the decade of the 2020’s the key fundamental question for brands is how with they deal with the growing dominance of Amazon and its inherent trading implications. Ultimately the choice is binary – adopt a standalone D2C strategy as Nike have, to enable control of their retail pricing, customer service and profits, or continue to trade with Amazon, thus sacrificing control but maintaining global reach and scale through this goliath online department store.