Business

Nike-Amazon deal could hurt retailers

Agreement could encourage more chains to close stores

(File photo) Amazon boxes in Cedar Rapids on Thursday, Dec. 29, 2016. (Photo Illustration by Liz Martin/The Gazette)
(File photo) Amazon boxes in Cedar Rapids on Thursday, Dec. 29, 2016. (Photo Illustration by Liz Martin/The Gazette)

Nike’s pilot program to sell certain products on Amazon and Instagram is a precursor to it forging a deeper relationship with online retailers, and could hit sales at sporting goods retailers such as Foot Locker Inc.

The deal — which is expected to help Nike Inc. weed out counterfeit products sold through unlicensed dealers online and give it more control over its distribution — lifted the company’s shares to a more than three-month high on Friday.

Nike’s move confirmed a June 21 report from Goldman Sachs that said the company would launch its products on the world’s largest online retailer.

Since then shares of sporting goods retailer have fallen — Foot Locker Inc. by nearly 2 percent, Hibbett Sports Inc by 6.8 percent and Big 5 Sporting Goods Inc by 5.3 percent.

“They’re all scrambling right now,” Judge Graham, chief marketing officer of market research company Ansira told Reuters.

“The decision of Nike considering to sell directly to the consumer and that too with Amazon, they’re all getting nervous.”

Sporting goods retailers, which rely on Nike for a substantial part of their wholesale revenue, would be hit further in case Nike’s partnership with Amazon expands beyond the current pilot program.

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The sporting goods market already is in deep trouble, with several retailers such as Sports Authority already filing for bankruptcy, and Nike’s deal could push existing retailers to shut more stores, analysts said.

Nike, whose products are already sold on Amazon through third-party and unlicensed dealers, could build an additional $300 million to $500 million of revenue in the United States or one percent of its global sales through its expansion as a dealer on Amazon, Goldman Sachs said in a client note.

But Nike still depends on the wholesale channel for two-thirds of its revenue and will be cautious about making any drastic shift to selling directly on Amazon, said John Zolidis, analyst at Quo Vadis Capital.

To strike a balance, Nike may unload more of its non-premium products on Amazon, while it will still launch exclusive deals with its brick-and-mortar partners, analysts said.

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