According to a client note prepared by Goldman Sachs, Nike is close to finalizing plans to sell its products directly on Amazon without having to go through intermediaries. With the expectation that this would increase competition for the brick and mortar retailers of sporting goods, share of major sports chains sunk to 52-week lows on the news. Nike, on the other hand, emerged as top gainer among the Dow-listed stocks despite having recorded the worst performance among Dow stocks in the last three months.
“Taking this step would give Nike direct economic exposure to a large and fast growing distribution channel, while improving the brand presentation and expanding access to millennial shoppers,” Lindsay Drucker Mann, a Goldman Sachs analyst said.
Dealers and third parties
Currently, Nike products are already sold on Amazon though it is through unlicensed dealers and third parties. By selling directly on Amazon, Nike stands to benefit from extra revenues in the range of between $300 million and $500 million in the U.S. This is about 1% of the company’s global sales.
With the partnership the largest sportswear maker in the world would be placed in a position where it would be able to get rid of the excess inventory that is discounted and which is available from third-party sellers and instead sell full-price products via the online channel.
The Goldman Sachs report comes at a time when Nike is planning to cut 2% of its worldwide workforce as well as get rid of 25% of shoe styles as consumer trends change and competition intensifies. In North America, the growth of sales for Nike has slowed and this has been attributed to consumers doing more of their shopping online and less of it in brick and mortar stores according to the sportswear maker’s chief executive officer, Mark Parker.
Less square footage in stores
The outlook is not rosy especially since with brick and mortar retailers increasingly cutting back on the number of stores they operate, it means Nike products are enjoying less square footage. Nike’s goal in the next three years is to have its own stores and apps to generate revenues of approximately $16 billion.
Nike is, however, not the only sportswear-oriented firm that is rethinking strategy in the face of a changing environment. Following the filing of bankruptcy by Sports Authority which hurt Under Armour, the sportswear brand has resorted to inking an alternative deal with Kohl’s, through which it will now sell its products.