Nike Inc.'s decision to end its direct sales relationship with Amazon.com Inc. could lead other popular retailers to call it quits with the e-commerce company in 2020 and beyond, analysts say.

The Beaverton, Ore.-based maker of athletic apparel and footwear announced in November 2019 that it would no longer sell its products directly for sale to Amazon.com, ending a two-year pilot program in a move that Nike says allows it to instead focus on "strong, distinctive partnerships" with other retailers.

While experts do not expect a mass exodus of brands leaving Amazon, they believe powerful status companies like Nike may consider walking away to avoid diluting their brand amid a sea of fake goods that can be found on Amazon's online platform and pursue sales through their own digital channels.

"Just by virtue of the fact that Nike has made this decision, it will at least cause a lot of brands to give a second look or reevaluate," said Andrew Lipsman, a principal analyst with eMarketer, in an interview.

Nike's iconic swoosh logo is synonymous with the brand's identity. The athletic company ended a two-year direct sales relationship with Amazon. Source: Nike

Amazon declined to comment for this story. But Nike is not the first big brand to leave the company.

German shoemaker Birkenstock announced in 2017 that it ended its business relationship with a European subsidiary of Amazon, alleging that counterfeit Birkenstock products are sold on its platform in Europe. Other luxury goods companies, such as LVMH Moët Hennessy - Louis Vuitton Société Européenne, have steered clear of a direct relationship with Amazon and opted to pursue their own digital e-commerce strategies.

But the loss of Nike is particularly significant given the athletic shoe company's strong brand reputation, said Larry Pluimer, a former Amazon executive who is now CEO of Indigitous, a Seattle-based agency that helps companies boost sales on Amazon, in an interview.

"I think it's a blow to Amazon in terms of their ability to recruit those brands because people see that Nike walked away, so that must mean something bad," said Pluimer, whose previous job with Amazon was to convince outdoor category brands to partner with Amazon's retail division. "The biggest impact could be inside the walls of Amazon to figure out 'what did we do wrong? We lost this account.'"

A "counter" fit

In 2017, Nike announced a pilot partnership with Amazon to offer a small assortment of footwear, apparel and accessories. It was a move by Nike to help it gain control over its brand with the online platform, where hundreds of counterfeit Nike products are marketed in addition to legitimate Nike goods advertised by third-party sellers, analysts say.

"It was sort of thought of as a test," said David Swartz, a Morningstar analyst who covers Nike, in an interview. "They were hesitant to get involved with Amazon at all for many years, and the reason that they did is they hoped Amazon would take action to prevent third-party sellers and unauthorized sellers from selling Nike stuff and that Amazon would combat the large amount of counterfeit that is sold online."

But Swartz said Nike realized that its partnership with Amazon was inconsequential to the retailer's overall sales strategy and that neither Nike nor Amazon were effectively stopping sales of counterfeit Nike goods.

Analysts say Nike is particularly sensitive about counterfeiting issues as the popular brand is often copied by bad actors that want to capitalize on popular Nike shoes such Air Jordans, which can cost more than $200 for a legitimate pair.

"Even when unauthorized sellers would be taken off the site, they would come back under some new name very quickly, so it became a game of whack-a-mole to stop them," Swartz said.

Nike is now working to strengthen partnerships with leading retailers such Foot Locker Inc., DICK'S Sporting Goods Inc. and Nordstrom Inc., a luxury department store where Nike operates its own shops with its own salespeople, Swartz said.

"If you go into a Foot Locker or Finish Line, Nike is front and center," Swartz said. "The retailers that Nike is doing business with are ones that will make Nike a top priority and promote the brand. It's different from what you see on Amazon, which is often basketball shoes from three years ago at a discount. That is not exactly putting Nike in the best light."

Nike is also developing its own retail concepts in-house. In 2018, Nike opened sprawling "House of Innovation" flagship stores on Fifth Avenue in New York City and in the Nanjing East Road shopping district in Shanghai. At these stores, consumers can instantly shop in-store displays, customize their own shoes and receive private in-store styling sessions.

Swartz said Nike is selecting large markets for these stores to market futuristic retail offerings. "They are trying to show people that there's a reason to go to an actual Nike store and not just buy online and also not buy Nikes at your local Kohl's," he said.

Nike did not respond to inquiries for this story. But company CEO and President Mark Parker weighed in on the company's decision to end the partnership with Amazon on a Dec. 19 conference call, stating that providing Nike customers with an authentic experience is key to the company's brand strategy.

"And this means ensuring that we have an environment where the consumer can be certain that they're buying authentic Nike product[s] from authorized retailers," said Parker, who will resign in January and be replaced by new CEO John Donahoe, former CEO of eBay Inc., who is expected to prioritize Nike's digital capabilities.

Amazon did not immediately respond to inquiries about counterfeit issues, but its website says that the company strictly prohibits the sale of counterfeit items.

Amazon also launched an anti-counterfeit program in early 2019 that allows brands to remove counterfeit listings themselves. The company says it now has more than 200,000 brands enrolled in its "brand registry," which helps brands identify fakes.

Despite this, Amazon does not have a great incentive to stop third-party sellers, which account for more than 50% of the company's total unit sales, from selling Nike goods or unauthorized sellers from selling counterfeit Nike shoes, Swartz said.

"Amazon likes its partnerships with companies like Nike, but they also like their partnership with some guy who is selling shoes out of his backyard shed," he said. "Amazon makes money on that guy too."

Steady revenue growth

Nike's breakup with Amazon is also part of the company's larger retail strategy to better distinguish itself from competitors such as adidas AG and Under Armour Inc. at a time when the company is registering revenue and profit growth.

Nike, whose other brands include Converse and action sports apparel brand Hurley, generated $39.12 billion in revenue during its fiscal year ending May 31, 2019, up 7.5% from the previous year. It posted sales of $32.38 billion for the fiscal year ending May 31, 2016.

Nike’s digital commerce sales derived from its digital commerce platforms, including apps, reached $3.8 billion for fiscal 2019, more than double $1.7 billion in fiscal 2016.

In December 2019, Nike reported double-digit growth in its fiscal 2020 second-quarter earnings, beating analysts estimates for EPS.

During the Dec. 19 call, Parker also noted that its Nike SNKRS app, which is dedicated to collectors of Nike shoes, as well as the NIKE app "now make up over 1/3 of our digital revenue." For the quarter, the SNKRS app grew in the "strong double digits" while the NIKE app "more than doubled," he said.

Sticking with Amazon

While higher-end brands may question a relationship with Amazon, smaller to medium-size brands that sell everyday goods will likely continue selling products on the global platform where millions of customers shop and compare prices, analysts say.

"Amazon's reach and capabilities very hard to compete with," said R.J. Hottovy, a Morningstar analyst who covers Amazon. "There's a lot of traffic coming to it so it's hard to argue with that preference."

Stephen Beck, managing partner of cg42 management consultant agency in New York, added in an interview that while retailers have to be wary of a relationship with the online retailer, they also benefit from the power of what Amazon has produced.

"I think it comes down to a bit of 'where do you play?'" he said. "It's about how you want people to experience what you offer."