Nike Tires of Counterfeiting on Amazon, ‘Achilles Heel’ Poses Threat to the Marketplace Business

JohnWallStreet

Nike, Inc. (NKE) has decided it will no longer sell shoes and apparel through Amazon (AMZN) after the online marketplace failed to curb the rampant counterfeiting and ‘gray-market’ sales (think: legitimate products acquired from a distributor or retailer and then resold) taking place on the platform. The Oregon based retailer plans to pull the limited inventory it offered on the site (think: predominantly down-market items) and instead sell the products through their own channels. Nike’s direct to consumer business generates +/- 30% of annual sales revenues.

Howie Long-Short: NPD Group senior industry advisor Matt Powell wasn’t surprised with Nike’s decision. He said, “[NPD] began to notice in early 2019 that the company’s sales on Amazon were slowing down. The theory was that Nike was either cutting back [on selling product through the platform] or was in the process of totally shutting [the partnership] down; and that’s what ended up happening.” Nike’s decision to end its relationship with Amazon shouldn’t have much of a financial impact on either company. The footwear and apparel provider wasn’t doing enough in merchandise sales on the platform for a decline to be felt.

After years of holding out for fear of brand dilution, Nike began selling products on Amazon in 2017; Bezos’ empire had promised the footwear and apparel giant that it would work to provide a more secure marketplace (i.e. crack down on counterfeit sales). But two years later, large retailers like Nike have regained little control (see: NKE remains “one of the top-selling brands on Amazon” and yet sells just a small portion of their catalog on the site). That’s because despite AMZN spending $400 million last year to police product listings, the number of unauthorized third-party resellers (and thus unauthorized products for sale) on the platform continues to grow (60% of merchandise sold via the online marketplace now originates from a 3rd party seller, up from just 30% a decade prior). Powell explained, “[Amazon] is literally adding hundreds of sellers every hour and to some extent it’s a whack-a-mole problem; they shut down one [counterfeiter] and ten more pop up right behind them. It’s a real issue and it’s very hard to control.”

Amazon isn’t particularly motivated to clean up its marketplace business because it brings in such a large percentage of corporate revenues (+/- 60%) and the more sellers and products available on the site, the more revenue the company generates, but Powell says the number of fake products being sold poses a long-term threat to the business. “Amazon has to find a way to clean up the counterfeiting because it’s like the wild west right now [in terms of buyers not knowing if the products they are purchasing are authentic]. In many ways, it is the company’s Achilles heel.” One can argue that the need for an authentication process is why resale sites like StockX and GOAT have found success.

Nike isn’t the first fashion brand to end its business relationship with Amazon and unless the company cleans up the counterfeiting problem it won’t be the last. Back in ’16, Birkenstock pulled its products from the site and issued a letter to their customers stating that Birkenstock products purchased on Amazon were likely to be counterfeit. Powell says that companies like NKE and Birkenstock “who have very robust direct to consumer businesses, are going to look very closely at [leaving Amazon too]. Every brand is constantly evaluating how much exposure is received on Amazon and if it’s worthwhile or not [to sell on the platform]. For companies popular with the consumer, that have a strong website, there may not be a need to; in the summer following Birkenstock's decision to drop Amazon, it was the most searched footwear brand in Google.

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