Nike-Amazon deal may hurt sporting goods retailers: analysts

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PHOTO: Nike (NKE)’s logo is seen in Los
Angeles

Thomson
Reuters


By Gayathree Ganesan

(Reuters) – 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 firm 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.

The sporting goods market is already 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 1
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 Inc.

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.

“The limited-edition market is store-driven,” said Maya
Mikhailov, cofounder of mobile retail app developer GPShopper.

“What makes limited edition so exciting is finding out about the
deals that stores have through their apps … going to the store,
and the consumer being a part of that whole in-store experience.”

(Additional reporting by Siddharth Cavale in Bengaluru; Editing
by Shounak Dasgupta)

Read the original article on Reuters. Copyright 2017. Follow Reuters on Twitter.



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