Nike Stops Selling on Amazon; Why That's Good for Investors

Nike (NYSE: NKE) has made a decision that every manufacturer faces. It has decided to remove its products from Amazon (NASDAQ: AMZN) to focus on building out its own distribution channels.

This ends a pilot program that began in 2017 by which the sneaker company let the online giant sell some of its clothing and shoe lineup. In exchange for access to that limited assortment of products, Amazon promised to do a better job policing the sale of counterfeit Nike items.

Now, the deal has ended right after the sneaker and athletic apparel company named former eBay CEO John Donahoe as its next CEO. His experience in selling to consumers may have influenced this decision.

An Amazon Prime truck

Nike will no longer be selling its products directly to Amazon. Image source: Amazon.

What is Nike doing?

Selling on Amazon has pluses and minuses for manufacturers. The major plus is, of course, the fact that Amazon has a huge base of customers. It also has access to consumers' preferences and a huge number of people searching for items -- Nike stuff included -- on its platform.

Some shoppers who heavily use Amazon are genuinely surprised when something they want isn't offered. In some cases, they might just buy something else if the online giant does not have their first choice.

Dealing with Amazon also means sharing revenue with the online retail giant. Perhaps equally important, doing business on the platform gives Amazon access to sales information and buying habits. Nike has been somewhat vague as to why it left.

"As part of Nike's focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail," a Nike spokeswoman told CNBC in an emailed statement. "We will continue to invest in strong, distinctive partnerships for Nike with other retailers and platforms to seamlessly serve our consumers globally."

Nike hasn't ruled out selling through other digital retailers. It already offers some of its shoes through its traditional shoe/sneaker store partners. The company is likely, however, to make more of an effort to have a direct relationship with consumers.

Is this good for Nike?

Nike sells a variety of products. It has some items that are wanted and fashionable but not limited-edition or low-stock. These items could continue to be sold through its website and in traditional retail channels.

The company's hotter releases could be sold at least partly through its website, maybe using auctions or subscriptions to drive prices higher and/or to lock in recurring revenue. People line up in front of stores to get access to some releases, and a strong secondary market exists.

Nike could capture extra revenue by being its own secondary market by allowing limited-edition sneakers to sell for what they're worth rather than a list price. Doing this would risk angering its existing brick-and-mortar partners, so the company would have to tread carefully.

In the long run, having a direct relationship with your customers can be a stronger asset than selling through third parties. Even capturing credit card info is a strong positive that makes it easier for the company to increase sales by marketing deals or special items to an already-registered user base.

Not having Amazon as a partner may hurt Nike for a little while. Eventually, however, if the company can build a direct customer base, it will be in a better position to move more product, sometimes at higher prices.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Nike. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2020 $39 calls on eBay. The Motley Fool has a disclosure policy.

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