While shares of the world’s largest sportswear company, Nike Inc. (NKE), spiked earlier this year on its new partnership with global e-commerce giant Amazon.com Inc. (AMZN), one team of analysts warns investors that the positive impact of the new deal on Nike’s sales could be limited.
U.S.-based footwear and apparel makers including Nike and its competitor, Baltimore-based Under Armour Inc. (UAA), have struggled this year on a disrupted brick-and-mortar retail space and a resurgence of German rivals Adidas AG (ADDYY) and Puma SE (PPMAF). As Amazon fears dominate Street sentiment, news such as Nike’s direct-to-consumer deal with the online retailer have provided a boost to companies currently being let down by their traditional retail partners. This week, Nike distributor Finish Line Inc. (FINL) tanked 20% on reduced profit forecasts in FY18. (See also: Nike, Under Armour Shares Slip on Adidas Pressure.)
Amazon Needs Better Products
“Probably the greatest false impression is that this deal will be incremental to both businesses,” wrote NPD analyst Matt Powell in a blog post Wednesday. “Nothing could be further from the truth.”
The NPD analyst suggest that Nike was already a best-seller on the Seattle-based retailer’s platform given that third-party merchants already sold its products there. Further, as the deal is being considered a “pilot program,” Nike is expected to hold back on its “premium" products and only provide Amazon with a limited assortment of styles, as it now does with Amazon-owned shoe specialist Zappos.
“To truly be a force in athletic footwear, Amazon must improve its experience and convince brands to give them better product,” wrote Powell, suggesting that retailers such as Foot Locker Inc. (FL) and Dick’s Sporting Goods Inc. (DKS), who sell Nike’s premium products, shouldn’t sweat the AMZN deal too much. (See also: Nike Soars on Strong Quarter, Amazon Partnership.)