Swoosh!: Amazon Loses Nike

It's still two months before former eBay's boss John Donahoe takes charge of Nike Inc's (NYSE: NKE) boat, but significant alterations are already taking place.

Benzinga · 11/19/2019 15:30

It's still two months before former eBay's boss John Donahoe takes charge of Nike Inc's (NYSE: NKE) boat, but significant alterations are already taking place. And one significant change is that Nike products will no longer be available on no other than eBay's main competitor, the e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN). The e-commerce giant has had its fair share of ‘not-good' news this year that are threatening the company's growth, the one for which the company often sacrificed profits for.

Why

Nike offered only a vague explanation, saying it will focus on elevating its consumer experiences through more direct relationships. Obviously, the plus of being on Amazon is the platforms' huge base of customers, but the minus being shared revenues. Amazon's loyal (and Prime) members are often surprised if there is something they cannot find on the platform and this will be the case with Nike. But what can happen is that they opt for something else that is offered on the platform which could hurt Nike but the company didn't rule out selling through other digital retailers. But in the long run, investing in a direct relationship with your customers can indeed become a strong asset.

Only by capturing credit info, the company can then tailor marketing deals, special promotional and items more easily as it already has a registered base. So even though that in the short run, this decision could harm Nike's revenues, if the company manages to deepen the relationship with its customers, it can improve both its top and bottom lines as this would also place the ‘more-than-just sneakers manufacturer' in a better position to move more products at even higher prices. This is why enhancing the relationship with customers has great odds of becoming a win-win strategy.

Amazon Is Facing All Kinds Of Pressure

Nike's decision is only an additional headache for Amazon which is facing already quite a bit of pressure. To begin with the antitrust regulatory pressure from the EU and US, its employees forcing the company to a climate pledge and the most painful of all, losing the Pentagon $10 billion deal to Microsoft Corporation (NASDAQ: MSFT). Cloud business is at heart of Microsoft's bright prospects as the company's stock has literally undergone a renaissance with its CEO Satya Nadella.

Due to privacy concerns raised by EU's data protection authorities, Microsoft announced changes to commercial cloud contracts. But Amazon is not giving up that easily. Besides publishing an appeal on Microsoft's win to BBC, quoting deficiencies, unmistakable bias and errors in the JEDI evaluation process, the e-commerce platform offered its users to listen to its free music service outside of Amazon Echo, including iPhones, Androids and Fire TV. This move has caused Spotify Technology (NYSE: SPOT)'s shares to drop 4.9% on Monday and it will surely impact its winning streak as the company outperformed third quarter earnings estimates and announced last month that the number of premium subscribers rose 26 million in the past year and reached 113 million at the end of September.

But there's also Apple Inc (NASDAQ: AAPL) Music to be aware of as we need to wait and see will the company offer bundles of its music, news and TV offerings. And there's TikTok's owner Byte Dance who is also supposedly in negotiations with global music labels and its product could severely undercut both Apple and Spotify. So luckily for Amazon, its business models is well diversified- and what got it this far.

But it is pressured by its competitors, one of the main being Walmart Inc (NYSE: WMT) which also just introduced delivery perks to up the ante for its customers with Amazon's new grocery chain that is slowly but surely taking shape. With its Fresh service being offered free-of-charge to its US Prime members, Amazon even made grocery shopping easier by combining AmazonFresh and WholeFoods market.

Outlook

Maybe Amazon is not a ‘smashing success story' but the impressive size of its infrastructure makes up for its thin margins as the e-platform serves about half of US' e-commerce market, according to eMarketer. Acquiring Whole Foods was clearly a jackpot but the question posed is whether the e-commerce giant is running out of ways to cost-effectively expand? The company's shares are up more than 1800% over the past decade but if history has taught us anything, it is that nothing lasts forever.

There is still room to grow, both vertically and horizontally, but it will no longer be as cheap nor easy. One day-shipping strategy entailed more costs than the resulting benefits as global shipping costs rose 46% with last quarter's top line expanding 24%. AWS is also seeing a slowdown revenue growth as competitors are stepping up their game.

There is no ‘alarm bell' just yet, but starting with Nike, all these hints that are pointing in the same direction. There is definitely a concern on the radar for Amazon as its profit in the most recent quarter declined for the first time in the last two years for a reason.

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