In the latest sign of Amazon's growing dominance, Nike will begin selling its shoes and athletic apparel on the online retail behemoth's site. 

Here's why and what happens next.

The back story

For years, Nike refused to sell its products directly on Amazon. As the Wall Street Journal explains, Nike has long believed that its powerhouse brand, one of the strongest and most recognizable in the world, meant it didn't have to sell through third-party distribution channels unless they agreed to Nike's demands.

These demands were designed, among other things, to allow Nike to maintain its pricing power and control the way its products were displayed to consumers.

When it came to Amazon, Nike executives were concerned that Amazon didn't give it enough control and the ecommerce giant's site didn't do its brand justice, so it didn't follow the lead of competitors like Adidas and Under Armour, which were more eager to tap into Amazon's platform to grow their online sales.

Interestingly, that hasn't stopped Nike products from becoming the most-purchased apparel brand on Amazon. How? Third-party sellers, which acquire Nike products through a variety of sources, including distributors, discount retailers and even Nike's own Nike.com.

Third parties are legally allowed to resell products that they purchase, and in the wake of the bankruptcy of brick-and-mortar retailer Sports Authority, which flooded the market with some $400m worth of liquidated merchandise including Nike products, third-party sales of Nike products on Amazon have boomed.

The deal

Frustrated with the third-party sales and Amazon's policing of counterfeits, and recognizing that the retail market has changed, Nike apparently concluded that the time was right to strike a deal with the online retail giant.

Under the agreement, Nike will sell a "small amount" of its products to Amazon. In exchange, Amazon will prevent third-party sellers from selling those products on its site. Already, Amazon has started informing third-party sellers that they have a limited time to sell their remaining stock of Nike products before the restrictions go into place.

According to a Wall Street Journal source, "the agreement is likely just the first step in a broader partnership, although Nike remains concerned about how its products will look on the site."

What's next?

While it remains to be seen just how smoothly the relationship between Amazon and Nike develops, it would appear that Nike's decision to relent and allow Amazon to sell its products is one that cannot realistically be reversed. This is meaningful for a number of reasons.

First, it is arguably a capitulation to Amazon on the part of one of the world's most iconic brands. If anyone needed more evidence of Amazon's ascendance, this is it. To repeat: one of the world's most powerful and valuable consumer brands, despite its long-standing concerns, felt it could no longer avoid giving in to Amazon.

Second, the Amazon-Nike deal demonstrates just how important third-party sales are to Amazon's business. Not only do they account for $6bn – a quarter – of the company's top line revenue, they are clearly a source of incredible leverage for Amazon. Here, the only apparent way for Nike to get Amazon to stop permitting third-party sellers from selling its products was to agree to sell its products to Amazon.

Finally, while the sports brand stands to profit from selling directly to Amazon, there is plenty of risk involved for Nike. After all, it's giving up a lot of control over the customer experience for the most prominent ecommerce channel and Amazon, which is itself creating private label apparel brands, will no doubt be looking closely at the data from Nike sales on its site.

While the Nike brand will no doubt remain one of the most valuable in the world for years to come, make no mistake about it: Nike's deal with Amazon marks a major turning point in the retail upheaval that is taking place.

Patricio Robles

Published 6 July, 2017 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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