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Sporting Goods Retailers React: The Prospect of Nike on Amazon

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Sporting Goods Retailers React: The Prospect of Nike on Amazon PART 3 OF 3

How Would Nike’s Direct Sales on Amazon Impact Sportswear Retailers?

The impact of a Nike-Amazon partnership on sportswear

A direct partnership between Nike (NKE) and Amazon.com (AMZN)—that is, the sale of the former’s products directly on latter’s platform—would mean an increase in competition for brick-and-mortar sporting goods retailers.

Sportswear retailers Foot Locker (FL), Hibbett Sports (HIBB), Dick’s Sporting Goods (DKS), and Finish Line (FINL) sell products of major sportswear companies like Nike (NKE), Under Armour (UAA), and Adidas (ADDYY) at their physical or online stores. Sportswear retailers typically purchase large quantities of inventory from these companies, and while retailers get hefty margins, manufacturers benefit from steady manufacturing orders.

How Would Nike’s Direct Sales on Amazon Impact Sportswear Retailers?

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But direct sales on Amazon would improve Nike’s margins and sales comps while giving additional competition to stores such as Foot Locker, which rely heavily on Nike products. Notably, Nike accounts for 8.1% of Foot Locker’s sales and 2.9% of Dick’s revenues.

Goldman Sachs analyst Lindsay Drucker Mann stated: “We expect pressures on [brick-and-mortar] retail for the foreseeable future to result in pockets of inventory excess.”

Stock market impact after the news

The news of the potential partnership recently rocked sportswear retailers’ stocks. The share price of DKS plunged nearly 8% on June 21, touching an 18-month low, and closed at $38.05, down 3.8% from the previous day’s closing price.

Foot Locker traded at a near three-year low that day and closed $47.82, down 5%. Finish Line and Hibbett Sports plunged 4% and 6%, respectively.

Susquehanna analyst Sam Poser believes, however, that the fall in sportswear retailer stocks was an overreaction. The actual impact of Nike selling on Amazon would be less severe as the sportswear giant would prefer to protect its premium brands like Brand Jordan and might not end up overlapping them with retail store offerings.

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