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Nike Inc (NKE) Stock Isn’t a Buy With an Amazon Partnership, But…

James Brumley

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

How does the old saying go? If you can’t beat ’em, join em? If the rumors are true, that’s what athletic apparel giant Nike Inc (NYSE:NKE) finally appears ready to do, reportedly on the cusp of adding e-commerce icon Amazon.com, Inc. (NASDAQ:AMZN) to its list of selling venues. And NKE stock was up on the news, of course, gaining a little more than a full percentage point on an otherwise lethargic day for the market.

Source: Kristian Olsen Via Unsplash

While the organization has managed to continue growing its top and bottom lines in an environment that’s been anything but easy for anyone involved in the retail trade, even Nike hasn’t been thriving.

Tapping into the marketing reach Amazon brings to the table could fan Nike’s growth flames again.

Only Upside

Don’t etch it in stone just yet, as it’s only a possibility at this time. But it’s a credible possibility, in that it came from Goldman Sachs.

Analyst Lindsay Drucker Mann noted the premise to Goldman clients this morning, explaining:

“Taking this step would give NKE direct economic exposure to a large and fast growing distribution channel, while improving the brand presentation and expanding access to Millennial shoppers. NKE’s move could inspire other wholesale brands, many of which have so far resisted a partnership with amazon.com, to directly engage.”

Mann is undoubtedly right. Nike already has to compete with itself, as some of its vendors and dealers already sell Nike-made goods at the popular online-shopping destination. If-and-when the company moves forward with the suggested plan, it becomes its own wholesaler and should enjoy nice margins.

There’s sure to be a ripple effect, not the least of which is alienation of its existing vendors.

Although Nike already competes with them by facilitating online sales through its own website, that was a nominal threat to this brick-and-mortar partners. Owners of NKE stock can take some solace in the fact that rival Under Armour Inc (NYSE:UAA) has been selling through Amazon.com for some time now. While its retail partners couldn’t have been thrilled with the added competition, none revolted.

To that end, Mann believes a presence at Amazon.com could add between $300 million and $500 million worth of additional, annual U.S. revenue. That’s roughly 1% of its yearly global sales.

Losers

Although Nike and Amazon are the clear winner if a partnership materializes, there are losers too.

Shares of footwear retailers Dick’s Sporting Goods Inc (NYSE:DKS) and Foot Locker, Inc. (NYSE:FL) were both down today in the wake of the news. A lot. FL was off 6.2% by mid-day, and DKS was down 5.3%, with shareholders of both companies concerned about the adverse impact Nike’s Amazon store could have on their businesses.



Mann explained, “We expect pressures on bricks and mortar retail for the foreseeable future to result in pockets of inventory excess.” That excess was in reference to the inventory backup Foot Locker and Dick’s might suffer as consumers find alternative means of buying the brand’ athletic apparel.

Even so, the scope of the panic surrounding Foot Locker and Dicks Sporting Goods shares today may be overblown. Nike’s involvement with Amazon could help eliminate sales of discounted and unlicensed branded goods that also hurt its retailing partners, and simultaneously serve as free advertising of items that ultimately send consumers to stores to physically try on shoes or apparel before making a purchase.

Looking Ahead for NKE Stock

Although the news has managed to make more than its fair share of headlines today, as well as rattle Foot Locker and Dicks shareholders, there’s more bark than bite to Goldman’s suggestion.

That’s not to say it’s irrelevant news. It is noteworthy, perhaps laying the groundwork for something bigger down the road. Amazon.com is a curious venue though. Outside of consumables, it offers a little of everything, but doesn’t necessarily sell a lot of any one thing.

Add in the fact that many shoppers looking for apparel don’t quite know what they want to buy when they begin to look either. Amazon doesn’t really provide an easy “browsing” experience, and the myriad of sizes and colors and styles Nike would be selling at Amazon.com could make it overwhelming for most casual consumers. Never even mind the fact that there’s no way to “try on” clothes purchased online. Some will respond to the added shopping option, though they won’t respond in droves.

Mark it down as interesting, though not necessarily a hardcore bullish development for NKE stock.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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