Nike Deal Strengthens Fogdog's IPO Bid

Nike, which had previously prevented online-only retailers from selling its products, announced yesterday that it has changed its stance. Beginning with the 1999 holiday season, online sporting goods retailer Fogdog Sports will offer Nike products to its customers as part of a strategic relationship with the shoe giant.

According to Nike, Fogdog will receive benefits that are similar to those provided to Nike's key brick-and-mortar retail accounts. In addition, for a limited time, Fogdog will be the only online-only retailer that will be allowed to sell Nike products.

"I believe all brands in our industry need to embrace this (e-commerce) channel to allow the consumer to make a choice in their preferred shopping method," said Philip Knight, chairman and CEO of Nike. "The business principle 'innovate or die' has never been more applicable to commerce than it is in today's online environment. This is just a first step in an evolving strategy to take an aggressive leadership position in this exciting new medium."

Nike is being compensated handsomely for its e-commerce about-face. Under the terms of the deal with Fogdog, Nike will be able to purchase more than six million shares of Fogdog stock at about $1 (US$) per share. This investment will give Nike an equity stake of more than 12 percent in Fogdog. Fogdog has filed for an initial public offering to raise $60 million. Specific terms about share price and the number of shares that will be offered were not disclosed.

Nike Will Keep Investing in Nike.com

Nike does not seem to be concerned about the partnership with Fogdog cannibalizing its brick-and-mortar business or affecting Nike.com. Nike says it will continue to invest in and add content to its own Web site.

"The Fogdog partnership should be viewed as another important distribution channel -- not as a replacement for Nike.com or brick-and-mortar stores," said Mary Kate Buckley, vice president and general manager of Nike.com.

About Fogdog

Fogdog offers more than 60,000 items in a variety of sports categories. The company sells products from leading manufacturers such as Callaway, Mizuno, Rawlings, Easton and Wilson. In addition to sporting goods, the company sells outdoor products and memorabilia.

According to Forrester Research, U.S. consumers will spend $4.2 billion for online sporting goods in 2004. An unanswered question, however, is whether buyers will be willing to purchase athletic footwear without trying the shoes on.

Stock Impact

Shares of Nike climbed nearly five percent on Monday, gaining 2-9/16 to 56-3/8 after the news was announced. Considering that its stake in Fogdog should easily be worth tens of millions when the online retailer goes public, Nike has just added some value to its stock.