The $390 billion U.S. fashion market has proved a tough nut to crack for Jeff Bezos and Amazon, not ... [+] for want of trying. (Photo by Kevin Mazur/MG19/Getty Images for The Met Museum/Vogue)
Getty Images for The Met Museum/Vogue
The $390 billion U.S. fashion market has proved a tough nut to crack for Jeff Bezos and Amazon, not for want of trying. Back in 2006 when Amazon acquired Shopbop (followed by Zappos in 2009), part of the thinking was that they could impart some insider secrets about successfully navigating the online fashion business.
Since then, however, both Shopbop and Zappos have operated as independent subsidiaries. In addition to its own website, Shopbop has a separate Shop by Shopbop on Amazon, and Zappos customers can link their Amazon Prime account to become a Zappos VIP member, but otherwise, there doesn’t appear to be much cross-pollination between the platforms.
In 2012 as the flash-sale craze, led by Gilt Group, exploded, Amazon ventured into that space with MyHabit with the stated intention of attracting high-end brands. That effort fizzled and MyHabit shuttered in 2016.
All the while, Amazon continued to expand its third-party marketplace, which in 2018 accounted for about half of its retail sales and currently 87% of its fashion listings. It launched Amazon Fashion, which includes styling-service Prime Wardrobe and Personal Shopper by Prime Wardrobe, as an answer to Stitch Fix. Amazon also introduced The Drop for curated limited-edition streetwear styles and developed over 100 of its own private-label fashion brands.
With its fingers in many fashion pies, Amazon quietly became the nation’s leading apparel retailer, topping $30 billion in sales, according to estimates by Wells Fargo and seconded by Morgan Stanley. Amazon, however, does not report fashion sales.
Coresight Research confirmed Amazon’s dominance in the fashion space, finding that it was the number one destination for apparel shoppers, beating Target and Walmart. Amazon’s share of fashion shoppers jumped from 50% in 2017 to 61% in 2018.
Coresight also reported that apparel, including footwear, was the most purchased product category on Amazon, rising from fourth place in 2017 when it trailed books, beauty and electronics. And the most purchased fashion brands on Amazon were Nike, Under Armour and Adidas, followed by its own private labels.
This past November Amazon had what appeared to be a setback with Nike, its top-performing brand, when Nike ended its first-party relationship, established in 2017, to sell a selective range of sneakers and clothing directly to Amazon. At the time, Nike was trying to rein in unauthorized third-party sellers and counterfeit products. However, Amazon’s third-party players beat Nike at its own game and Nike pulled the plug.
Nike’s leaving is of little consequence to Amazon, believes James Thomson, partner in Buy Box Experts, which supports brands grow their Amazon channel business. Prior, he worked at Amazon for six years recruiting third-party sellers to the platform.
“There are still 40,000 Nike listings and some 3,000 sellers of Nike on Amazon. The fact that Nike is pulling out a couple of hundred SKUs is a non-issue,” he says adding, “Any brand with any level of popularity is already on Amazon.”
That is excepting the world’s top luxury fashion brands, like Louis Vuitton, Chanel, Hermès, Gucci, Burberry and others, though their branded beauty, fragrance and some licensed products are there. But as for fashion, nada.
Rumor has it that Amazon wants to change that. Earlier this month, it leaked news to WWD that it was launching a luxury platform. Reportedly 12 “luxury” brands are stepping forward to take the plunge, with fulfillment supported by a dedicated warehouse being built in Arizona and a $100 million marketing campaign. The company, however, refused to officially comment on the story originating from unnamed sources.
I am sensing a bit of obfuscation or sleight of hand trick on Amazon’s part to hide its true intent. While everyone is looking at how it is going to move into the luxury market, Amazon actually has no serious intent to go there because it knows full well no true luxury brand would let itself be exposed on the platform.
Rather, it is trying to squeeze out the marginal third-party fashion sellers, attract the most in-demand fashion brands into first-party partnership on this so called “luxury” platform, following the Shop by Shopbop lead, and own fashion’s low-end and mid-tier market through its private label offerings.
“For years Amazon has had a Brand Registry where a company could become more official on Amazon. That was the highest you could go there,” shares Kale Abrahamson, partner with Taylor Hiott as founders of Nine University, which trains buyers and sellers how to navigate Amazon’s Fulfilled-By-Amazon (FBA) program. “Now it sounds like they are taking that to a whole other level.”
Third-party Brand Registry sellers are restricted to using a template to feature products on Amazon’s site, which basically gives them little chance to put their best foot forward.
“Our training program for FBAs stresses the need to differentiate your listings. You’ve got to make it really compelling and excite passion, not just sell on features,” Hoitt says. “But that is hard to do without a strong brand name; otherwise, you have to sell on features and function.”
The new elevated fashion platform will reportedly give brands more control of their listings and presentation on Amazon. The result will be that third-party sellers offering one of those yet unidentified dozen brands can basically close up shop since Amazon’s algorithms will give special preference to those featured brands.
While no one I spoke to has heard which brands are coming, it is likely that Capri Holding’s three (Michael Kors, Versace, Jimmy Choo), Tapestry’s three (Coach, Kate Spade, Stuart Weitzman) along with Ralph Lauren are likely suspects. These brands are well represented on Amazon already and none seem to be afraid of cheapening their image, since they are fixtures in the nation’s discount outlet malls. Calvin Klein, Hugo Boss and Tommy Hilfiger are also prominent on Amazon.
Third-party fashion sellers are also getting squeezed as Amazon recently raised fees for its fashion FBA program. Abrahamson reports that fashion is one of the most expensive categories in the FBA program and it is also weighted down by extremely high return rates. “We don’t recommend that our third-party sellers sell into fashion for a variety of reasons, most especially Amazon really eats into your margins.”
As of September 2019, first-party sellers account for only about 10% of Amazon’s 850,000 fashion listings, according to the latest analysis by Coresight Research. Amazon hopes to raise that share with its new “luxury” platform which would give Amazon’s private labels running room in the lower-end of fashion, where most of its business already is.
“Amazon is a fantastic buying destination, but for consumables and replenishables, like a three-pack of underwear or socks,” says Buy Box’s Thomson. “The more the generic the product, the easier it is for Amazon to compete,” which is where its private labels come in.
Amazon gathers sales data from third-party sellers to learn what is hot and can in fast-fashion style create its own copycat version to siphon off sales opportunistically. This past holiday Amazon reported that its Amazon Essentials and its private-label Goodthreads were top fashion picks, along with what has become known as the “Amazon Coat,” which wasn’t private label but offered by Orolay.
“Bezos repeatedly says ‘Your margin is my opportunity,’” Thomson continues and clearly Amazon’s fashion opportunity is to make the most of first-party fashion sales, while marginalizing its third-party players in favor of its own private-label offerings.
“If Amazon is putting a focus on its first-party and private-label fashion businesses, it will just hurt third-party sellers even more,” believes Nine University’s Abrahamson. “If you are selling basic shirts, jackets and sweatshirts, it is going to put a focus on its private-label brands and with its new platform, it will give higher-end fashion brands more control of their presentation, while taking advantage of Amazon’s two-day fulfillment and return policy. Either way, third-party sellers are going to take a big hit.”