TFR | Strategy Consulting

Deep analysis of Amazon Fashion Business: performance insights and challenges to compete in the apparel industry

When Amazon started selling high-end brands in 2012, Jeff Bezos said “company’s new effort is not about selling clothes at deep discounts but at prices that ensure that the designer brands are happy”.

Nowadays, the online giant is selling brands like Calvin Klein, Michael Kors, Gucci timepieces, Kate Spade, Theory, Adidas, Rebecca Minkoff, Levi´s, Mango, Under Armour, Vans… but most of these brands are offering basic items. In order to reduce counterfeits some brands, like Nike, partnered with Amazon to sell directly. But the Everything Store still has problems to attract fashion brands while fashion luxury companies are even more skeptical about it. Other marketplaces such as Lord & Taylor (not only premium-brands), Yoox Net-a-porter or Farfetch are in a better position in this case.

©Matthew Ryan Williams for The New York Times

Another fashion business-related channel from Amazon is Prime Wardrobe, a program where you can try before you buy from eligible items across women’s, men’s, kids’, and baby clothing, shoes, and accessories. You get seven days to try the items at home and you will only be charged for the items you decide. Other companies using a subscritpion business model in apparel are Trunk Club (Nordstrom) and Stitch Fix. Furthermore, Amazon opened its first Amazon Fashion Pop-up store in London (october 2018).

Amazon Fashion Pop-up Store (London)

But Amazon´s marketplace (wholesale and retail) and subscription boxes are just a piece of Amazon´s Fashion business. Today, Amazon Fashion sells around 66 clothing private label brands in women´s, men´s and children´s categories: Mariella Bella, Lily Parker, 28 Palms, Peak Velocity, Goodthreads, Core 10, Spotted Zebra, Scout + Ro, Rugged Mile Denim,…

Amazon Fashion private label brands analysis

According to Jungle Scout recent analysis on Amazon sales by category, including apparel:

• • 88% of Amazon’s private label brands are in the clothing category

• • AmazonBasics (includes batteries, cellphone charging cables…) does nearly 3x the sales of its next most popular brand, Presto

• • Most consumers search for the brand when buying an Amazon private label product, indicating strong brand recognition

• • 60% of their private label clothing brands target women

• 82% of the women’s private label clothing brands fail to sell more than 100 units per month

©Jungle Scout

• • Amazon private label sales represents only 1% of total sales compared to 52% at JCP.

• On average, men’s clothing perform three times better than women’s per month (maybe because men are looking for technical, basic clothing that don´t require a special experience: see, touch, feel, fit, socialize…).

What are the challenges of Amazon selling Fashion?

First, selling fashion doesn´t mean selling products. If a customer searches for white  cotton socks, it´s possible that any option will cover his needs (in this example, the need is “running”and probably, at a beginner level). The customer is looking for a “product” here. It´s a physiological need, at the bottom of Maslow´s pyramid. Amazon will be a valuable shopping destination in this case.

PRODUCTS VS FASHION

Amazon is not yet a destination for fashionable clothing, neither online or offline. Customers shop exclusively basics, essentials, affordable clothing: commodities (jeans, underwear, socks, t-shirt…). Fashion customers require a different “product display”: better images, a more artistic taste, videos or content, to see combinations, amongst others. They want to feel part of a brand´s community (a principle of loyalty), but Amazon is playing another game (the supermarket one) and “kills” brands leveraging functional or attribute-based shopping, apart from other key drivers like low-prices, free shipping, 1-2 days delivery…

Scott Galloway @GartnerL2

In fact, Scott Galloway predicts in FOUR, his latest book, that Alexa will kill brands (Alexa is Amazon´s Virtual Assistant) as discussed in the New Fashion Retail Paradigm.  Today, Alexa suggests Amazon Basics, their private label. According to Business Insider Intelligence estimates, 49% of US adults will shop thru voice in 2023.

How is Amazon Fashion business performing in the US Market?

2017 Apparel Market Share

US top 10 companies in 2017 were #1 Walmart, #2 Amazon, #3 Target, #4 Kohl´s, #5 TJ Maxx, #6 Macy´s, #7 Gap, #8 Costco, #9 Nordstrom and #10 Ross. Amazon will become the number one seller of apparel in the U.S. in 2018, according to Wells Fargo analysts.

Brands that could disappear are at the bottom of the fashion pyramid: mostly traditional retailers private labels (e.g. Target, Macy´s, Walmart). Why? Because selling commodities at a low-price was a reason to have loyal customer in the retail channel. With online, or Long tail behemoths, like Amazon, the war is over. Only real fashion brands will survive and keep them top-of-mind will be the big challenge for fashion retailers.

CUSTOMER EXPERIENCE

Following the analysis of Amazon Fashion, the company will face the challenge to create a curated fashion customer experience. This means managing many and many brands within their marketplace/ wholesale channel. Machine learning helps to create harmony and contain chaos in relation to the assortment, and who knows if Amazon will deliver soon an online experience similar to the one offered by subscription box services.

Some examples of best-in-class customer experiences:

• Curated Stores: Nike by Melrose
• Best customer experience stores in NYC

Can you imagine a special site depending on the customer profile (the i-Profile in a hyper-segmented society) with curated, personal recommendations? In that case, I´m sure Amazon will help customers find their place (shop what they need or could like) in the “infoxicated long tail” of clothing, populated by millions of shopping options. In fact, Thread, the e-commerce startup that uses AI is already tailoring recommendations in an online shop that will be customized to the customer at a style, size and price level. In october 2018, H&M capital arm – H&M CO:LAB – invested $13M in Thread.

CATEGORIES AND BRANDS LISTINGS AT AMAZON (2018)

According to Coresight Research report about Amazon Apparel, the subcategories that are increasing its product listing the most from february to september are Tops and Tees (womenswear) and Shirts (menswear). We don´t have sales data, but this could illustrate what customers are searching at Amazon (as offer respond to demand).

Analysis of Amazon Fashion subcategories

Another interesting chart that I found from the same report is the one regading brands. The top 4 “brands” are WSPLYSPJY, Cruiize, Comfy and Fubotevic, all distributed from China. Nike is decreasing its listings from around 17k to 9k while Tommy Hilfiger is increasing from 6k to 8,5k.

Again, there is no data that could link sales to a wider assortment, or brand-value according to the listing at Amazon. But something is clear, brands that join Amazon have to make decisions that can impact directyl to their DNA, customer-perception, marketing,  margins, operations. What products should be sold at Amazon to give benefits (high inventory turnover, reduce margin-loss) and, at the same time, keep brand perception?

FASHION CUSTOMERS LOVE ICONS

Another challenge in the road to Fashion is convincing brands to sell more than just affordable-boring items. Amazon Fashion is still selling basics that, (I feel), brands consider non-sexy (at least, the customer experience is similar than the one visiting an outlet mall or online outlet store). Brands are not selling its icons thru Amazon! See below how different is the assortment (e.g. product, look & feel, price points) at Amazon compared to Nike.com when searching for running shoes! If you see those differences in sportswear/footwear categories, imagine what could happen with fashion brands… It´s clear that Fashion brands consider Amazon, again, as the “Everything/ Basics” Store.

Searching Nike running (road) shoes at Amazon.com and filtering by Price (High to Low)

Searching Nike running shoes at Nike.com and filtering by Price (High to Low)

AMAZON FASHION PRIVATE LABEL BRANDS

Then, regarding its fashion private label business, as I introduced before, the challenge is huge. Amazon Fashion business is building an army of brands and already has a fashion portfolio of around 66 owned brands. It´s a new business to Amazon, very different from their core. Also, Amazon private labels compete to traditional retailers´private labels that are creating new niche brands to compete to Seattle´s behemoth, like Target´s Wild Fable or Original Use. Those retailers have a lot of experience developing apparel brands (from product development to trade, including design or manufacturing).

A Selection of Amazon Fashion private label brands

Private Label brands compete also to other bottom-line retailers assortment like Lidl, Carrefour, Primark and some categories (basics) of fashion brands from the bottom of the fashion pyramid. Here is were Amazon can increase it´s market share.

For example, a customer wants to buy a pijama for a baby. Brand is not important. The customer will search by categories and attributes: Pijama, Boy, Cotton, 4 years old, White. Touch, fit, experience… are not shopping requirements in this case. So, Amazon is a valuable destination here.

Goodthreads is a private label with its own site at Amazon

Finally, we have private label brands with an exclusive site, like Goodthreads. The effort to build a brand is larger than other private label with no specific site at Amazon but it´s not enough. Millennials and also gen Z, expect an “about us”, telling the origins, missions and values of the brand. They want to know the story, but also about the fabrics (quality of materials) or how sustainable (transparency and/or traceability) is the brand. Even supermarket apparel will need to have a consistent value proposition beyond low-price.

The Future is closer than you think

If you ask me if Amazon Fashion business is going to sell brands from higher segments of the fashion pyramid in the near future, my answer is clearly YES. As Apple and Nike, iconic retail brands, are joining Amazon, others will do. I´m sure that in 3-5 years Amazon will be very different in terms of user experience, and even tailored to each customer, like AI-powered men´s e-tailer Thread. The Fashion Technology race already started…