With Prime Day about to kick off Monday, Amazon AMZN is looking to prove it's a fashion destination beyond the basics.
The internet giant has found success in selling electronics and now is becoming a bigger threat in the grocery industry with its purchase of Whole Foods. And while Amazon is still trying to find its footing in the apparel space, it's evident the company wants to make a bigger push there.
Industry analysts have already estimated Amazon is on track to become the No. 1 apparel retailer in the U.S. by year's end if it's able to keep the momentum going and win market share as others falter. And so that means names like Macy's M , J.C. Penney JCP , L Brands LB and Ascena Retail ASNA , which are already struggling in the clothing business, will continue to suffer unless they're able to give shoppers a better reason to shop there versus online.
According to a new survey from eMarketer, Amazon's apparel and accessories sales will balloon 38 percent by the end of 2018 to reach nearly $40 billion. That means this category will soon represent roughly 15.4 percent of Amazon's overall e-commerce business, and about 38.5 percent of all online apparel sales, eMarketer found. (Remember, e-commerce, or online sales, represented just about 13 percent of total retail sales in 2017.)
Amazon has given us plenty of hints of late that show it's serious about breaking further into fashion. Just last month, for example, Amazon rolled out its "try before you buy" shopping service, called Prime Wardrobe, to all Prime members. This offering had previously been in beta testing mode, and is a take on a Stitch Fix SFIX - or Trunk Club-like model.
Prime Wardrobe allows customers to pack a box with a handful of items, try on that clothing at home before being charged, and then send back what they don't like and keep what they do. The platform notably gives preference to Amazon's in-house brands, like Lark & Ro, Core 10, Daily Ritual and Goodthreads. These are also likely to be heavily discounted around Prime Day .
The goal with Prime Wardrobe is to take any fear out of the idea of buying clothes online — by giving customers the chance to try on different sizes and making sure the returns process is less of a hassle by sending a pre-filled out return label and bag. Some analysts believe that, via Prime Wardrobe, over time Amazon will get better at making artificial intelligence-driven recommendations for apparel.
Still, Amazon knows shoppers want to shop their favorite brands outside of Amazon, too. And so the company has been inking deals with retailers like Nike NKE , Calvin Klein and Chico's CHS to sell through its website. The goal is to bring more big names on board over time.
Some retailers would prefer not to get involved with Amazon, though. (Some, like Lululemon LULU and Gap Inc GPS ., are going to Alibaba BABA 's T-Mall in China instead.) It's been reported that Amazon tries to push prices lower and lower on products, squeezing margins, once a company begins selling there. But there is also a benefit to working with Amazon — you can try to clean up the third-party marketplace for your brand.
Nike, for example, said it signed an agreement with Amazon to try to clean up inventory on Amazon.com, where merchandise was being sold at price points all across the board and from countless sellers. On a recent call with analysts and investors, Nike management said the "partnership is progressing well" with Amazon.
"We remain focused on elevating the consumer experience on the [Amazon] platform, we’re learning a lot..." CEO Mark Parker said.
Also luring fashion brands to its website is Walmart WMT , which recently entered into a selling agreement with Hudson's Bay HBC-CA 's Lord & Taylor, following its acquisitions of apparel retailers Bonobos and Modcloth. Like Amazon, Walmart has found success in selling cotton T-shirts, underwear and other basic items, but it wants to become more of a fashion destination. The two retail behemoths will likely be competing for smaller retailers in the coming months.
The one thing Amazon has that Walmart doesn't, though, is a platform of more than 100 million paying Prime members that it can target with exclusive deals, and who are likely willing to pay a little more on Prime Wardrobe, for example.
The key things to watch for this Prime Day are which apparel brands Amazon favors over others (i.e. with promotions and flashy ads), and what shoppers are seen flocking to on the website during the deals marathon. If more women visit Amazon for "night out dresses," for example, then the company is successfully broadening the scope of what it offers and how that offering is perceived.
"Amazon is strategically (and wisely) focusing on basics and value-oriented product – consistent with its emphasis on fast moving consumable goods (FMCG) that work well on its distribution platform," Evercore ISI analyst Omar Saad said in a note to clients published in June. "These are largely lower margin business, so it is also not surprising to see Amazon pushing hard to rapidly expand its private label offerings..."
However, according to Saad, "the challenge will be the value proposition of Amazon private label as there are already a huge number of brands and retailers selling value-oriented basic apparel at equal or lower prices (Old Navy, Target TGT , Walmart, H&M, Uniqlo, Primark, etc.)."
That's in addition to the fact that Amazon lacks heritage, expertise, an existing store base and distribution system when it comes to softlines, or apparel, he said.
Should Amazon become the No. 1 apparel retailer in the U.S., as Morgan Stanley has predicted it will, the company will need to steal more market share from ailing department stores, bring other outside clothing brands to its website and make sure a handful of its in-house brands continue to outperform in a niche space, like Lark & Ro is trying to do in women's work wear, as one example.
Amazon is also later this year set to open up a new office in Manhattan, located aside the giant Hudson Yards development project . The company has said it will house a fashion team there, in the heart of downtown New York.
Amazon shares hit a record high Monday morning ahead of Prime Day kicking off at 3 p.m. ET.
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Source : https://finance.yahoo.com/news/amazon-hopes-ride-sales-momentum-134700308.html