FINANCIAL TIMES | ANNA NICOLAOU AND LESLIE HOOK
According to the book The Everything Store, Jeff Bezos told Amazon employees in 2007 that “in order to be a two-hundred-billion-dollar company, we’ve got to learn how to sell clothes and food”.
Amazon is expected to report next week that it made about $175bn in sales for 2017, closing in on the $200bn mark thanks in part to its acquisition of grocery chain Whole Foods Market.
But while that acquisition, which firmly establishes the company as a force in food, grabbed the headlines, more quietly Amazon has also been improving its position in clothes.
In the past year the company has rolled out private label clothing brands, such as Lark & Ro, which resembles fast-fashion looks from the likes of Zara. It has placed adverts on the pages of Vogue, struck partnerships for collections with Calvin Klein and actress Drew Barrymore, and unveiled a camera for customers to send selfies of their outfits to an artificial intelligence-powered stylist. It even convinced Nike, a longtime holdout, to begin selling shoes on its site.
The company’s moves pose the same question for fashion executives that hovered over book publishers, movie producers and big box retailers in previous years: is their industry Amazon-able?
By some measures, Mr Bezos has already succeeded. Amazon is set to overtake Macy’s to be the largest seller of clothing to Americans this year. Analysts are bullish. Nomura estimates apparel could be a $45bn-$85bn business for Amazon by 2020.
The global apparel and accessories market is worth more than $1tn, and margins are higher than in other categories like electronics or food, making it an attractive source of profits to fund Amazon’s other ambitious investment plans, Nomura points out.
So far, though, the majority of Amazon’s apparel sales are not designer dresses but rather basic commodities, like socks and T-shirts.
Observers say that the fickleness of clothing purchases makes the sector less susceptible to ecommerce. “Selling underwear is easy, but fashion is a browse, and Amazon is not a browsing experience,” says Simeon Siegel, analyst with Nomura Instinet.
Amazon has already become a go-to destination to restock basic necessities — it is the largest seller of batteries in the US, for example. But finding something less specific on its sprawling website is trickier. Searching for “black dress” on Amazon.com yields more than 20,000 results.
Elaine Kwon, a former executive at Amazon’s fashion business, who helped build its relationships with luxury brands and who now runs the consultancy Kwontified, believes this is changing. “For a long time people thought of Amazon as the place to get toilet paper or cat food,” she says. “In 2014, many brands were very hesitant to even let it be known publicly that they wanted to work with Amazon.”
But as Amazon’s influence has deepened, and the department stores that brands have relied on struggle, the power has shifted. In the UK, for example, a quarter of clothing sales are now made online, and Amazon dominates.
“Brands are now realising that people are buying from Amazon, and if I, as a brand, refuse to participate, someone else can take my product and make that money,” says Ms Kwon.
At least part of the fashion industry remains dismissive of Amazon’s entrance. Andrew Rosen, chief executive of clothing label Theory, told a conference last year that “fashion sort of looks good to [Amazon] . . . but I don’t think they’re really that serious about it”.
Amazon has unveiled a number of new private-label apparel brands in recent months, including seven in the UK in September. It now has “dozens”, spanning women’s, men’s, children’s and baby clothing, a spokesperson said, without providing an exact number. The looks range from Amazon Essentials, which sells $12 men’s polo shirts to Lark & Ro, which is more fashion-forward but still reasonably priced. The most expensive Lark & Ro item listed is a $199 women’s scuba leather jacket.
Amazon Essentials was the biggest seller among its private brands, according to a report from research group L2 in August, and the top-performing garment was the men’s polo shirt.
Private-label clothing brands could be a new profit stream, and they also give Amazon control of transactions from start to finish. As it stands, the company can’t control which brands decide to sell on its website, or stop them from leaving.
“They want to own the brands and own the sourcing. That’s important to them,” says Robert Burke, who consults for designers such as Marc Jacobs, Ralph Lauren and Vera Wang. “The problem is that building a fashion brand takes a long time, even for Amazon.”
Amazon does not disclose revenues from its private-label brands. Mr Siegel says it is difficult to estimate at this stage, and that it will be “an uphill battle”. The company has taken strides to make browsing for clothes on its site easier, hiring fashion editors to make “shopping guides”, and testing a service called Prime Wardrobe, that lets customers try on clothes at home before buying them.
An Amazon spokesperson said the strategy with private-label apparel brands is “to give customers what they’re looking for, and we’re constantly exploring ways to do just that”.
Ms Kwon likens Amazon’s dive into private-label fashion to that of Zara. “Zara was laughed at by the fashion industry initially, but that changed,” she says, calling some of the brand launches part of Amazon’s “awkward phase” of testing customer appetites.
Amazon is well equipped. The company hired Christine Beauchamp, former chief executive of Victoria’s Secret, as president of its fashion business in June. Megan Salt, the former head of public relations for Vogue, is its head of brand communications.
It also has deep pockets. Amazon is scheduled to report financial results for its fourth quarter on Thursday next week, and analysts are expecting record revenues. The average forecast is about $59.8bn in revenue, a 37 per cent increase from the same time last year, and profits of $900m, which if achieved would make it the company’s most profitable quarter ever.
Most importantly, Amazon has the data to know exactly what people are buying, and when.
Chip Bergh, chief executive of the jeans maker Levi Strauss, recently said his “big challenge” is Amazon’s private label apparel business. “They’re going to be massive in apparel over time,” he told Business of Fashion, the trade publication, this month. “Their real power, over time, is going to be the data they’re able to collect on their consumer. It’s just a question of time.”
It’s unclear just how far Amazon wants to go with clothing. The company sparked rumours last year with a patent for an automated clothing factory, potentially allowing it to make its own custom ranges.
James Thomson, a consultant and former Amazon manager, views this as a logical next move.
“Imagine if Amazon had the body dimensions of 100m customers . . . if Amazon will deliver a custom suit quickly to me for $400, I don’t care what the brand is,” he says. “Amazon doesn’t replicate other people’s businesses. They find a cheaper way to do it at a mass scale, and catch everyone going, ‘what just happened?’”
Is Amazon friend or foe to fashion brands?
Fashion’s biggest brands are struggling to work out how to deal with Amazon’s quiet transformation into an apparel powerhouse. Is it friend or is it foe?
“Amazon is like Voldemort,” says one fashion executive. “You hear people talk about it in hushed tones.”
For more than a decade, Nike resisted adding its popular sneakers and athleisure clothing to Amazon, even as competitors Adidas and Under Armour gave in and decided to offer themselves to the ecommerce site’s growing customer base.
Yet Nike was already among the most common brands found on Amazon — because third party sellers were snapping up shoes and re-selling them. As online shopping has become a bigger part of all shopping, brands have struggled to keep tight control over where their products end up. Brands scored a victory last month with an EU ruling that luxury goods companies can ban sales of their products on Amazon to protect their “aura of luxury”. The European Court of Justice determined that US cosmetics group Coty did not break competition laws when it blocked distributors from selling its products on Amazon.de.
But Nike in June had already revealed that it was testing out selling a “limited assortment” of products on Amazon. The reversal “showed the want, need or something in between, to sell through Amazon”, analysts at Nomura said.
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Analysts do not expect the most elite luxury brands to start selling on Amazon, but it is already becoming common for more middle-of-the-pack brands. More than 20 brands listed Amazon as a major customer in their disclosures last year, including Hanes, Fossil and Perry Ellis, according to Nomura.
Goldman Sachs expects to see Amazon establish “additional direct relationships with major brands”, which would “only further its momentum in apparel as the category continues to move online”.