Amazon and private-label apparel: a perfect fit?

March 20, 2016 02:26 PM

News has broken lately that Amazon has quietly rolled out a number of private-label apparel and shoe brands, leaving apparel and footwear manufacturers and retailers worrying about the implication:  Is Amazon using its wealth of consumer data and clout to upend the fashion industry as it has the book industry—and, more broadly, the U.S. retail landscape? 

To address this, we need to break this down into three questions:

·      Is Amazon a significant fashion player today?

·      Do we see early signs of resonance in Amazon’s private-label brands?

·      How will this evolve in the future?

Is Amazon a significant fashion player today?

Yes.  In fact, Amazon is the biggest online seller of apparel and footwear in the US, with 15 percent share of online apparel sales and 21 percent of footwear sales.  If we include Amazon-owned properties Zappos, My Habit and Shopbop, Amazon has 20 percent share of apparel sales and 40 percent of footwear sales.  Amazon seems poised to grow that business, investing heavily in people, inventory, facilities, and its fashion brand during 2015.  Amazon just announced a daily fashion and beauty TV-style show to stream live weekdays called ‘Style Code Live’ to showcase Amazon’s fashion sense (not to mention products that can be bought on Amazon).

Here’s perhaps a more telling indicator of the importance of fashion for Amazon: When you take  Zappos, My Habit, and Shopbop into account, Amazon sells more than twice as much fashion merchandise in the U.S. than it does books.    

Are Amazon’s private-label brands resonating with consumers?

Not yet. Today, Amazon’s private-label products maintain a relatively low profile on the site, branded with monikers that Wired’s Davey Alba described as brands that ‘masquerade behind labels that sound vaguely like something that you may have heard of before.’  Our data is showing that Amazon’s private-label brands currently account for an inconsequential share (less than .01 percent) of Amazon apparel sales. 

A review of Amazon’s private-label forays into other categories provides some context.  Amazon’s Elements private-label brand debuted with diapers, but is currently limited to baby wipes.  On the electronics side of the business, AmazonBasics has had a more significant impact. These items, ranging from phone chargers and HDMI cables to Blutooth speakers, account for one percent of sales, and four percent of items sold in Amazon’s electronics department. 

How will Amazon’s private-label apparel business evolve?

Time will tell. Apparel is, of course, a very different animal than electronics or diapers.  Private label, or exclusive brands, typically account for a significant share of department store sales.  Roughly 20 percent of Macy’s sales are private label, and 50 percent of Kohl’s and JCPenney sales are private label or exclusive brands.

James Cash Penney himself started the trend in 1914 when, frustrated by vendors unwilling to sell him merchandise, he created JCPenney’s own Marathon Hats line of hats. Amazon undoubtedly looks to private-label apparel for the same reasons as its predecessors:  It is frustrated by vendors that won’t sell to Amazon, and it salivates over the fat margins that private-label merchandise can drive.  Amazon would be remiss in not making a run at private-label apparel. 

Amazon has the data to know exactly what items its shoppers look at, which ones they buy, and how much they pay for them.  This is a potent advantage that cannot be overstated.

However, if Amazon were able to make this work, it would be unprecedented.  Selling private-label apparel to people that have the opportunity to see, touch and try on a product is very different than selling a USB charging cable. Consumers that buy Alfani sweaters from Macy’s probably didn’t go to Macy’s with the intent of buying an Alfani sweater; at least at first.  They more likely discovered it in the store while looking at name-brand sweaters; touched it, tried it on and thought—wow, this seems like a great sweater for a great price! 

Amazon is going to need to invent a mechanism to compensate for its current inability to accommodate consumers’ desire to physically evaluate apparel products if it really wants to succeed in private-label apparel.

Our bet is that Amazon’s lack of physical stores will undermine the effectiveness of its private-label apparel business.  But Amazon has a knack for beating the odds, so it will fun to watch how this plays out. 

Slice Intelligence provides data and analysis of consumers’ online shopping behavior based on their email receipts.





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