Amazon.com Inc. is reportedly preparing to launch a new luxury e-commerce platform that could face challenges recruiting top-tier fashion names but lure financially distressed apparel companies and tarnished brands seeking to regain popularity, experts said.
Seattle-based Amazon is planning to launch an e-commerce platform exclusively for luxury fashion goods with 12 unnamed brands over the next six months, according to a January report by Women's Wear Daily, citing industry sources. The effort, backed by a reported $100 million marketing campaign, would debut in the U.S. before expanding internationally. In a stark departure from Amazon's traditional business model, the e-commerce company will allow participating brands to directly manage content on their own pages, how much they sell and at what price, according to the report. Amazon declined to comment for this story.
While top-tier luxury companies such as Prada SpA, Kering SA and LVMH Moët Hennessy Louis Vuitton Inc. are expected to avoid relationships with Amazon entirely, more accessibly priced fashion brands or struggling labels may be willing participants, experts say. Amazon's logistics network, next-day or same-day delivery times and customer base of more than 100 million Prime members may be attractive to participating brands. Amazon's plans to offer full control of their online stores may also prove enticing.
"It could scratch an itch that the brands want," said Larry Pluimer, a former Amazon executive who is now CEO of Indigitous, a brand consultancy in Seattle, in an interview.
Amazon is reportedly planning to launch a new luxury platform, but analysts were skeptical that top-tier luxury brands would be willing to showcase their goods on the site.
Source: Vinjeru Mkandawire
Amazon may be working behind the scenes to attract financially struggling brands, along with apparel firms bought by private equity groups or run by new management teams with a short-term view, said Sucharita Kodali, principal analyst and vice president at Forrester Research, in an interview.
Potential candidates could include women's apparel chain bebe stores inc. an online-only retailer that announced plans in 2017 to shutter its stores, Kodali said. Another potential brand could be BCBG Max Azria Group LLC, which went bankrupt in 2017 and is now owned by global brand company Marquee Brands LLC, she said. Brands like Juicy Couture, owned by Authentic Brands Group LLC, that are past their peak in popularity may also want to participate, according to the analyst. The brands did not immediately respond to inquiries.
"The Amazon appeal makes sense for brands desperate for new customers," Kodali said. "It's a very easy platform if you have a product to show, and if you don't want to spend any money on marketing."
Amazon may also target companies that offer "replenishable" luxury items like perfume, said James Thomson, a former Amazon executive who is a partner with Buy Box Experts, which helps companies grow on Amazon, in an interview.
"With perfume, it's a replenishable item in the sense that I already know that Chanel No. 5 is my favorite," he said. "I probably already tried it. If I can buy it online, great."
The same goes for women's shoes. "If I know I am a size 8 medium width, and I like this shoe, I already know what I need," he said.
If Amazon does launch the new luxury platform, it would be the company's latest attempt to tap into the fashion market. Amazon has faced some setbacks recruiting and retaining famous brands including Nike Inc., which severed ties with the e-commerce company in November 2019 due in part to the widespread issue of counterfeit products on Amazon's site.
Amazon started dabbling in the world of selling apparel back in 2002 and expanded into the fashion realm with the 2006 purchase of Shopbop.com, a site featuring what Kodali referred to as "upper-middle-class" brands such as Tory Burch LLC and Marc Jacobs International LLC.
In 2007, Amazon formally launched its fashion division to sell clothing, accessories, shoes from brands ranging from adidas AG to PVH Corp.'s Calvin Klein. It has since experimented with various initiatives, including the launch of several private label apparel lines and a try-before-you-buy clothing delivery service called Prime Wardrobe in 2017. In the third quarter of 2019, Amazon introduced its "personal shopper" by Prime Wardrobe in the U.S., which provides Prime members with personalized recommendations based on style and fit. The company also said its Amazon Fashion division expanded selection to include brands such as Vincent Camuto Llc and Tommy Hilfiger U.S.A. Inc.
Amazon would be off to a late start on the luxury front, however. Chinese e-commerce competitor Alibaba Group Holding Ltd.'s Tmall e-commerce platform features more than 150 luxury brands on the site's Luxury Pavilion section launched in 2017, including Burberry Group PLC and Valentino Fashion Group SpA In 2019, Compagnie Financière Richemont SA's online fashion platform Net-A-Porter opened a flagship store on the Tmall Luxury Pavilion, showcasing top-tier brands such as Cartier.
JD.com Inc., meanwhile, merged its luxury platform Toplife in 2019 with U.K.-based online luxury fashion retail platform Farfetch Ltd.'s China site, expanding a partnership begun in 2017.
Despite playing catchup, Amazon's plan for a luxury platform indicates that the company "is recognizing that they have to have some sort of effort here," Thomson said.
Plenty of growth is to be had: According to Bain and Co., online sales of personal luxury goods reached €26.80 billion in 2018, representing 10% of all luxury sales. That is up 22% from 2017 when sales reached €22 billion. Bain forecasts online sales of personal luxury goods to represent 25% of total luxury sales by 2025.
Amazon would likely consider experimenting with a variety of strategies to emulate the luxury shopping experience on its platform. These strategies include interactive fashion video content and virtual shopping assistants that can walk clients through products and chat about intricate details like stitching, Buy Box Experts' Thomson said.
"That's a little bit more of 'let me feel, and experience the product before I actually determine which product I want to buy,'" he said.
Amazon could also offer shoppers a high return rate, similar to the one provided by online shoe company and Amazon subsidiary Zappos.com Inc. "Customers could order five pairs of shoes, try them all on at home and send back the four pairs they don't want," Thomson said.
The biggest shift for Amazon, however, would be allowing brands to have direct control over their pages, a strategy similar to the one employed by Alibaba. Christina Fontana, head of fashion and luxury for Tmall, in a 2020 promotional video said Tmall brands featured on the Luxury Pavilion have "100%" control" over their content, price and communication strategy.
Although Amazon may purport to wall off the brands from counterfeit goods and fakes by giving them control over their pages, Pluimer doubted that the company could keep that promise long term. Amazon's business model, he said, relies heavily on taking a cut of each sale made by the company's third-party vendors, which make up more than half of the company's total unit sales.
"The Amazon way is price-matching and controlling brand presentation and price relative to competitors," he said. "When does reality set in, and they say, 'Well, let's put some third-party stuff in there?'"
Meanwhile, high-end luxury brands like LVMH's Louis Vuitton and Kering's Gucci that rigorously control every aspect of their business to maintain their air of exclusivity are expected to steer clear of Amazon.
"A number of the large brands have essentially taken the position of 'over our dead body,'" Kodali said.
While geopolitical and trade issues like tariffs and anti-government protests in Hong Kong affect luxury goods companies, their brands tend to stay resilient by pursuing a smaller but wealthy Rolodex of clientele, she said.
"The best of these companies are like sequoia trees," Kodali said. "They last through everything."