NEW YORK, United States — Would you rather have something that’s average looking and highly profitable or something that’s very beautiful and barely profitable? This is not a theoretical debate. It's the centre of the most pressing and existential question for every consumer product brand today: should we sell on Amazon?
While many electronics, toy, household and food products have answered "yes" to this question, most fashion, apparel, footwear and luxury brands have said "no." The reason? Amazon's bland and soulless aesthetic, which often conjures words such as "disdain", "deplorable" and "disgusting." Jean-Jacques Guiony, chief financial officer of luxury conglomerate LVMH, publicly said "there is no way we can do business with them for the time being." At the same time, Amazon will become the largest clothing retailer in the US this year.
The crossroads between Amazon and many consumer brands comes down to three differences that both parties need to reconcile. Brands need to understand how Amazon evolves as a company and that different sales channels serve different purposes, while Amazon needs to continue listening to brands and assuaging their concerns.
Amazon's aesthetic, many executives and entrepreneurs say, is optimised to sell products, not build brands. This is historically true, but looking at Amazon as a static company, rather than one that is constantly evolving, is a mistake. CEO Jeff Bezos has instilled a rare long-term focus throughout Amazon, especially since the company is public and (technically) answers to its shareholders. "At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow — and we’re very stubborn. We say we’re stubborn on vision and flexible on details,” he told Wired in 2011.
Amazon gives itself two to three times more runway than almost any other company to solve problems and build businesses. This is crucial for brands to understand, since everything Amazon does is an experiment that is constantly evolving. A simple look at the company's aesthetic shows that while Amazon takes its (sweet) time to improve its design, it does improve. Even if the company's aesthetic is a few years behind the times, the gap is collapsing. One can see the improvement around the photography, colour and typefaces Amazon uses to showcase its expanding offering under Amazon Fashion, as well as Amazon.com's homepage, which keeps improving.
While Amazon.com isn't going to win a design award any time soon, it remains — and likely will be for the foreseeable future — the strongest sales engine in the world for physical commerce. Prime, its unique and unrivalled loyalty program, created a landscape where 55 percent of product searches now happen on Amazon. If someone needs to buy a product, the majority of the time they will start looking for it on Amazon, which translates into billions and soon trillions of dollars of commerce flowing through the platform.
Brands need to think of Amazon as a sales engine and understand that the brand-building part will come slowly. Even so, not every sales channel solves every problem. When companies say that Amazon is terrible for building brands, they fail to understand that different sales channels serve different purposes.
Building a physical goods company requires both driving sales volume and brand building. These are two different jobs, and it's rare to find a sales channel that can accomplish both with flying colours. In the old days, for example, a fashion brand might sell into small, exclusive boutiques to build its brand with an influential group of people. At the same time, it may have also sold its products at a Macy's, Bloomingdale's or Nordstrom to increase national sales volume. It might sell different products to different stores, with the small boutiques getting more exclusive products while the bigger retailers received more generic products. The small boutique will take care of the brand building, something the bigger chains are less good at, which is fine since the larger retailers are driving sales.
While the retail world has substantially consolidated in the last two decades — a trend that will only continue — the general premise still holds that different channels serve different purposes. Today and for the foreseeable future, Amazon will be the biggest sales machine for consumer product brands. These brands will then have their own channels, including ecommerce and retail, which will give them full control over their brands.
It's possible for companies to get the short-term benefit of selling on Amazon while not cannibalising their brand over the long-term. The future looks something like the past, and some brands are already following this blueprint. While the vast majority of fashion and luxury brands don't sell directly on Amazon, sportswear brands, which also held out for a long time, are increasingly changing course.
Brands need to think of Amazon as a sales engine and understand that the brand-building part will come slowly.
Adidas was the first big player to join Amazon in 2014. It understood that Amazon was really good at selling products and not yet great at building brands, and adjusted accordingly. “Amazon is the best, without any comparison, transaction platform in the world... It might not be the best brand-building platform in the world, but that’s why we… separate crudely between transaction and brand-building,” says Adidas chief executive Kasper Rorsted.
Adidas built a distribution strategy that leveraged Amazon's advantages while minimising the downsides. It sells many of its general and widely-distributed products on Amazon, which have been available in thousands of other stores around the world. But it leaves its more coveted lines, such as Kanye West's Yeezys and its collaborations with Rick Owens and Yohji Yamamoto (under the label Y-3), off the platform altogether. Instead, it strictly controls this distribution and takes full control of the brand building. For example, the company built an app called Adidas Confirm that it used to dole out Yeezys or other exclusive products, which it has full control over. Adidas took its mass market products and put them on Amazon, where it would drive significant sales volume, while reserving its brand builders for its own distribution channels. According to NPD Group, Adidas' market share has grown from 7 percent to 11 percent from May 2016 to May 2017.
Nike, the latest megabrand to sell directly on Amazon, also developed a unique agreement. With the Nike deal, the brand has started selling its product on Amazon.com in exchange for an exclusive license to sell its own sneakers and apparel. Nike negotiated stricter controls on counterfeiting and third party sellers, which were cutting into its brand value. Nike clearly comes out ahead with this deal. It now has access to the biggest sales machine in the world and gets to dictate terms about what other third party sellers can and cannot sell. Even so, Nike will likely continue selling more exclusive products in its own channels, both online and offline, while offering its mass market products on Amazon.
While Nike and Adidas are massive brands with more leverage than most, every brand can bring discipline to its sales channels and figure out where Amazon fits into the equation. Maybe core products that are constantly replenished are a good fit for Amazon, while more exclusive and seasonal products are best for a brand's own channels. Just saying "no" to a massive sales opportunity is not an acceptable answer, especially when brands are struggling to find customers and drive sales. Optimising for the short-term is not the right answer, nor is ignoring the long-term.
Even though some categories such as apparel and homeware are moving online slower than others, the shift will accelerate as companies like Amazon improve the discovery, purchasing and returns process. Some used to unequivocally state that people would never shop online for a variety of reasons. Once that changed, others said people would buy very few physical products online. Perishable foods? No way. Clothing that you need to try on? Absolutely not. Cars? Are you kidding? Each of these categories is increasingly moving to a hybrid of online and offline sales, which will continue for the foreseeable future. We probably won’t ever have a world that is 100% online and 0% offline, but there’s a lot that can and will change as the market finds the equilibrium between online and offline.
Amazon isn't going anywhere anytime soon. Refusing to engage with Amazon is not a good long-term strategy, nor is assuming that where the company is today is where it will be tomorrow. It took Amazon only 60 days to go from initial interest in purchasing Whole Foods to completing the transaction, its biggest acquisition ever. That’s an unrivalled degree of nimbleness for a company with over 340,000 employees.
Brands might as well start figuring out their strategy now. It's not a matter of if, but when. Brands that come to the table with an open mind might even be able to help Amazon improve its own approach. Ironically, the best way to work with Amazon is to mirror the company's own mind-set: start slowly, keep experimenting, and adjust accordingly. Brands need to take a page from Amazon by being "stubborn on vision and flexible on details." Their future depends on it.
Richie Siegel is the founder of Loose Threads Intel.