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How Amazon Could Upend the Luxury Fashion Sector

The e-commerce giant enters a crowded field of digital luxury players. But to brands, it offers two invaluable assets: an unparalleled logistics capability and 100 million Prime members.
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After years of trying to break into luxury fashion with little to show for it, Amazon may be on the cusp of its most ambitious attempt to crack that market yet.

The Seattle-based e-commerce giant is rumoured to be working on a digital luxury fashion venture that will launch later this year, Women's Wear Daily reported earlier this month. According to the report, Amazon's platform will work with brands on a concession model, in which brands will pay a percentage of sales to run shop-in-shops on Amazon's platform. Amazon has earmarked $100 million toward marketing.

It’s no mystery why Amazon would be willing to spend nine figures to convince consumers to buy $3,000 handbags and $12,000 dresses from the same “everything store” that sells books, electronics and cheap tchotchkes. Online sales accounted for 12 percent of the luxury market rose 22 percent in 2018, according to Bain, far faster than brick-and-mortar. Those gains have been shared across a crowded field made up of online-only players like Farfetch, MatchesFashion and Yoox Net-a-Porter, department stores and, increasingly, luxury brands themselves.

When Amazon throws itself into a new category, it doesn’t stay fragmented for long. The company has used its strengths to clobber incumbents — namely, its 100 million Prime subscribers and unmatched logistics operation that allow it to sell goods at lower prices. The long list of bankrupt booksellers, electronics superstores, home improvement chains and other retailers is a testament to Amazon’s sway among consumers.

Attempts by Amazon to portray itself as a style destination have been met with mixed results.

Fashion is one of the few markets Amazon has struggled to dominate. Amazon acquired online fashion seller Shopbop in 2006 and e-commerce footwear pioneer Zappos in 2009. Both sites are going strong, and Amazon runs neck and neck with Walmart as the top US mass fashion retailer. But customers flock to the site for its low prices; attempts by Amazon to portray itself as a style destination have been met with mixed results.

The company’s first fashion ad campaign, dubbed “Smart is Beautiful,” debuted in 2012, and Amazon sponsored the Met Gala that same year. Amazon Style Live, a QVC-like daily fashion broadcast, was cancelled after less than a year in 2017. Prime Wardrobe, a try-before-you-buy service, was introduced in 2018. Last July saw the launch of  Amazon Personal Shopper, a service that sends subscribers boxes of clothes chosen by the company’s fashion team.

None of these initiatives have involved cooperation with luxury brands. Many are turned off by Amazon's utilitarian interface, which can't compare to the user experience of shopping on sites like Moda Operandi or MatchesFashion. The proliferation of fakes and grey-market items is another barrier. Brands like Birkenstock and Nike have entered and exited the Amazon marketplace, citing their inability to prevent their wares from being sold alongside counterfeits. In 2016, LVMH explicitly ruled out any partnership with Amazon.

Amazon declined to comment.

"When you go to Farfetch and Yoox, you know immediately you’re shopping luxury but Amazon isn’t luxurious,” said Shelly Socol, co-founder of One Rockwell, a creative agency that focuses on e-commerce. “This problem of perception will be their biggest hurdle.”

The concession model would overcome many of these hurdles, allowing brands to control how their goods are presented to consumers. Brands are already moving in this direction as their own e-commerce operations grow more sophisticated, reducing their need to rely on wholesalers to drive sales. Industry sources liken Amazon’s alleged new platform to Alibaba’s Tmall luxury online mall, which also runs on a concession model. But Tmall’s success is in part due to the Chinese market it serves; to reach consumers in China, brands have little choice but to work with intermediaries.

Some of the largest luxury e-commerce players are looking vulnerable, creating a window for Amazon to muscle in. With access to every store online, consumers can compare prices and buy only the cheapest offering, with loyalty to none. Net-a-Porter, the market leader, has faced technological challenges and has seen sales stunted by a series of logistical blunders. Farfetch's stock has plunged more than 50 percent since its September 2018 initial public offering, with investors concerned about mounting losses. MatchesFashion has seen sales growth slow in recent years despite early momentum.

Amazon is far larger than all of these companies, and has shown willingness to tolerate years of losses to dominate categories it sees as strategically important.

“Amazon has the ability to take a hit on their bottom line and still build a platform with a $100 million marketing budget,” said Oweise Khazi, who leads Amazon research across the Gartner L2 Intelligence practice. “Underestimating Amazon will come at a huge cost — they have the capability and financials to target an industry and really disrupt it.”

Amazon’s Unparalleled Logistics

The greatest tool in Amazon’s arsenal is its logistics network, which includes warehouses and fleets of trucks, cargo planes and delivery vans. According to a recent Morgan Stanley report, Amazon is on track to exceed both UPS and FedEx in delivered packages by 2022.

“Logistically, [Amazon] owns the process, from where an item gets picked in a warehouse all the way to when it shows up to your doorstep,” said Marc Wulfraat, founder of logistics consulting firm MWPVL International. “And the possibility that they’ll get it wrong is so slim that they’re almost perfect.”

If you want to talk about the best shopping experience, then Amazon is already grade A

Having this in-house infrastructure means that Amazon can provide luxury customers free next-day shipping — something that no other e-commerce player can offer without racking up a prodigious bill from FedEx or UPS.

While some may offer next-day shipping for residents in certain areas of the country for an additional fee, they still wouldn’t have the coverage that Amazon does, Wulfraat said. UPS rates for domestic next-day shipping starts at $29 for a one-pound package and could cost up to $101 for a five-pound package, according to its 2019 service guide.

“If you want to talk about the best shopping experience, then Amazon is already grade A,” said Socol of One Rockwell. “From shipping transactional expediency, delivery, product comparison — they own that.”

The Missing Luxury Component 

What Amazon lacks that current e-commerce players excel in is the look and feel of a luxury digital experience. According to reports of the developing platform, Amazon will give brands complete creative control over their online shops.

“The Amazon platform does so well because it’s spartan and utilitarian but it’s not one where you get on to feel inspired to find a new product,” said Khasi. “You’re not looking for inspiration when you’re shopping for toilet paper or basic apparel but when you move into luxury fashion, you have to create a high-end consumer experience.”

Ensuring that the holistic customer experience is on par with shopping at the Chanel boutique on Madison Avenue requires a beautiful user experience, accessible but unobtrusive customer support, and creative content on product pages, according to Socol.

She added that currently, she enjoys shopping on Forward by Elyse Walker and Net-a-Porter because they have great photography and editorial content that accompanies each product listing.

Still, Amazon is no stranger to high fashion. It used to sponsor New York Men’s Fashion Week, India Fashion Week and Tokyo Fashion Week. And taking a cue from these content-driven online stores, Amazon is hiring a content editor for its fashion vertical, according to its job postings.

What Amazon lacks that current e-commerce players excel in is the look and feel of a luxury digital experience.

Amazon should also address its counterfeit problem in order to gain the full trust of the industry, Khazi said. “Creating a new platform would allow them to circumvent the third-party seller problem,” he said, but it wouldn’t hurt to create a registry of brands and allow the brands themselves to monitor fraudulent listings.

The Amazon-owned Shopbop, for instance, remains a popular destination for fashion consumers and has never struggled with issues of counterfeiting; many speculate that Amazon’s new rumoured luxury platform will be similarly siloed from the main Amazon marketplace under a different name.

The Prime Network

For vendors on the fence about working with Amazon, there is one undeniable marketing advantage: Amazon’s loyal base of Prime subscribers, who pay $119 a year for two-day shipping and access to its video streaming service.

“With Amazon, you have this high-income, high-spending customer that’s already loyal,” said Socol.

Amazon collects mountains of data about its customers via their orders and other interactions with the site.

There is already overlap between luxury shoppers and Amazon Prime; if Amazon offered these consumers a curated selection of cocktail dresses and vacation accessories that they can buy with one click — Amazon already has their information — and the products would arrive at their doorsteps the next day, who’s to say they wouldn’t jump ship from Moda Operandi or MatchesFashion?

With Amazon, you have this high-income, high-spending customer that's already loyal.

For these retailers to compete with Amazon, they must ramp up their own backend operations, offering shoppers the most convenient and seamless purchase experiences, whether that means striking a better deal with its third-party logistics partner to offering faster shipping or improving their websites for easier browsing and buying.

Luxury e-commerce players can also differentiate themselves by offering a more curated selection of products. A number of successful specialty stores today, such as the Webster and Forty Five Ten, have excelled with their unique and discerning edits.

Brands, meanwhile, should seriously consider working with Amazon on its new platform because it will be a great customer acquisition channel and because it poses a serious threat to their current stockists.

“When I’m shopping, I’m looking across the board,” she added. “All of my windows are open and I’m looking between Net, Yoox, Forward, Luisa [Via Roma] and FarFetch for the same pair of pants. But if Amazon’s got it too and they can ship it faster, then that’s where I’m going to go.”

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Opening Ceremony store in New York | Source: Courtesy

Opening Ceremony acquired by Off-White backer New Guards Group. New Guards will bring Opening Ceremony's production to its base in Milan, relaunch the brand's website on the Farfetch platform and set up a showroom in Paris. Founders Humberto Leon and Carol Lim will remain co-creative directors of the in-house brand, with a focus on collaborations. The founders also announced plans to close the retailer's four locations this year.

China and US sign a trade truce. Divided into eight chapters, covering areas from technology transfers to intellectual property, the deal includes a commitment from China to purchase $200 billion in US goods over two years, including $40 billion in agricultural products and about $78 billion in manufactured goods. Under the phase one accord, the $162 billion in new tariffs planned for Chinese imports that were due to go into effect on December 15 have been suspended.

Richemont sales growth slows amid Hong Kong, Japan contraction. The Swiss conglomerate reported a 4 percent rise in third-quarter sales, but geopolitical tensions still slowed growth. Sales in Europe rose 9 percent, by 5 percent in the Americas and by 3 percent in the Middle East and Africa. However, Japan saw a 7 percent drop due to lower tourist spending and an October 2019 value-added tax increase, while Hong Kong experienced a severe decline because of ongoing pro-democracy protests.

Gap won't spin off Old Navy. The clothing company had announced the potential separation last February. At the time, the company said the reason for splitting the entity was for the two brands, Gap and Old Navy, to focus on their unique business models. However, Old Navy faced challenges in 2019. According to its latest quarterly earnings report, the brand's comparable sales fell 4 percent in the third quarter.

Major investment firm is changing its strategy in reaction to the climate crisis. BlackRock will exit deals that present a high sustainability-related risk. The investment giant did not give specific details on which companies it would divest from or the size of those positions. Activists have nonetheless hailed the move, which followed a campaign over BlackRock's perceived prior lack of action, as significant.

World's second-largest jeweller to close some Hong Kong stores. Chow Tai Fook is retreating from various protest-hit shopping districts including Causeway Bay, Mong Kok and Tsim Sha Tsui. The jewellery chain operator said on Wednesday it would review the performance of more than 40 points of sale (PoS) with leases set to expire in the 2021 financial year, and planned to close up to 15 of them.

Michael Avenatti to face Nike extortion case. Prosecutors said the celebrity lawyer threatened to publicise claims of improper payments unless Nike paid him to conduct a probe. Avenatti said the case was in part payback for the animosity between him and President Donald Trump, but a judge found no evidence that the prosecution was brought maliciously or at Trump's behest.

THE BUSINESS OF BEAUTY

Hermès store | Source: Courtesy

Hermès finally previews colour cosmetics. The luxury brand entered the makeup market with a line of $67 lipsticks cased in refillable tubes designed by Pierre Hardy and made of the same metal as its handbag hardware. Hermès plans to launch a new cosmetics category every six months, but it has not confirmed any delivery dates or future product lines.

Instagram will hide doctored images from users. The social media platform wants to decrease the spread of misinformation, but critics think it can be a form of censorship. While Instagram doesn't clearly define what the platform considers "false information," a post must go through independent fact-checkers to pass muster, raising concerns about images retouched for artistic purposes getting flagged and deleted.

PEOPLE

Glenda Bailey in 2019 | Source: Bryan Bedder/Getty Images for Lincoln Center

Glenda Bailey steps down as editor-in-chief of Harper's Bazaar. The fashion magazine's head for nearly two decades will remain with Hearst in a full-time position as global consultant for the magazine. Bailey is known for her popularity with designers and advertisers and for orchestrating elaborate photoshoots with the cover subjects. A successor will be hired with Bailey's support, according to a representative for Hearst.

Away CEO returns after announcing her exit. Following a report exposing the company's culture as toxic, Chief Executive Steph Korey apologised and stepped down to assume the title of executive chairman, with former Lululemon executive Stuart Haselden tapped to replace her in the top job. However, earlier this week Korey said she would stay on as co-chief executive alongside Haselden. Korey and Away now say they dispute the criticisms.

Karla Otto names co-CEOs amid a management shakeup. Karla Otto has announced that she will become chairwoman of her eponymous PR label, with Executive Director Alexander Werz and K2 Co-Founder Isabelle Chouvet named her successors as co-chief executives. Chouvet will also remain chief executive of The Independents, the holding company for K2, Karla Otto and Dubai-based agency The Qode.

Katie Grand names Ben Cobb co-editor-in-chief of Love. The former Another Man editor-in-chief will join the Condé Nast title to lead menswear coverage. Under his direction, Another Man was a sensual slow dive into pop culture's darkest undercurrents. The new collaboration has the potential to double the reach of Grand's esteemed 10-year-old magazine.

MEDIA AND TECHNOLOGY

Boohoo thrives after strong holiday sales. The online fast-fashion retailer is successfully tapping into a generation of younger consumers, upgrading its forecasts after a strong end to 2019. Boohoo, which sells own-brand clothing, shoes, accessories and beauty products, reported a 44 percent jump in total group revenue for the four months to December 31 of £473.7 million ($614.6 million).

Amazon ramps up counterfeit reporting. The retail giant is planning to give more data on counterfeit goods to law enforcement, said a person familiar with the programme. The move comes as Amazon faces public scrutiny over how it polices counterfeits and allegedly unsafe products on its platform. Fakes have long frustrated top labels like Apple and Nike.

Net-a-Porter Group plunged to a loss in 2019, according to new UK filing. The luxury e-commerce leader reported a £10.5 million loss in the 15 months ending March 31, 2019, reflecting a tumultuous period following the company's takeover by Richemont. While Net-a-Porter Group saw sales increase nearly 11 percent to £710.9 million, the cost of sales grew 17 percent to £426.1 million and administrative expenses jumped nearly 40 percent to £261.6 million.

Vogue Singapore to launch in the autumn. The magazine will be the 27th international edition of Vogue, which will launch the title in partnership with Singapore's Indochine Media Ventures. Other than Thailand, Condé Nast has no presence in Southeast Asia but has recently unveiled international editions of Vogue in the Middle East, Poland and the Czech Republic.

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