Amazon Takes to the Catwalk - Part 2 of 4
Last week, I wrote about Amazon’s planned strategy to enter the high fashion retail business. (click here to read part one of the blog). Some retailers and brands have been telling me they don’t believe Amazon can be successful because fashion shoppers enjoy the experience and are loyal to their favorite retailers. Others believe this is a huge threat to the industry, and that Amazon will do to fashion what it did to books and electronics.
Will Amazon be successful? If so, what challenges will it face in pulling off this feat?
The lack of a storefront will make it challenging for Amazon in several ways. First, many shoppers simply do not want to buy online, using the Internet to view merchandise only. “We have crystal clear evidence that the large majority, particularly women, prefer to browse online and they come into the stores, often with their friends, and try on their product, try on the dresses,” said Terry Lundgren, CEO of Macy’s, in a recent article in Women’s Wear Daily.
A second challenge with selling high-end fashion online is returned merchandise. Darcy Travlos summarized this issue well in her recent contribution on Forbes.com. Most customers shopping for designer apparel in bricks and mortar stores try on a number of items before making a selection. In some cases, the customer makes a decision and leaves the unwanted items behind in the fitting room. In other cases, the customer buys several items, brings them home, tries them on again, and then returns the items he or she does not want.
With online shopping, obviously the customer is not able to try on the apparel. Instead, many customers buy several items, try them on at home, and then ship back the items they don’t want. For the customer to keep the item, both the style and the fit have to be right.
This has the potential to be a big challenge for Amazon, given that Amazon has a policy of charging a nominal ($79) annual fee per customer which covers all shipping. I agree with Ms. Travlos that Amazon’s costs will increase dramatically due to the cost of shipping (both ways), repackaging, and re-stocking the enormous amounts of returned merchandise that will occur with high fashion.
Bricks and mortar retailers are finding other ways to leverage their stores as they prepare to take on Amazon. For example, Macy’s now has more than 80 stores that ship merchandise to fulfill Web orders, and this will grow to 290 stores over the next six months. “This is a really big opportunity,” Lundgren said in the WWD article. “It actually over time should improve our inventory turn and therefore should improve our gross margin.”
A final challenge Amazon will face in high-end fashion is that they are entering a crowded segment where the traditional retailers (Nordstrom, Saks, Macy’s, etc) have well-developed online stores with excellent photography, robust search capabilities, and strong tie-ins to their bricks and mortar stores (loyalty programs, etc). Their marketing and merchandising personnel know fashion, and it comes across on these websites. Amazon certainly has the resources to build the technology, but they will also need to build expertise in fashion apparel.
On balance, I believe Amazon has the ability and the financial resources to be a strong player in nearly any category it chooses, including fashion. Retailers and brands should be developing strategies now to compete.
Given this potential, how can retailers and brands maintain margins and actually win in this environment?
This will be the subject of next week’s email. You can also visit my blog on Forbes.com – I am interested in reading your comments on the topic.