Can Amazon Take on High Fashion? - Part 1 of 2
“It’s Day 1 in the Category” – Jeff Bezos, CEO, Amazon
The apparel industry has been abuzz since the May 7 New York Times article announcing Amazon’s entry into the fashion world. I just returned from a dinner meeting in Los Angeles with several executives, representing both retailers and brands, and the room was full of opinions on what this might mean to each of them.
The article states that “Amazon is taking on the high-end clothing business in its typical way: go big and spare no expense.”
“It’s Day 1 in the category”, said Jeff Bezos, Amazon’s chief executive.
Amazon is making a huge investment in technology and photography to create an online experience which is expected to draw in fashion shoppers and convince them to pull the purchase trigger. The article states that Amazon is shooting 3,000 fashion images a day, using a proprietary new technology. Mr. Bezos said the company is making this investment in fashion to “convince top brands that it wants to work with them, not against them.”
The retailers and brands I have been speaking with are in two camps. Some don’t believe Amazon can do it. High-end luxury brands in particular don’t believe their customers shop on Amazon. They believe these consumers prefer instead to shop in Nordstrom, Neiman Marcus, and Saks because it is a retail experience they enjoy. Ironically, this is exactly what Best Buy thought when Amazon entered the consumer electronics category. They thought they could differentiate themselves from Amazon…and look what has happened. Best Buy recently announced they are closing 50 stores in an effort to cut $800 million in costs.
In the second camp are those who are viewing this as a huge threat. They think Amazon will do to fashion what it did to books and electronics. The department stores will end up being “showrooms” for Amazon. Shoppers will browse and try on the apparel in the stores, then check their iPads for the price on Amazon. In states which charge sales tax on clothing, Amazon will have a decided advantage since consumers pay no sales tax online. Department stores will have no choice but to squeeze the manufacturers for lower prices, bringing down margins for the whole industry. Retailers and brands in this camp are not viewing this as a partnership, but as the end of the apparel industry as we know it.
With the retail industry growing at only 3% per year, this is a zero-sum game. If Amazon is successful, its share will grow at the expense of the retailers. If Amazon drives down prices and margins, it will be a “sub-zero”- sum game.
Will Amazon be successful? If so, how can retailers and brands maintain margins and actually win in this environment?
This is the first of a four-part series on Amazon’s entry into the fashion business. Click here to read part 2. You can also visit my blog on Forbes.com – I am interested in reading your comments on the topic.