There are multiple reports that Amazon is launching a luxury fashion site in September. Although it is the largest seller of apparel in the world today, its success has not extended into the luxury sector of the fashion business. It seems like an obvious place for Amazon to grow.
Amazon has made two successful acquisitions in fashion, Zappos and Shopbop, an apparent attempt to explore buying an existing one before creating its own luxury fashion site. How its luxury site will work is not entirely clear and the company did not immediately respond to a request for comment. But there is a temptation to believe that when facing Amazon in the market, it’s better to join them than fight them. Numerous luxury brands will be attracted to the idea of selling their products through the new channel.
I am not so sure that’s a good idea. There are a few issues:
Who Owns The Customer
The biggest issue is the relationship with the customer. In almost all of Amazon’s businesses, when a consumer buys a product from the platform, it keeps the information about that customer to itself and shares very little of the information with the vendor. In that setup, it’s difficult or impossible for the vendor to re-access the customer for repeat sales or marketing, only Amazon has the information about the consumer and the data on who bought what. With repeat sales being a critical factor in the profitability of brands, that’s a major detractor for Amazon vendors. What’s more, the data that Amazon has, aggregated across its many products, enables it to create offerings to consumers that attract the consumer away from luxury vendors if that works more profitably for it. All of that is opaque to the vendor.
The customer relationship is more important in the luxury business than in other consumer products. Luxury service drives higher profit margins. Without being able to understand a customer’s history, it is hard for brands to meet customer’s needs. The way Amazon’s luxury fashion site will work is not clear yet, but if the information is not available to the vendor, that’s a major detractor.
Fakes
The high margins in the luxury business, especially in accessories, are an incentive for fraudsters to create highly detailed and convincing counterfeits.
The reports about Amazon’s new platform are that one of its advantages will be the ability to access Amazon’s unique fulfilment capabilities. That would certainly enable brands to deliver faster and more reliably, but it would also increase the risk of counterfeit products entering the system, either by being supplied by other vendors or in the returns channel.
Department Stores Redux
Historically, a high percentage of luxury fashion products were sold by legacy department stores. In the relationship between the retailer and the brand, there were always multiple tensions. Fundamentally, the store controlled the access to the consumer, offered competing brands and controlled or influenced pricing, marketing and placement. Very often, the goals of the two parties were in conflict. In that relationship, Amazon replaces the department store and the tensions between the two have not disappeared. Because of Amazon’s size, it has enormous market power that presents a challenge to brands.
If It Works
If a fashion company becomes dependent on sales through Amazon, it will be at Amazon’s mercy. That’s where it is at risk for Amazon to wind up with the profit from the sales and the vendor to get repeatedly squeezed down.
Why It Hasn’t Worked Yet
Amazon may be the best system in the world for providing consumers with a way to shop when they know what they want and are looking for fast and convenient service. But the luxury fashion business is different. It requires exploration, discovery, personal service and creativity to be effective. Buying Fruit of the Loom underwear is not the same as buying an occasion dress from Oscar de la Renta. It is not as easy for Amazon to add luxury to its portfolio as it is to add another type of toothpaste.
Amazon is near impossible to beat on selection and convenience. But whether they can succeed in luxury fashion, and whether they are good for their possible luxury vendors, is an open question.
Source: Forbes