Business of Fashion: Can Amazon Crack the Luxury Market This Time?

Business of Fashion: The American e-commerce giant has been trying to lure luxury fashion brands to its platform for years. Now, it’s new, mobile-only ‘Luxury Stores’ launch aims to adapt the successful template set out by Alibaba’s Tmall for its customers.

Quoted from Business of Fashion – September 2020

Amazon’s first fashion ad ran in 2012. Since then, it’s spent nearly a decade trying to break into the rarified world of luxury. It’s sponsored the Met Gala and fashion weeks, streamed fashion-focused TV series and launched a personal shopping service. Back in 2015, there were even reports that it was considering buying Net-a-Porter.

Amazon has long been a destination for fashion bargain hunters looking for cut-price knockoffs of trendy items. It’s even spawned the odd viral fashion sensation (remember the season of the “Amazon coat”). But it’s also a go-to for affluent shoppers seeking convenience.

Nonetheless, luxury brands have remained sceptical of selling their goods on the platform. The received wisdom was that Amazon, with its unadorned grid, reputation for functionality, and association with discounts, was not the place most luxury brands would seek customers.

This week, Amazon launched its latest play for the luxury market with a glossy in-app section, where brands can create their own digital storefronts and won’t have to worry about getting lumped in with washing up liquid and toothpaste on users’ screens. It will function like the concession-style model offered by Farfetch, allowing brands to control inventory and pricing that affect the look and feel of their digital storefronts a long-standing concern for brand-conscious labels, wary of tarnishing their image by allowing Amazon control  and offering tech-y bonuses like 360 degree views.

For now, the digital shop-in-shop function, Luxury Stores, is available to US Prime members in the Amazon app by invite only.

But when Amazon’s big new bid to crack the luxury market launched this week, just one brand had signed up, Oscar de la Renta. A second, Roland Mouret, was announced later. Both are well-respected brands, but they don’t rank in the top tier of luxury. More brands will follow in the coming weeks, an Amazon spokeswoman said, adding that the company has been “delighted” by the interest it’s received from both emerging and well-known brands in week one.

The model closely resembles Alibaba’s Tmall Luxury Pavillion, which has had remarkable success in coaxing more than 200 luxury brands to its platform including big-hitting names like Burberry and Valentino.

E-commerce currently accounts for just 3 percent of luxury fashion sales in China, but will hit 15 percent within the coming few years, according to recent comments from Alibaba Group Vice President and General Manager of Tmall for Luxury, Fashion and FMCG, Mike Hu. That’s a generous slice of what McKinsey estimated to be a $115 billion market last year. During the pandemic period, in particular, Tmall’s importance as a sales channel for many brands has grown, as more Chinese consumers, unable to travel to foreign shopping destinations, not only repatriated their spending but shifted consumption online.

Those sorts of numbers make it clear why Amazon wants a piece of the action, but for all its efforts, it has a much harder sell. Alibaba’s big lure is its direct access to China’s hundreds of millions of digital consumers, who luxury brands have struggled to reach independently and whose shopping habits are already deeply meshed with the services provided by the country’s internet giants. Amazon’s customer base, though also huge, has plenty of other ways to shop for luxury fashion, despite the power of its vast consumer database and stored payment details. American shoppers are also not as habituated to buying high-end apparel through new digital tools as their Chinese counterparts.

What’s more, many fashion brands simply believe Amazon is bad for them; it’s not a fit for their image, it’s designed to enable generic non-brands to thrive and its marketplace is a haven for resellers. LVMH has been vocal in its criticism of the company for allegedly profiting from the sale of counterfeit goods. Powerful retailers like Nike have withdrawn products in part over similar concerns. An Amazon spokeswoman said the company strictly prohibits counterfeit products.

“Amazon is the antithesis of brand,” former venture capitalist and Founder and Chairman of integrated fashion group Resonance, Lawrence Lenihan, wrote in arecent opinion piece for The Business of Fashion. “There is only one brand that is important to Amazon and that is Amazon.”

You can’t compare Amazon with Alibaba, the more fair question is, could Walmart become a luxury powerhouse?

It’s not so long ago that Alibaba was also unequivocally viewed as the enemy by the luxury industry, but its access to the fast-growing Chinese market has helped make its efforts to win over the sector far more successful.

The pandemic may help shift the equation on Amazon for some fashion brands, especially smaller labels without the pre-existing reach of the luxury giants. Though many luxury players have historically been cautious of e-commerce, online sales were a lifeline when Covid-19 caused stores to close. Luxury spending is expected to shrink by as much as 35 percent this year, according to Bain & Company. Without online sales, the pain could have been much, much worse.

There is room for Amazon to push its relevance and expand its presence in the luxury market, said Bernstein analyst Luca Solca. Selling points of the new platform include its separation from the rest of Amazon, and the fact that it allows brands to fully control their pricing and manage their storefront’s look. “Oscar de la Renta is a first step,” Solca said.

On the other hand, companies have a plethora of choices when it comes to building online sales, and the fact a $1,900 dress could still end up in a shopping cart alongside a pack of Q-tips is likely to remain a sticking point.

“You can’t compare Amazon with Alibaba, the more fair question, is could Walmart become a luxury powerhouse?” said Sucharita Kodali, an analyst at Forrester Research. “Amazon is a deal with the devil, and it’s likely going to diminish the brand over time.”

Amazon has already jumped on the opportunity to deepen relationships with fashion partners. In May, Vogue and the Council of Fashion Designers of America partnered with Amazon to set up an online shop, featuring products from 20 independent designers, including 3.1 Philip Lim and Derek Lam. Several already used Amazon’s fashion subsidiary Shopbop, but others were new to the platform. This month it’s teamed up with the British Fashion Council on a similar initiative.

But in an industry where perception is often everything, Amazon has a lot of work still to do.

It begs the question, why does Amazon keep trying to make on-site luxury fashion happen? Perhaps a smarter approach would be the one it took with Whole Foods, buying a smaller platform that already has access to the luxury business it craves.