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Amazon’s Private-Label Push: A New Fast-Fashion Giant?

Experts see the aggressive e-commerce company filling gaps in its assortment with its own fast-fashion and basics offerings.

Chiara Ferragni Amazon Fashion's Spring 2016 Campaign Shoot

Get ready for the $107 billion gorilla.

Amazon doesn’t want to just sell fashion brands; now it wants to build some of its own. And that could spell real trouble for companies selling fast-fashion or basics — and perhaps everybody else.

While Amazon hasn’t revealed its exact plans, the e-commerce giant is clearly looking to bring a bit of Seventh Avenue to Seattle, with job openings listed for a head of marketing and senior brand manager, senior sourcing manager and senior merchandiser to staff the Amazon Fashion Private Label unit. “The Amazon Fashion Private Label team,” one recent posting said, “is looking for a dynamic senior brand manager to drive the DNA and face of a new brand.”

If the e-commerce giant gets private label right — and that’s admittedly a pretty big if — Amazon would not only fatten its own margins, but further squeeze other brands and retailers already struggling with a finicky and rapidly evolving consumer.

Experts see Amazon’s push into private-label apparel as a savvy move.

According to KeyBanc Capital’s Ed Yruma, Amazon Fashion’s private label is likely to make its debut in early 2017. “It seems to be a priority for Amazon,” the analyst said. “We’re hearing through industry contacts that it could potentially be a bit further along.”

The motivations for Amazon to create its own fashion brand, or brands, are many: It could make good use of its revolutionary data-collection capabilities to immediately read consumer trends and deliver products to match them; fill gaps in its merchandise selection that leading brands won’t supply, and, most importantly perhaps, ride the sea-change taking place in retail and fashion toward the see-now, buy-now, wear-now movement. These factors, combined with the relatively high margins in apparel, could equal hefty profit — something that could further boost Amazon since the bulk of its profits come from its cloud-computing services rather than e-tailing.

In a research note, Yruma and Pacific Crest Securities, a division of KeyBanc, compared Amazon’s potential with online merchant Everlane, which charges significantly less than traditional retailers for basic styles.

“Amazon should be able to take significantly more margin with greater volume, particularly related to transport and material cost savings,” the note said. “This dynamic makes an Amazon private-label apparel business particularly attractive at scale.”

The note concluded that a private label to fill Amazon’s assortment gaps “could make this an attractive sub-sector and would augment its push into branded apparel.”

One of the private-label job postings last week also alluded to this “assortment gap,” as it stated that the ideal candidate has “a passion for understanding the unmet needs of customers.”

But for the everything-including-the-kitchen-sink behemoth, what could be an unmet need? Basics and fast-fashion are the most likely sectors, according to experts. Indeed, the recent job posting for a senior brand manager and merchandiser called for “strong product sensibility in both basic and fast-fashion segments, and ability to identify and capitalize on current trends.”

In looking at the number of stockkeeping units represented on the Amazon Web site detailed in the Pacific Crest report, it’s clear that those segments are underrepresented on the site. Forever 21, H&M, Uniqlo, Chico’s, J.C. Penney and James Perse each have less than 80 sku’s on Amazon, while Calvin Klein, Coach, Michael Kors and Ralph Lauren have 16,000 or more. Nike has the most, at more than 115,000 sku’s.

Amazon Fashion vice president Jeff Yurcisin alluded to this opportunity during the WWD CEO Summit in New York last October and said, although consumers love brands, when a certain company decides not to sell on Amazon, the customer is still looking for a similar product.

The company has been making a concerted effort to expand private-label products since the 2009 introduction of AmazonBasics, which offers electronics and household items ranging from keyboards and cables to backpacks and dinner plates.

“There’s an opportunity for basic items that are less brand-driven and more like a pair of white leggings,” said Norwest Venture Partners general partner Sonya Brown, whose firm has invested in e-commerce start-ups such as ModCloth and Kendra Scott. “If I’m buying a pair of leggings for my kids, and they grow out of them, they might not care as much about brands. People shop Amazon for price and value.”

That also gets around the sticky fact that although it sponsored the Met Gala at the Costume Institute in 2012, owns Shopbop, hired Vogue online editor Caroline Palmer in 2015 as director of editorial and social and tapped fashion blogger Chiara Ferragni as its European ambassador, Amazon still isn’t known for being particularly stylish.

Nonetheless, the company is rapidly scooping up market share in fashion, which has been one of its fastest-growing businesses under the guidance of Cathy Beaudoin, president of Amazon Fashion. Its ambitions to conquer fashion were exhibited not only by the Met Gala, but also with the opening of a 40,000-square-foot photo studio in Williamsburg, Brooklyn, that would help it improve fashion imagery on the site.

“Amazon is clearly very focused on apparel,” Yruma said. “The activity with the fashion community has been impressive and they’re clearly trying to build bona fides.”

While the potential of Amazon launching private label could have retail and fashion executives hiding under the covers, there is naturally no guarantee of success. The Internet behemoth has enough cash to buy back $5 billion worth of shares and the resources to build out a team, but the company has tried — and failed — at expanding into new products in the past. This was perhaps most clear with the Fire smartphone in 2014, which was widely hyped but then considered a flop.

And while electronic basics are one thing, fashion is notoriously fickle. The challenge is that when it comes to fashion, it’s not just low price and convenience that count; it’s product, product, product, so the risk is just as much on Amazon to provide great fashion and value, right out of the box,” said Arnold Aronson, partner and managing director retail strategies at Kurt Salmon. “That being said, if they have the right product, it’s not likely that they will impact the luxury channel — the Saks’, Neiman’s and Net-a-porters of the world. It’s more likely that it will be widely spread over the more popular priced department and specialty store chains.”

Ultimately, private-label apparel could be a way to attract and satisfy Prime customers, who get free shipping and access to streaming videos for a flat monthly or annual fee. “It starts to go into a Costco model,” said Marvin Traub Associates chief executive Mortimer Singer. “They are going to try to hit the broadest part of the market that they can while maintaining a product that is desirable.”

That could make Amazon a bigger threat to Target, J.C. Penney or Wal-Mart Stores Inc. Customer Growth Partners president Craig Johnson pointed to Wal-Mart’s weakening sales and earnings and said they underscore the notion that “Amazon is not only ahead of Wal-Mart but stretching out its lead.”

“It’s pushing the envelope on all fronts, and not just on Wal-Mart but a host of people,” said Johnson, adding that there was “the stark difference between the two companies and how they are approaching the opportunity that the Internet creates.”

In a conference call with investors last month, Amazon chief financial officer Brian Olsavsky mentioned the emphasis on Prime, and satisfying missing needs of customers. “We are grateful to our customers and remain heads down, focused on driving a better customer experience,” he said. “We believe putting customers first is the only reliable way to create lasting value for shareholders.”

That attitude could nudge Amazon toward fast-fashion — a model that has taken billions of dollars of market share from other U.S. retailers over the past decade and that would be more in-line with its hyper-speed approach to products and serving the consumer.

Forrester principal analyst Adam Silverman said fast-fashion also would be an opportunity for Amazon to continue to target Millennial shoppers.

“I’d wager it has a strong advantage there,” Silverman said. “It can potentially be a fast-fashion leader, mainly because of its supply-chain experience.”

He said it didn’t matter so much that Amazon isn’t known for “fashion” with a capital “F,” but rather high service, at the right price.

“It’s important to get trends right and on time and quickly,” Silverman said. “Regardless of the brand, you are going to resonate with those shoppers by delivering what’s hot and what’s quick. [It does have] a bit of a brand issue here, so it will need to prove to shoppers that Amazon can be cool, but already, younger shoppers appreciate the service that Amazon offers.”

Neither Brown nor Silverman considered the risk of alienating third-party vendors to be much of a deterrent for Amazon.

“It will impact the vendors that have created a random, no-name brand that is focused only on Amazon as their channel,” Brown said.

But Silverman said that is not a new problem for Amazon or its clients. “It has on-boarded and offered products that are historically provided by third-party sellers. Marketplace sellers need to continue to work hard to differentiate and have competitive prices.”

And Amazon might be looking to shift its strategy away from courting retailers and brands, which have increasingly embraced their own e-commerce efforts, and instead go it alone.

“I can see little negative aspects of this move — especially in terms of fast fashion, which is more focused on trend than brand,” Silverman said. “If they can get the trend right and deliver quickly, it will garner recognition.”

And perhaps reshape the fashion retail landscape in the same way Amazon did with books.

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