The platform wars have begun — and fashion isn’t just in the crossfire, it’s the ammunition for digital giants battling over market share.
But for even the biggest players, growth is the key to getting ahead, or keeping ahead. The combatants are global, or moving in that direction, and desperately need brands — bigger brands, higher-end brands, hotter brands and more.
Some of what the most prominent players offer now is inventory that’s owned outright — they operate like an online retailer, buying goods and selling them at a markup. But much of the fashion sold through all of the prominent players, from Amazon through Farfetch, is served up directly by brands or other retailers that use the digital space to court shoppers and pay the platforms for the pleasure.
And competition for brands is heating up on all fronts. EBay just sued Amazon, accusing it of inappropriately trying to get eBay sellers to jump ship. Earlier this year and across the Pacific, JD.com, the number-two e-commerce company in China behind Alibaba, said, without naming names, that its competition had tried to take fashion brands “hostage.”
It’s a dynamic the industry has seen before.
A generation ago, brands with enough clout were able to play Macy’s off Gimbels, or May Co. off Federated. Vendors gave slightly different looks to both sides, driving sales as the stores competed to draw shoppers to their side of the mall. The department stores tried to get their due when things went bad, collecting “chargeback” or “markdown” money from brands when sales slipped.
It was part and parcel of a well-worn fight where all sides managed to eke out a profit — and come up with plenty to complain about along the way.
Now the fight has moved online, where traffic is rushing.
Brands and merchants both naturally follow shoppers. Over the decades, they’ve moved from Main Street stores to malls to supercenters to outlet centers — the web is the next natural step.
Everyone but the fashion Luddites are online by now, but despite all the glitzy web sites with brand-rich content, the real customer traffic is going to the platforms. Amazon accounts for about half of all online sales in the U.S. and Walmart.com, pedaling hard to catch up online, sees 100 million unique visitors each month.
No other U.S. player has anywhere near the same scope.
Brands are just now deciding how to they should or shouldn’t present themselves on the platforms, trying to keep some control and grab some growth while not losing their image.
The biggest players, like Levi Strauss & Co., also want to make sure they are presenting their brands to shoppers and that it’s not a sloppy mix of third-party sellers representing them on the platforms.
“Our relationships with Amazon.com and walmart.com here in the U.S. are strictly first-party relationships and they do not offer third-party [selling options],” Chip Bergh, president and chief executive officer of Levi’s, told WWD. “We’ve really tried to work hard to end these third-party relationships. When a consumer buys Levi’s [through Amazon or Walmart online], they’re really buying our product.”
Levi’s has worked with Amazon since before Bergh joined the company in 2011 and the platform has become one of the apparel company’s top 10 customers. And Levi’s started selling through walmart.com this year.
“The reality is customers are shopping on these platforms and it is a choice — maybe it isn’t right for all brands,” Bergh said.
But he described Levi’s as a “democratic” brand and said “being on these ubiquitous platforms is really, really important.”
Other brands are making the same calculation: Nike Inc. started selling on Amazon last summer and just last month launched on to Walmart’s Jet.com.
It takes a delicate touch, though.
“The retailers are not going to be happy if a consumer apparel company is selling the same product at Nordstrom as they are at Amazon — full stop,” said consultant Andrew Csicsila, a managing director in the consumer products practice at AlixPartners.
“Amazon is the monster,” Csicsila said. “They are where everyone is going.”
The web giant gets kudos for its scale, breadth of assortment, logistical wizardry and tech savvy. But Amazon is also notoriously difficult to shop in fashion, with a something-for-everybody approach often leaving customers with a less-than-focused shopping experience.
To stand out in that environment — or in fashion generally — brands need to be something special.
“When you sell on Amazon and you don’t have a unique product, it’s a tough dynamic,” Csicsila said.
Regardless, the draw of Amazon is only increasing and as the platform grows more powerful, complaints from the brick-and-mortar crowd will not mean as much.
“Amazon is slowly going to start pulling away [more business] from the retail channel,”Csicsila said. “It is the number-one agenda topic we talk about when we discuss channel conflict. It’s the big elephant in the room right now.”
Simeon Siegel, an analyst at Instinet, said Amazon’s apparel business, including sales of third-party sellers, could grow to $45 billion to $85 billion by 2020, up from $18 billion to $36 billion in fiscal year 2016.
The wide ranges and huge numbers illustrate both how little is publicly known about the Amazon fashion machine and how much power it just might have.
Regardless of its exact size, Amazon is surely growing and that can only pressure other sellers.
Siegel noted, “Amazon already offers more PVH stockkeeping units [which includes styles from the firm’s Calvin Klein and Tommy Hilfiger brands] than department stores…While sku counts don’t equal sales, this gives a general idea of the range of choice that selling on Amazon provides.”
And that’s just the Amazon mobilization in fashion. The biggest players in the market are all forging alliances, playing hardball and jockeying for position. Their moves include:
* Alibaba and JD are courting Western luxury brands heavily and have set up separate high-end outlets.
* JD.com sunk $397 million into Farfetch before the luxury platform went public last month.
* The Pinaults, who control Gucci-parent Kering, also took a stake in Farfetch.
* Walmart is buying brands, most recently Bare Necessities, and forging new ties with big players, like Nike, or retailers such as Lord & Taylor to bolster its platform cred.
Everybody is feeling their way forward, trying to position themselves as the battlefield changes.
“There is a reason the Pinault family is also invested in Farfetch and the Arnault family [which controls LVMH Moët Hennessy Louis Vuitton] is heavily invested in Lyst,” said Matt Kaden, managing director at MMG Advisors. “Investing in these platforms gets them one step closer to better understanding the digital luxury consumer.
“The downside here is that brands do not own as much of their customer data and product margin as they do on their native web sites and still have the same inventory risks associated with direct retailing,” Kaden said. “Nothing replaces unfettered access to a brand’s consumer, but if consumers can discover a brand on one of these platforms and then return directly to a brand’s digital or physical store, that mitigates some of the downside.”
Kaden said companies can successfully use platforms as “part of a multifaceted distribution strategy.”
“Brands that utilize a platform for expanded access to online customers — for example, listing on Amazon Seller Prime where it can control prices as opposed to Vendor Central — have more to gain,” he said. “This works well for brands that are in demand and at an elevated enough price where platform fees do not erode margins to the point where it’s still worth taking the owned-inventory risk.”
The industry is watching each move by the platforms closely, trying to gauge how much a brand gets for joining up, how much control they keep and what it means for the more traditional distribution.
Nike’s move onto Jet.com did send some ripples through the market.
Michael Binetti, an analyst at Credit Suisse, said Nike’s offering of roughly 500 skus appeared to be at “fairly premium price points” for the channel, but was also “fairly basic within the overall spectrum of Nike’s product line.”
“The Jet.com launch is a move for Nike to more efficiently distribute a high volume of its more basic product that would otherwise be distributed in poorly capitalized independent sports retailers and traffic-starved, mid-tier department stores,” Binetti said.
He also noted that most of the product offering was at the manufacturer’s recommended price and that coupon codes were blocked.
Binetti saw the connection as a positive one for Nike and Walmart, but trouble for Dick’s Sporting Goods.
“This is representative of a bigger change where Walmart’s advantage is expanding beyond just price, by adding assortment and in some cases service, creating a tougher competitor for specialty-category killers, in this case Dick’s,” he said.
That Dick’s is the small-fry player here and being threatened by the changing alliances of giants is telling. The sporting goods retailer logged $8.7 billion in sales over the past four quarters. Not long ago, that qualified it as a big player and an activewear outlet to be reckoned with.