How Amazon Fits Into the New DTC Playbook

In 2017, executives at Mizzen+Main unearthed some hard-to-ignore data. More than 1,000 people a month were searching for the menswear brand’s business casual button-up shirts, chinos and other products on Amazon.

At the time, the brand didn’t sell its clothes on Amazon, but it couldn’t deny there was fierce demand for its goods on the world’s biggest e-commerce marketplace. It would launch its Amazon shop in 2018.

Back then, Mizzen+Main’s decision to embrace Amazon made it something of an exception, when “cut out the middleman” was still a popular marketing slogan for many direct-to-consumer brands.

Digital fashion start-ups were particularly sceptical of Amazon; the marketplace’s emphasis on bargain prices and allegations that merchants were selling fakes alongside real products had prompted Birkenstock, Nike and other brands to leave the site. Amazon, which doesn’t provide brands with customer data, was also accused of using that data to replicate merchants’ products with its own line of private label goods. (“Amazon strictly prohibits the sale of counterfeit products in our store … and we continue to focus on ensuring counterfeiters are held accountable,” an Amazon spokesperson told BoF in an email. “We do not use data about individual sellers that isn’t public to determine which private brand products to launch.”)

But times have changed. Digital-first brands are reaching the limits of how many customers they can find on their own. As the pandemic’s online shopping boom cools, and the cost of digital advertising rises, even former DTC stalwarts like Glossier and Peloton have embraced third-party retail.

In this environment, even Amazon is getting a fresh look.

“When times are tough, the aim is to get incremental exposure,” said Ken Wong, a managing director of e-commerce software research at investment bank Oppenheimer & Co. “If you’re a new brand or even an established brand that is trying to grow awareness, one place to get in front of a lot of consumers is Amazon.”

The old problems many brands had with Amazon haven’t gone away, exactly. But the benefits are starting to outweigh them: advertising on Amazon to appear higher in customer searches has emerged as a key workaround to privacy restrictions that have made it harder to reach customers on social media. The marketplace has added new, brand-friendly features, including “Buy With Prime,” where Amazon handles everything from payment processing to order fulfilment.

Brands can make Amazon work for them by determining if the exposure they’ll get from selling on the platform outweigh the costs to do so, carefully selecting which products to offer on “the everything store,” and figuring out how Amazon can help them bring more customers to their own sites.

Because as Mizzen+Main found, it’s also just where their customers are, for better or worse.

“We knew inherently it was an acquisition channel,” said Ryan Kent, Mizzen+Main’s president. “As a growing digitally native brand, it’s tough to avoid those types of channels.”

Considering the Costs

No online marketplace has Amazon’s reach. More than 200 million people subscribe to Amazon Prime, the e-commerce behemoth’s subscription service that offers free shipping and returns, the company told shareholders last year. In fashion, the marketplace has had its greatest success with cheaper brands and basics, while struggling to make inroads in luxury.

But for brands looking for cost effective ways to expand beyond their immediate audience, Amazon’s reach mitigates the risks of commanding less revenue for sales driven on the e-commerce behemoth’s platform.

Meundies, for example, opened a shop on Amazon in July in part to help it grow its annual sales, which is currently north of $100 million, to as much as $300 million in the next three years, said Jonathan Shokrian, Meundies’ founder and chief executive.

The 11-year-old brand, which sells undergarments in fun patterns, originally focused on growing its membership programme, where customers subscribe and get new undergarments for a monthly fee. Now that the company has more than 200,000 members, it’s looking for sales growth outside of that cohort.

“This was the time where we were thinking of building brand awareness beyond our membership base,” said Jeffrey Camera, Meundies’ vice president of merchandising and design. “Nowhere else can you get that exposure.”

“It’s worth the reduced margin,” he added.

Mizzen+Main has seen a positive impact on its bottom line since it started selling on Amazon in 2018. The company says it’s been able to drive down the cost to get new customers to buy its goods.

The brand pays for sponsored listings on Amazon, where its items will appear higher in a users’ search for men’s button-up shirts and trousers. That has been a good way to drive down the overall costs of sales as the cost of buying ads on social media platforms remains high. With an Amazon search ad, a brand is at least more certain the person seeing it was actually looking to buy the featured item.

Mizzen+Main’s annual sales growth on Amazon has remained steady at around 20 percent each year. Still, the platform makes up a tiny percent of the brand’s overall annual sales. But the low costs to get sales on the site make it a more profitable selling channel, Kent said.

“It supports our path to profitability,” he added.

Finding the Right Assortment

Despite often touting lower prices than traditional brands, many DTC companies have feared that selling on Amazon, which is known for offering the lowest prices on a huge variety of items, would cheapen their image. But the ones who have embraced Amazon have opted to offer their less premium items on the e-commerce marketplace.

This strategy introduces new customers to a brand, who are then hooked in by the quality and will go to that company’s standalone online storefront to buy additional wares at a higher price, Wong of Oppenheimer & Co. said.

For example, women’s lifestyle brand Mersea only sells its candles and hand soaps on its Amazon shop. These goods retail for less than $40 on average. The hope is that if some curious customers venture to the brand’s own site, they will find a larger variety of goods, including sweaters and dresses for more than $100 on average.

Meundies has taken a similar approach. The brand sells a line of briefs in stretch cotton that start at $18 for men and $14 for women exclusively on Amazon. The collection is “geared toward a more price conscious consumer,” Camera said.

The brand also offers a small selection of briefs in its premium modal fabric, an organically sourced cotton alternative that starts at $26 for men and $20 for women, which can be found in full on its site.

Mizzen+Main also mainly sells its core products, including its dress shirts in white and chino pants in navy, on its Amazon shop.

The Staying Power of DTC

Brands may be at peace with selling on Amazon, but that doesn’t mean they want to become an “Amazon brand.”

Amazon, like many third party retailers, doesn’t give brands’ data on which customers are buying their goods. This limits a brand’s ability to target specific shoppers on Amazon and turn them into repeat customers on the brand’s own site.

Meundies takes customer reviews of its goods on Amazon into consideration when developing products for its own site, with the hope that offering what Amazon’s customers are asking for will drive them back to Meundies’ original storefront and eventually into its membership programme.

“The ability to build lasting relationships with customers, DTC will always be the best place to do that,” said Henry Davis, a co-founder and chairperson of Chord, which provides e-commerce software for digital brands. “DTC is going to be a very important sibling to Amazon or any other channel.”