Can Amazon Crack the Luxury Market This Time?

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 a recent 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.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Tiffany & Co. Fifth Avenue Store | Source: Shutterstock

LVMH asks to delay Tiffany trial by at least six months. The two companies are in a legal battle over the fate of LVMH's $16.2 billion deal to buy the American jeweller. LVMH has called off the acquisition and made it clear it no longer believes Tiffany is worth the $135 per share it agreed to pay last year. Tiffany is pushing for the deal to go ahead as originally planned.

Raf Simons to debut womenswear collection. The Belgian designer will present his debut womenswear collection next month. He took to Instagram to share the news, confirming his first-ever women's collection would be shown alongside his men's collection on October 23. The announcement comes only days before Simons is set to present his first collection as co-creative director of Prada.

Rihanna's Savage X Fenty show returns. The lingerie line's much-anticipated presentation of its Fall 2020 collection will be streamed worldwide on Amazon Prime on October 2. A star-studded lineup is already confirmed for the annual extravaganza, which will include performances from Travis Scott and Rosalia, and special appearances from Bella Hadid and Lizzo among others.

Zara owner's lean business model helps it cope with pandemic. Inditex managed to reduce inventory stock-in-trade by 19 percent at the end of July, softening the blow to earnings. Although the retailer reported its first ever loss in the first quarter, Inditex has seen a "turning point" in the second quarter due to a 74 percent jump in online sales and the reopening of the majority of its stores.

H&M third-quarter profit beats estimates. The fast-fashion retailer, which will publish its full quarterly report on October 1, published pretax earnings of around 2 billion Swedish crowns ($229 million). Although H&M exceeded estimates of 191 million crowns, the retailer's earnings remain significantly down from last year's 5 billion crowns.

Ferragamo reports operating loss, but says China and Korea returned to growth. Salvatore Ferragamo Group reported an operating loss of €74 million ($86.3 million) during the first six months of the year as revenues nearly halved during the pandemic. The fashion brand is hoping to cut costs by renegotiating rents, and has brought back former CEO Michele Norsa as executive deputy chairman to help steer the company through the downturn.

Ann Demeulemeester sold to New Guards Group Co-Founder Antonioli. Italian fashion entrepreneur Claudio Antonioli, has agreed to purchase the Ann Demeulemeester brand, including its archive, headquarters, Antwerp flagship, and Paris showroom. Ann Demeulemeester will debut its first show under its new owner during Paris Fashion Week in March 2021, although the label has yet to announce a new creative director.

L Brands sells majority stake in Victoria's Secret's UK business. Under a newly formed joint venture, British clothing retailer Next Plc will acquire a majority stake in the lingerie giant. The move comes shortly after Victoria's Secret's UK arm went into administration in June after all its 25 stores were shuttered as part of government-induced social distancing measures. Next will own 51 percent of the partnership, while Victoria's Secret will own the remaining 49 percent.

Creditors of New Look back restructuring plan. The British fashion retailer will receive turnover-based leases at 402 stores to help it weather the coronavirus crisis. The so-called company voluntary arrangement was approved by the requisite majority of New Look's unsecured creditors, securing New Look's immediate future.

THE BUSINESS OF BEAUTY

The Hut Group-owned Ameliorate | Source: Ameliorate

UK's biggest IPO in years was a beauty e-commerce company. The Hut Group, which owns a number of beauty websites, beauty labels and wellness brands, raised £1.9 billion ($2.4 billion) in the biggest listing on the London Stock Exchange since June 2017, bringing its valuation to £6.1 billion. Despite a pandemic-induced interest in e-commerce, the listing is unusual since the UK sector has remained relatively quiet.

Peloton founder hits billionaire status on home-workout boom. Since mid-March, the company's shares have rallied about 350 percent. Founder John Foley's worth has reached $1.3 billion this week, shortly after Peloton announced fourth-quarter sales that beat analysts' forecasts, and predicted 2021 revenue of between $3.5 billion and $3.65 billion.

PEOPLE

Aya Kanai | Source: Kathryn Wirsing

Former Marie Claire Editor-in-Chief Aya Kanai appointed head of content and editorial partnerships at Pinterest. Kanai, who most recently served as editor in chief of the US edition of Marie Claire, has been named Pinterest's new head of content and editorial partnerships. In her new role, she will oversee editorial strategy, including new content for the platform from publishers, creators and influencers. Sally Holmes will succeed Kanai as editor in chief of Marie Claire. Kanai is leaving the Hearst women's fashion magazine after only nine months in the role.

Valentino reshuffles its executive team. Laurent Bergamo, the general manager for the Middle East at Valentino, has been appointed chief executive of the Americas region, effective immediately. He has been replaced by Simone Bertolini. Bergamo will report to Marco Giacometti, chief commercial officer at Valentino. In his new role, Bergamo will oversee a new phase of development of Valentino's retail, wholesale and online distribution networks in the American, Canadian, and Mexican markets.

Agathe Derain named Chanel head of human rights. Derain, who most recently served as responsible sourcing director at Chanel's fragrance and beauty division, has been promoted to the newly-created role of head of human rights and corporate sustainability, effective immediately. In her new role, she will drive Chanel's human rights due diligence programme, identifying and addressing potential risks in the company's global supply chain. She will report to Andrea d'Avack, global chief sustainability officer at Chanel.

MEDIA AND TECHNOLOGY 

Farfetch rebrands in a bid to dominate the luxury e-commerce market. The e-tailer has unveiled a new logo and a global campaign as part of its new brand identity. While Farfetch is home to a wide range of brands, it has relied heavily on discounts and high-cost customer acquisition strategies to fuel growth. With its rebrand, Farfetch aims to establish stronger relationships with customers than they have with competing companies like Net-a-Porter, Ssense and Matchesfashion.

The pandemic may permanently replace retail jobs with machines. A new study shows layoffs have been higher among workers in industries that can be automated, which increases the risk that those jobs will become permanently obsolete. Industries already at risk of automation, including retail, lost 4.2 more jobs per 100 than jobs in sectors facing fewer threats by technology.

Compiled by Daphne Milner. 

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