On 26 August , following a two per cent rise in Amazon’s stock price, Jeff Bezos, who owns about 11 per cent of the company, saw his net worth surge by $5.6 billion – making him the first person to amass a $200 billion fortune in the last four decades (as tracked by Forbes).
Shares of Amazon closed at $3,128.99 earlier this week, nearly double its trough level in mid-March when COVID-19 first hit the US and Europe. Amazon is clearly no longer the online bookseller it was two decades ago. It now produces TV dramas; create drones; develops AI assistants and even provides financial services. But there remains one industry that it has yet to conquer: Luxury.
However, the conglomerate is now poised to make its big push into this market, in the manner it does best: E-commerce. Oscar de la Renta signed up for Amazon's Luxury Stores last Tuesday, making its ready-to-wear, accessories, jewellery and fragrance collections available on the platform. To launch its new venture, Amazon worked with both the brand and model-actress Cara Delevingne on a promotional campaign. Luxury Stores is currently by-invite-only for certain Amazon Prime users in the U.S.
Luxury Stores was initially scheduled for a January reveal – but that got postponed because of the pandemic. As part of its initial launch, 12 ready-to-wear and accessories labels will be debuting stores on the platform under a concession model that gives them independence in terms of pricing, product assortment and store design. A warehouse is reportedly being built in Arizona provide fulfilment support for the platform. The e-commerce giant has also budgeted over $100 million for the platform’s marketing campaign. But given Amazon’s long and intricate history with the fashion industry, and today’s fierce battle for e-commerce supremacy, will it be able to rise to the top?
The Complex Entanglements
While the full list of brands part of the initial launch have yet to be revealed, it is safe to assume there won’t be any brands from LVMH – at least for now. At LVMH’s annual results press conference in January, Chief Executive Officer Bernard Arnault indicated that he would not allow its products to be listed on Amazon. His concerns ranged from pure players “profiting from the sale of fakes” to the dubious (and possible) links to organised crime of these counterfeit sellers on platforms.
It’s no secret that Amazon’s poor regulation of third-party sellers has led to an outflow of counterfeits. A recent investigative piece by Wall Street Journal revealed that Amazon has “listed thousands of banned, unsafe or mislabeled products”, electronics with fake certifications, and harmful children’s products – all peddled by third-party sellers.
According to Statista, based on data from the second quarter of 2020, 53 per cent of paid items are sold by third-party sellers on Amazon. In 2019, Amazon generated US 53.76 billion in third-party seller service revenues, accounting for 38 per cent of its total annual revenue.
This was, in part, the impetus behind Nike’s decision in late 2019 to end its partnership with Amazon, which first began in 2017. While the move was also due to the brand’s desire to grow its direct-to-consumer business, reports suggest that the sportswear giant was not entirely pleased with the platform’s ability to manage third-party sellers. This resulted in unauthorised third-party vendors squeezing out the brand’s official listings, impacting traffic and overall brand equity. For exclusive luxury Maisons, this could potentially have even more serious repercussions – making it imperative for Amazon to clean up the platform’s selling environment.
Despite the setbacks Amazon might have faced on this front, the company has been making good inroads in its quest to conquer the luxury fashion industry. Last September, the company quietly launched luxury e-commerce site VRSNL, which sells premium and luxury goods. It is operated by Zappos, an Amazon subsidiary. In May this year, the platform also tied up with Vogue and the CFDA to launch Common Threads: Vogue x Amazon Fashion, a digital storefront on Amazon for over twenty CDFA partner brands including 3.1 Phillip Lim and Derek Lam 10 Crosby. The success of Luxury Stores appears to be the next crucial step in determining Amazon’s standing in the luxury e-commerce space.
Alibaba, A Far-flung Counterpart
While Amazon continues to fine-tune its Luxury Stores offering, it’s worth looking at the platform’s Chinese counterpart – Alibaba – which used to have a difficult history with luxury giants as well. In 2015, Alibaba was sued by French luxury group Kering in New York over counterfeit products and trademark infringement. In addition, Gucci’s Chief Executive Officer Marco Bizzarri declared in 2018 that he would not sell the brand’s products on Chinese e-commerce platforms like Alibaba and JD.com because of widespread counterfeiting on them.
Fast forward to the present day and numerous big names under Kering, such as Alexander McQueen, Balenciaga and Bottega Veneta have all launched flagship stores on Tmall – Alibaba’s B2C e-commerce space. Brands from conglomerates like Richemont (such as Cartier and Chloe) to independent labels like Prada and Burberry have recently jumped on the bandwagon as well.
Alibaba’s climb to its current spot as the favoured e-commerce partner of luxury brands in China didn’t happen overnight. It was only after August 2017, when Tmall launched Luxury Pavilion, that the platform began to gain traction in the luxury industry. Designed as a walled garden within Tmall, brands could own independent and highly-customisable spaces for product showcases and marketing activities within Luxury Pavilion. In 2019, Alibaba continued riding this momentum and formed the Tmall Luxury Center, which includes Luxury Pavilion, wholesale boutique Tmall Luxury Store, as well as Luxury Soho, an off-season, outlet companion to Luxury Pavilion.
Amazon’s Luxury Stores is currently most similar to Alibaba’s Luxury Pavilion, operating under a concession model. This, however, is no different from what Amazon has been providing for years: Marketplace services allowing third party retailers to sell through their platform, notes DLG (Digital Luxury Group)’s Head of Search, Benjamin Dubuc. “Unlike what YOOX Net-a-Porter and other luxury retailers offer, brands can opt for different models depending on their willingness to invest – from building a brand page to advertising their products to the right audience through Amazon’s programmatic platform. As a result, brands can adjust their strategy in real-time,” he adds.
A Premium Audience, For Premium Goods
To reach a more precise consumer base, Luxury Stores is now only available to invited US Amazon Prime members. This strategy coincides with that of Luxury Pavilion. In the early days of its conception, the access point to Luxury Pavilion (a link within in the Taobao/ Tmall app) was not actively promoted to all users but precisely pushed to target consumers based on their luxury goods consumption footprint, search activity, as well as their membership status (whether or not they own a paid Alibaba 88 membership). Similarly, leveraging its Prime programme will be an important opportunity for Amazon to identify high net worth individuals with a willingness to spend on luxury goods.
According to statistics from the first quarter of 2019, Amazon Prime has over 112 million subscribers with an average spending of $1,400 per year – much higher than the $600 average spend by non-Prime users. Prime shoppers are also two times more likely than non-Prime shoppers to buy clothes online, according to research by Morgan Stanley.
Luxury Stores isn’t the first instance of Amazon attempting to segment consumers. The company’s fashion e-commerce subsidiary Zappos launched The Style Room early this year as a luxury version of its main site, to ensure premium brands like Stuart Weitzman and Giuseppe Zanotti do not end up being displayed alongside mass brands.
There’s no doubt that Amazon is hoping to take advantage of its 150 million Prime members worldwide to get a piece of the online luxury market. According to Bain & Company, online retail channels could represent up to 30 per cent of the market by 2025 – making it that much more important for Amazon improve and target its luxury offering.
Selling Isn’t The Only Thing
Today, Amazon is the second-largest search engine after Google, with more than 2.5 billion visits per month, and over 79 per cent of American consumers use Amazon as part of their purchase journey. “Amazon is one of the most powerful and important programmatic advertising networks in the West, allowing brands to target whom they want to reach flexibly and precisely. This already represents $20 billion in revenues for the company,” says Dubuc.
As the consumer journey continues to undergo rapid digitisation, Amazon needs to expand the marketing touchpoints available to brands, and become more than just a transactional platform. Given its high search volumes, the platform can think about going beyond mere product listings and developing solutions to meet the search and discovery needs of consumers online – which is precisely what platforms like Tmall are already doing.
Marketing today translates to more than just advertising. To incentivise conversions after initial exposure, it’s also necessary to create rich content and develop activations to stimulate consumers' willingness to spend. For instance, brands on Luxury Pavilion can make use of Weitao (Tmall’s built-in content marketing hub), livestreaming or short videos to deepen communications with target customers. Tmall also provides a series of highly-customised marketing opportunities for brands in the form of shopping festivals or on brand-exclusive Super Brand Days. Most recently, Burberry hosted its Tmall Super Brand Day event on 17 September, coinciding with its Spring/Summer 2021 runway show in London. The brand not only invited celebrities and spokespeople for four days of livestreaming on Tmall, but also conducted pre-sales on its Tmall flagship store.
Tmall, as a super-platform in China, has well influenced luxury consumption behaviours in the market and even changed the way luxury brands view digitalisation efforts on the global stage. Once regarded as an alternative, transactional channel to sell luxury goods, e-commerce marketplaces now need to cater to consumers’ sophisticated demands in order to replicate the traditional offline experience as well.
Bezos, who wants to build “The Everything Store”, might have taken Amazon on its first steps towards high-end retail with the onboarding of these 12 luxury fashion names – but there will be much more to contend with in the days to come.
Cover Image: Amazon