Is Amazon a natural habitat for designer brands?

Amazon’s launch of Luxury Stores in September came at a point where the brand had seen considerable growth in online sales across many sectors, with the coronavirus pandemic closing many physical stores and prompting consumer concerns about in-store shopping. But is Amazon really a viable option for luxury brands?

Will Amazon’s model survive?

Amazon’s impressive customer base and vast delivery structures have contributed to its image of catering towards lower-end retailers. Most Amazon shoppers use its search bar as a means to find products and build their baskets - with the aim of selecting the most affordable options. This makes it tough for brands to own and optimise towards the consumer purchasing funnel.

To that end, Amazon has been focusing on providing more engaging content options for brands, with developments in their A+ content, Stores and Posts. It remains to be seen how quickly these areas will be adopted en masse by shoppers, particularly those who are so hard-wired to use the search bar to find specific products they need.

Therefore, as it stands, the Amazon model, which has been so successful over the years, just isn’t compatible for most luxury brands. The model is designed to deliver the widest assortment of products, the best prices, and the most frictionless shopping experiences for its customers at all costs. Success on Amazon, therefore, is largely driven by algorithms that are closely geared towards these goals. Amazon needs to shift from this model in order to address concerns about brand experience, and tempt more luxury brands to get on board.

The missing piece

Amazon’s answer to the limitations in its model is the launch of its new shopping experience, Luxury Stores. A handful of brands, including Oscar De La Renta and Roland Mouret, have already joined this initiative - and we expect more brands to get on board in the near future.

With the luxury apparel market estimated at $15,946m USD in 2020, it’s easy to understand why Amazon wants a piece of the pie. So what exactly is Amazon offering with the launch of Luxury Stores?

The Luxury Stores feature is available to consumers by invitation only, and is reserved for Amazon Prime members using the Amazon app. The feature will reportedly offer brands the ability to keep their storytelling, thanks to auto-play imagery and in-motion graphics. This is alongside the ability for brands to create their shops with the look and feel that customers would expect of a luxury brand. Amazon is also giving brands control over pricing, inventory and selection. So, we can expect Amazon to offer tech and merchandising tools to promote products through sponsored ads as well.

The new feature opens the doors for young and new designers to potentially showcase their products to luxury customers alongside established names, offering a route to ease their way into the luxury market.

Do we think it’s going to be successful?

This isn’t Amazon’s first step into growing their relevance and presence in the fashion market. In June 2017, it launched ‘Prime Wardrobe’, enabling an easy solution for customers to try at home before buying. In hindsight, this was a genius move for Amazon, particularly with the collapse in high street footfall over 2020 as a result of the pandemic. It’s also a solution that has been adopted by a number of resellers, and one that will no doubt become more popular in the future.

Amazon has also offered its Prime users their own styling service with ‘Personal Shopper’ since July 2019. Finally, Amazon has been looking to help new designers gain visibility by launching ‘The Drop’ an innovative shopping experience that gives customers access to limited-edition street-style collections designed by fashion influencers around the world, available since May 2019.

With the addition of Luxury Stores, Amazon is reinforcing its offer to luxury brands by giving direct access to their unique base of customers, along with the solutions outlined above. Here are a few reasons we think it can be successful.

Customer base

By making it an invitation-only solution for Prime customers, Amazon is able to instil an element of exclusivity which luxury brands are looking for.

Tailored solution

The fact that Amazon includes the ability to include storytelling and brand imagery within their luxury stores means that brands can expect advertising solutions to be designed for them.

Innovative solutions

With the introduction of 360° view, Amazon is looking beyond the brand website and resellers to attract consumers who are shopping through their mobile devices. To that end, we can also expect more technological innovations to come, such as the use of AR, particularly following the recent introduction of Amazon Shopping Tool and Room Decorator, which allows users to visualise pieces of furniture in their own space.

Data and insight

Amazon has the ability to surface data and insights from its user activity, which can better assist luxury brands in reaching their target customers in a more efficient way.

If Amazon can continue to develop innovative technology solutions in the space, it has a real opportunity to increase online revenue share in the luxury sector.

What’s the risk for brands?

In the world of luxury, perception is everything. The first obvious risk and consideration for luxury brands is associating their brand image with Amazon’s reputation of providing lower-end retail products. However, it appears from how Amazon has pitched its solution, that it has addressed this concern by offering the exclusive invitation-only approach. There are approximately 112 million Amazon Prime members in the US, and we can expect Amazon to select key consumers from this pool to give access to Luxury Stores.

At this point, one risk that we foresee for brands looking to access Luxury Stores is the potential impact on their retail business. If Amazon becomes an important revenue stream for brands, we can expect these brands to start increasing their investment with Amazon - which may well be to the detriment of their in-person retail stores.

Another risk is the impact on order fulfillment. Amazon usually prefers to fulfil orders directly from its own warehouse, and this could impact the volume of orders that brands will need to fulfil from their own facilities. This in return could lead to some brand-owned warehouses becoming unnecessary, thereby causing potential redundancies in this part of their business.

What can Amazon learn from Tmall’s Luxury Pavilion?

If Amazon looks to the East for inspiration, Alibaba’s Tmall has been a big talking point in the wake of COVID-19, with leading luxury houses joining its Tmall Luxury Pavilion, including Cartier, Gucci and Dior.

This empire of luxury brands wasn’t built in a day. Alibaba has been planning its entry into the luxury sector since as early as 2015, when cross-border e-commerce was booming in China. Back then, Alibaba’s major e-commerce arm was Taobao and Tmall, which had a distinct focus on branding. Taobao has been under intense scrutiny over the years for counterfeit products that flooded the platform. Tmall, however, has a much stricter entry threshold, so brands without a trademark or business licence cannot sell on Tmall.

But this was still not enough for luxury brands to embrace selling through Tmall back then. Therefore, Alibaba created a fresh new concept to appeal to the luxury sector, in the form of Tmall Luxury Pavilion.

What made Alibaba’s Tmall Luxury Pavilion into an ecommerce empire was differentiation. By segmenting this new venture from Taobao and Tmall, they were able to tap into the niche luxury market. This included improving the user experience for both customers and brands, having stricter thresholds for approving listings, and offering memberships, along with exclusive releases.

In addition, compared with Amazon, Alibaba is in a unique position as it offers a simpler gateway for Western luxury brands looking to enter the Chinese market. This is not only down to the fact that there is a large existing customer base in Alibaba’s ecosystem, but also because luxury brands simply have less choice in the Chinese market.

In markets outside of China, luxury brands already have comparatively much more choice around where to sell online - from their own branded website to major luxury fashion platforms such as Farfetch and Net-a-Porter. So it remains to be seen whether luxury brands will want to dilute their resources further to manage a store on Amazon, and there is also the possibility that Alibaba could launch a European offering in an attempt to claim some of Amazon’s market share.

The groundwork done by Alibaba over the years has seen Tmall’s Luxury Pavilion thrive in 2020, with more and more luxury brands signing up. However, it’s important to remember that creating an environment that is perceived by luxury brands as appropriate for them to opt into is no mean feat. A wrong move or association can profoundly affect a brand’s hard-won reputation. So with the launch of Amazon’s Luxury Stores, will we see the online marketplace delivering the same levels of success as Alibaba in a shorter period of time? This remains to be seen, but we will be watching closely over the coming months.

Benoît Le Gendre, senior account manager, Croud