Amazon Poses Growing Threat to Fashion Retailers

Study finds growing customer overlap

Author: Andria Cheng

October 17, 2017

Department stores and specialty clothing retailers aren’t short of challenges these days, from declining store and mall traffic to consumers spending more on experiences over material things. And there's an elephant in the room: Amazon.

In the third annual Morgan Stanley AlphaWise apparel survey of nearly 2,000 US consumers in September, the investment banking firm’s equity research team found that Amazon is “rapidly gaining consumer traction in apparel,” especially to the detriment of department stores and specialty retailers.

It found that 69% of consumers, including teens, bought apparel on over the past six months, up from 59% last year, the biggest percentage increase among about 30 retailers in the sample. 

More importantly, more than two-fifths of shoppers said they spent more on Amazon in the past year. It was also one of the few retailers where shopper intention to purchase apparel the next 12 months is among the highest, the study showed. Amazon also led with the coveted brand net promoter score of 61%, more than twice Target’s 28% in second place and almost 9 times the average score of the other 28 retailers, according to the study.

In contrast, for department stores and specialty retailers from Kohl’s and JC Penney to Lululemon and Gap, the percentage of consumers who shopped with them the last six months was much lower, at levels ranging from 38% to 6%, according to the survey.

To be sure, studies have showed Amazon’s apparel shoppers traditionally tend to buy basic items like men's socks and underwear, and the Morgan Stanley finding didn’t indicate what kind of apparel items Amazon shoppers bought and if there’s an increased adoption of higher-priced fashion. 

However, Amazon’s increased customer overlap with shoppers at many department stores and specialty clothing shops may be an indication that fashion-oriented purchases are occurring. For example, the survey found that an average of 79% of department store shoppers also bought clothing on over the past six months, with the overlap at Nordstrom and Macy’s even higher at 84% and 81% respectively. For specialty apparel chains, the study found Urban Outfitters Inc.’s Free People unit and athletic-apparel chain Lululemon had the greatest increase in customer overlap with Amazon, at 79% and 81% each.

Meanwhile, the study also showed increased Amazon shopping among younger 13-24-year-old shoppers. “This is encouraging for Amazon's future as these shoppers continue to spend more as they age,” the study said.

Among shoppers at teen apparel chains from Abercrombie & Fitch and American Eagle Outfitters to Forever 21 and H&M, 78% of them on average said they also bought apparel on Amazon the past six months.

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Amazon's Ambitions for Fashion Sales

Amazon has called out Amazon Fashion as a key growth area. It has introduced private-label lines from Lark & Ro women’s line to Buttoned Down men’s label for its Prime members. This year, it also unveiled the fashion-focused Alexa-powered Echo Look camera and app device that aims to act as a personal stylist offering wardrobe recommendations.

To increase its assortment and make it a one-stop shop for consumers, Amazon is striking relationships with top brands like Nike. 

“The consumer is going to continue to migrate to the Amazon platform,” Dave Powers, president and CEO of Ugg boot parent Deckers, said earlier this year in explaining why Ugg is selling on Amazon. “We'd be foolish to think that Amazon is not going to be a major player in the future. The younger consumer is migrating there quickly.”

A separate Morgan Stanley study earlier this year estimated that apparel category would drive about 18% of Amazon’s forward US gross merchandise value growth.