‘Trapped’: How Amazon is cornering fashion brands into wholesale

Brands have the option of either selling to Amazon directly, via its wholesale model, or joining the company’s third-party marketplace as a seller. But brands and industry execs say Amazon’s rigged the game so that it’s not much of an option at all.

“Brands are feeling trapped by Amazon,” said Jim Fosina, the founder and CEO of Fosina Marketing Group, a Connecticut-based marketing agency. “As a wholesale partner, you’re falling victim to Amazon’s pricing model, which is a huge risk. But that’s the only way to unlock their distribution model. Fashion and Amazon are at a major crossroads.”

Amazon is keen on building out its Amazon Fashion platform, and it’s hoping to woo brands to join on the wholesale side. That model is similar to any retail partnership: Brands sell their merchandise to Amazon, and then Amazon distributes orders, dictates inventory and sets pricing. That’s placing a lot of control in the hands of Amazon, which Fosina called retail’s “800-pound gorilla,” noting that it’s primarily focused on looking out for its own margins and moving as much volume as possible.

For a fashion brand hoping to protect its hard-earned cachet, that’s a big gamble. But the other alternative — selling as a third-party brand on Amazon’s massive marketplace — gives brands little visibility and few of the perks that make Amazon a potentially attractive partner in the first place.

The wholesale brand hierarchy
When searching for something on Amazon, the cards are already stacked in favor of the wholesale model. A hunt for a black dress brings a curated set of dresses to the top of the page, with the prompt to “shop top brands.” That takes shoppers to the curated Amazon Fashion platform, which only wholesale vendors have access to. On top of search prioritization, Amazon Fashion brands have better control over branding, with enhanced product pages and video content. Brands also have to be accepted into the wholesale program by Amazon, so (at least theoretically) biting the bullet is a way for brands to take the air out of counterfeit sellers on the platform.

Third party sellers, on the other hand, will land on the regular results page, where customers are left to sort through hundreds of pages of results. Items available for Prime shipping, which only applies to certain Prime-eligible marketplace sellers, take top priority in the list.

How Amazon prioritizes Amazon Fashion’s wholesale brands in search results

While Amazon Fashion has won over brands like Calvin Klein, Tommy Hilfiger and Michael Kors, many brands are still wary of it, particularly on the higher end. But the retail giant’s market share is hard to ignore. According to eMarketer, in 2016 Amazon took in $95 billion in e-commerce sales, an increase of 19 percent year over year, and it accounted for 53 percent of all online sales growth in the U.S.

Fashion and apparel, meanwhile, remains a major growth opportunity for Amazon. Cowen & Co. analysts expect it to increase by 30 percent this year to $28 billion.

Fashion as the next frontier
As a result, Amazon’s been aggressive. Two new fashion-focused offerings have been rolled out this year: Prime Wardrobe and Echo Look. Prime Wardrobe lets customers order clothing to try on for free, only charging users for what isn’t returned, while Echo Look hopes to turn Amazon’s voice-activated personal assistant into a personal stylist by storing photos of outfits and offering brand recommendations, all through voice commands.

“As a wholesale partner, brands can actually participate in programs across its platform, like Prime Now, Prime Wardrobe and Echo Look,” said Meaghan Werle, Kantar Retail’s e-commerce analyst. “It gives them more visibility, and more of an enriched experience than you get as a third-party seller.”

The downside is not only the lack of control over pricing, but also the little customer data and insight offered by Amazon. Amazon owns the customer relationship, and brands only have access to basic analytics. If they’re willing to pay an additional fee, they’ll get access to more advanced information, according to Digiday, but they’re still in the dark on things like conversion rates and customer demographics. In the marketplace, brands have direct access to customer information, since they own the relationship, including those elusive conversion rates and demographics. But their priority on the Amazon totem pole is much lower.

Playing with fire
The lack of direct customer information has been a persistent problem with wholesale relationships, as brands look to get closer to their consumers in a competitive retail environment.

But bad habits spread quickly, and Amazon’s pricing modeling could have a negative rippling effect for brands, as it sets a precedent for other wholesale relationships, with department stores like Nordstrom and e-commerce sites like Net-a-Porter.

“Amazon’s whole pricing value is that there isn’t another retailer out there undermining them. That’s masterful on the Amazon side, but it resets the tide for everybody else,” said Fosina. “It becomes awfully difficult, because now you’re competing with yourself. Brands can’t go in and manage a higher margin with another wholesale partner, when Amazon is selling their brand for cheaper.”

For luxury brands in particular, the problem is compounded.

“Luxury retail is all about maintaining prices and selling side-by-side to peers,” said Luca Solca, head of luxury goods at Exane BNP Paribas. “Amazon, by contrast, is keen to beat competitors on price and does not have a ‘high-end’ dedicated space.”

Some luxury retailers are looking for ways to work with Amazon without resorting to selling through it. Moda Operandi incorporated Amazon Pay into its Like2Buy account to enable in-platform purchases on Instagram, but CTO Keiron McCammon said that it’s only suitable as a technology partner.

“We’re all about the feeling of luxury, and the trust that we’re representing a designer product,” he said. “That’s very hard for us to achieve by simply putting it in a data feed that they’re pumping into the Amazon marketplace. You’re not going to get the luxury experience.”

Reaching a compromise
As Amazon looks to build out its fashion platform, Werle believes it will focus its efforts on competing more on convenience than pricing, in order to build trust with brands — particularly those who are trying to battle counterfeit sellers on the platform. Nike, in a controversial move, recently signed on as an Amazon wholesale partner in order to fight back against unlicensed sellers.

“I don’t know that low price will be of the biggest importance on the fashion side, if they can get people hooked on the convenience side,” said Werle. “And Amazon wants to create trust and credibility in fashion in order to get established brands on their platform — one way to do that is to not cut prices.”