Amazon Apparel: Is the E-Commerce Giant About to Take the ... · Source: Euromonitor...

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DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

Amazon Apparel: Is the E-Commerce

Giant About to Take the Apparel

Industry by Storm?

• Theglobalapparelmarketisgrowingata4.5%annualrate, yet global e-commerce sales of apparel aregrowing at a 12.8% rate, demonstrating consumers’increasingwillingnesstobuyclothesonline.

• Amazon has been selling apparel since 2002, but thecompanyintensifieditsactivity in2006andagainthisFebruary, when it stealthily launched seven private-labelbrands.

• At $78 billion, apparel and footwear represents thesecond-largest global e-commerce market—and onethat is too large to ignore.We think Amazon is nowturning its focus to apparel due to the company’senormous size and its success in dominating the e-commercemarketsforprintanddigitalmedia.

• We estimate that Amazon will hold 7% of the USapparel market this year, and we think that throughpromotion and private-label offerings, the companycan grow its apparel grossmerchandise value (GMV)ata16%CAGR,tomorethan$50billionin2020

D E B O R A H W EI N S W I G

M a n a g i n g D i r e c t o r , F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m

U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9

C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

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EXECUTIVESUMMARY

Whiletheapparelindustryhashitsomespeedbumpssincethelaunchofe-commerce and omni-channel platforms, the sector has largely beenconducting business as usual, unfazed by growth steadily being siphonedawaybye-commerce.Therehavebeenrecentsigns,though,thataspecterishauntingapparel—intheformofAmazon.com—andAmazon’snewfocusonthissegmentalreadyseemstobespookingotherretailers.

Althoughfewofustypicallythink“Amazon”whenwethink“apparel,”thecompanyhasbeenactive in the category since2002,when itoffered400apparel brands on its website—and its product breadth has expandeddramaticallysincethen.Startingin2006,thereweresignsthatAmazonwasbecoming more serious about apparel, launching various websites andmakingacquisitionsintherun-uptoits$1-billion-plusacquisitionofZapposinNovember2009.

This February,Amazonquietly launched sevenprivate-labelbrands,whichcanbefoundviathesearchtoolonthecompany’swebsite.Amazonseemsto have waited for an inflection point at which consumers were quitecomfortablebuyingonlineingeneral,andbuyingapparelonlinespecifically,beforeitlauncheditsownapparelbrands.

WeestimatethatAmazon’sshareof theUSapparelmarketwillbe7%,or$24billion,in2016.IfAmazonisabletogrowthisbusinessata16%CAGR(just three percentage points faster than the global e-commerce apparelmarket is expected to grow), then by 2020, the company should achievemore than $50 billion in GMV, representing more than 12% of the USapparelmarket.

ThewindisalreadyatAmazon’sback.Thecompanyhasplayedamajorrolein the development of US e-commerce, which is steadily growing as apercentage of US retail every quarter—and Amazon’s sales are growingeven faster. Moreover, the US apparel market is forecasted to grow atmodest rates—meaning that consumers are still buying apparel. And e-commerce sales of apparel are growing at a mid-teens rate, in sharpcontrasttothesame-store-salesdeclinesreportedbyseverallargeretailersinthefirstquarterof2016.

Clearly,thethreatfromAmazonisacuteandhasintensifiedrecently.Howcan brick-and-mortar retailers respond?While they may have to step uptheir tech spending to match Amazon on ease of purchasing and onshippingtimes,theirphysicalstoresareakeyadvantage.SurveysshowthatAmericans and Britons overwhelmingly still like to visit stores, so physical

Amazonhasbeenactiveinthecategorysince2002,whenitoffered400apparelbrandsonitswebsite—anditsproductbreadthhasexpandeddramaticallysincethen.

WeestimatethatAmazon’sshareoftheUSapparelmarketwillbe7%,or$24billion,in2016.IfAmazonisabletogrowthisbusinessata16%CAGR,thenby2020,thecompanyshouldachievemorethan$50billioninGMV,representingmorethan12%oftheUSapparelmarket.

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stores can offer interesting environments, experiences and personalizedservice—the things that thee-tailers cannot—inorder tocaptureshareofthewalletsthatwalkin.

WHYISAMAZONAGGRESSIVELYEXPANDINGINAPPAREL?

ThegraphbelowdetailstheInternetretailingcategoriesthatweconsidertobeafocusareaforAmazon.Specifically,Amazonhasbeenamajorforceinonline sales of media and electronics, and the company is currentlyaggressively expanding into grocery. Basedon thedata fromEuromonitorInternational, we see that apparel and footwear constitutes the largestsinglecategoryonitsown,andthelargestcategoryafterother.WebelievethatAmazon’srecentmovefurtherintoitsapparelisduetothesizeofthecategory combined with consumers’ growing comfort with purchasingapparelonline.

Figure1.GlobalE-CommerceCategories,2016(USDBil.)

Source:EuromonitorInternational/FungGlobalRetail&Technology

$130.0$78.0$70.5

$28.9$26.2

$9.2$8.9$7.4$4.6$3.2$1.1$0.7$0.4$0.1

$0.0

OtherApparelandFootwearConsumerElectronicsConsumerAppliances

FoodandDrinkBeautyandPersonalCare

HomewaresandHomePersonalAccessoriesand

ConsumerHealthMediaProducts

HomeCare

TradimonalToysandGamesPetCare

VideoGamesHardware

Focus Non-Focus

Total=$369.2Billion

Apparelandfootwearconstitutesthelargestsinglecategoryonitsown,andthelargestcategoryafterother.WebelievethatAmazon’srecentmovefurtherintoitsapparelisduetothesizeofthecategorycombinedwithconsumers’growingcomfortwithpurchasingapparelonline.

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In the graph below, we see that online apparel and footwear sales havegrownfasterthanaggregateglobalretailsaleshaveoverthelast10years.TheglobalInternetapparelmarketgrewata22.7%CAGRfrom2005–2015,whereastheglobalretailmarketgrewata4.5%CAGR.

Figure2.GlobalRetailSalesvs.GlobalInternetApparelSales(USDBil.)

Source:EuromonitorInternational

APPARELMARKETSIZEANDDYNAMICS

Theglobalapparelmarketwasworthapproximately$1.1billionin2012andisexpectedtogrowata5.1%CAGRthrough2025,accordingtoStatista.

Figure3.GlobalApparelMarket(USDBil.)

Source:WazirManagementConsultants

Basedonthesefigures,wecalculatethattheglobalapparelmarketwillbeworth$1.3billion in2016,whichbreaksdowngeographicallyas shown inthegraphbelow.

$0

$50

$100

$150

$200

$0

$5,000

$10,000

$15,000

05 06 07 08 09 10 11 12 13 14 15

GlobalInternetApparel

Globa

lREtailSales

Retailing ApparelandFootwear(Internet)

$1.1

$2.1

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2012 2025E

China EU-27 US IndiaJapan Russia Brazil CanadaAustralia RestofWorld

CAGR=5.1%

TheglobalInternetapparelmarketgrewata22.7%CAGRfrom2005–2015,whereastheglobalretailmarketgrewata4.5%CAGR.

Theglobalapparelmarketwasworthapproximately$1.1billionin2012andisexpectedtogrowata5.1%CAGRthrough2025,accordingtoStatista.

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Figure4.GlobalApparelMarket,2016E

Source:WazirManagementConsultants

These figures contrast with Amazon’s 2015 revenue breakdown bygeography,which shows, notably, thatBrazil, Russia, India andChina (the“BRIC”countries)arenotlargemarketsforAmazon.

Figure5.Amazon’sRevenues,byGeography(2015)

Source:Companyreports

The US apparel and footwear market grew at a modest, 2.6% rate from2010 through 2015, but it is forecasted to pick up and grow at a higher,4.1%ratefrom2016through2020.

29%

18%

17%

9%

8%

5%

5%4%

3% 2%

Total=$1.3Billion EU-27

US

China

Japan

RestofWorld

India

Brazil

Russia

Canada

Australia

66%

11%

8%

8%

7%

Total=$107Billion

US

Germany

UK

Japan

RestofWorld

TheUSapparelandfootwearmarketgrewatamodest,2.6%ratefrom2010through2015,butitisforecastedtopickupandgrowatahigher,4.1%ratefrom2016through2020.

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Figure6.USApparelMarket(USDBil.)

Source:EuromonitorInternational/FungGlobalRetail&Technology

The US apparel market is highly fragmented, as depicted in the graphbelow,with65%ofthemarketshareheldbysmallplayers.

Figure7.MarketShareofSelectedUSApparelCompanies(ExcludesAmazon)

Source:Forbes/Trefis

$301 $310 $317 $324 $331 $343$359 $374

$389 $405$420

10 11 12 13 14 15 16E 17E 18E 19E 20E

CAGR=2.6%

CAGR=4.1%

Macy's9%

Walmart8%

Target5%

Gap5%

JCPenney3%

Costco2%

Am.EagleOupiqers1%

Aéropostale1%

Abercrombie&Fitch1%

Others65%

TheUSapparelmarketishighlyfragmented,asdepictedinthegraphbelow,with65%ofthemarketshareheldbysmallplayers.

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FRAGMENTEDGLOBALAPPARELLANDSCAPE

Theglobal retail landscape is fragmented, and in the tablebelow,we seethat the next-largest retailer after Amazon is only one-quarter its size intermsofonlinesales.Althoughtheretailerslistedallcarryapparel,Macy’sandVipshopspecializeinapparel.

Figure8.SelectedTopGlobalRetailers’E-CommerceSales,FY2014(USDBil.)

Company Country E-CommerceSales

Amazon US $70.8

JD.com China 17.7

Walmart US 12.2

Otto Germany 8.4

Tesco UK 6.5

Macy’s US 5.4

LibertyInteractive(incl.QVC) US 5.2

GroupeCasino France 4.6

Vipshop China 3.7

LojasAmericanas Brazil 3.4

Source:NationalRetailFederation/FungGlobalRetail&Technology

E-COMMERCE’SRELENTLESSENCROACHMENTONRETAIL

In the US, e-commerce continues to steadily encroach on US retail sales,accountingfor7.8%ofthetotal(onaseasonallyadjustedbasis)in2015andup15.2%yearoveryear.Thesharegainsofe-commercearedepictedinthegraphbelow.

Theglobalretaillandscapeisfragmented,weseethatthenext-largestretailerafterAmazonisonlyone-quarteritssizeintermsofonlinesales.

IntheUS,e-commercecontinuestosteadilyencroachonUSretailsales,accountingfor7.8%ofthetotal(onaseasonallyadjustedbasis)in2015andup15.2%yearoveryear.

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Figure9.USOnlineRetailSalesasaPercentofTotalQuarterlyRetailSales

Source:USCensusBureau

Ase-commercepenetrationhasgrownintheUS,Amazonhasgrownevenfaster,accountingfor18.6%oftheUSe-commercemarketin2015.

Figure10.US:TotalE-CommerceSalesvs.Amazon’sSalesandAmazon’sShareofTotalSales(USDBil.)

Source:USCensusBureau/companyreports

Thusfar,wehaveestablishedthatUSe-commerceisgrowing,thatAmazonis growing faster than e-commerce overall, and that spending on appareland accessories is growing. The final piece of the puzzle is to determinewhetherUSconsumersareusinge-commercetopurchaseapparel.Andtheansweristhat,yes,theyaredoingsoenthusiastically,asseeninthegraphbelow.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

NotSeasonallyAdjusted SeasonallyAdjusted

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

$0

$50

$100

$150

$200

$250

$300

$350

$400

00010203040506070809101112131415

Amazon'sShareE-

CommerceReven

ue

USE-Commerce Amazon-US Amazon'sShare

Ase-commercepenetrationhasgrownintheUS,Amazonhasgrownevenfaster,accountingfor18.6%oftheUSe-commercemarketin2015.

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Figure11.USE-CommerceSales,byCategory:YoY%Change(1Q16)

Source:comScore/FungGlobalRetail&Technology

AMAZON:ATITANINELECTRONICS,GENERALMERCHANDISEANDWEBSERVICES—ATITANINAPPAREL,TOO?

Amazoncurrentlyclassifies itsrevenues inthreesegments,andwelistthesegments,withtheirrespectivemarketshares,inthetablebelow.

13.3%

20.6%

24.5%

29.3%

29.6%

36.1%

15.6%

0% 10% 20% 30% 40%

Apparel&Accessories

Furniture,Appliances&Equipment

Sports&Fitness

Jewelry&Watches

Toys&Hobbies

VideoGames,Consoles&Accessories

TotalExcl.Aucmons,EventTicketsandTravel

ThefinalpieceofthepuzzleistodeterminewhetherUSconsumersareusinge-commercetopurchaseapparel.

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Figure12.Amazon’sSegments:RevenuesandMarketShare,2015

Segment Revenue(USDBil.)

MarketShare

ElectronicsandGeneralMerchandise $75.6 15.6%

Media 22.6 1%

AmazonWebServices 7.9 31%

Other 1.0 N/A

TOTAL $107.0 N/A

Source:Amazon.com/Statista/SynergyResearchGroup/Trefis

TheOpportunityinApparel

EuromonitorInternationalestimatesthatAmazon’sshareoftheUSapparelmarketwas6%in2015,whichwouldputitsGMVatabout$20.5billion.PerEuromonitor:

• Although better known for books and electronics, Amazon isn’tunfamiliar with the business of apparel, accounting for 6% valueshare of apparel and footwear Internet retailing in 2015,predominatelydrivenbyitssalesofthird-partybrands.

ThisrelativelylowsharepreciselyrepresentstheopportunityforAmazoninapparel. One assumes that Amazon could achieve a market sharecomparable to its electronics and general merchandise segment (about15%–16%) in apparel, which would result in GMV of greater than $50billion.

HISTORYOFAMAZON’SACTIVITYINAPPAREL

Amazon has been gradually building its apparel business since late 2002,bothorganicallyandthroughacquisitions.InNovember2002,itannouncedthe launch of its Apparel & Accessories Store, offering more than 400brands. The company commented that “in [the store’s] first 60 days,customersbought153,000shirts,106,000pairsofpantsand31,000pairsofunderwear.”

The table below outlines Amazon’s key developments and acquisitions inapparel.

Figure13.KeyAmazonApparelEvents

Date Event

Nov.2002 LaunchesApparel&AccessoriesStore

Feb.2006Acquires Shopbop.com (fashion-forward apparel, shoes andaccessoriesforwomen)

Jan.2007 LaunchesEndless.com(shoeandhandbagwebsite;closedin2012)

Jun.2008 AcquiresFabric.com(onlinestoreforfabrics,toolsandaccessories)

Nov.2009 AcquiresZapposfor$1.1billioninstock(andwebsite6pm.com)

Oct.2010 Acquiresmembers-onlyclubBuyVIP.comfor$96.5million

ThisrelativelylowsharepreciselyrepresentstheopportunityforAmazoninapparel.OneassumesthatAmazoncouldachieveamarketsharecomparabletoitselectronicsandgeneralmerchandisesegment(about15%–16%)inapparel,whichwouldresultinGMVofgreaterthan$50billion.

Amazonhasbeengraduallybuildingitsapparelbusinesssincelate2002,bothorganicallyandthroughacquisitions.InNovember2002,itannouncedthelaunchofitsApparel&AccessoriesStore,offeringmorethan400brands.

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Date Event

May2011 LaunchesMyHabit.com(private-salesite;closedin2016)

Apr.2015 AcquiresShoefitr

Aug.2015Participates in $8million series B round in shoppable fashion siteWhoWhatWear

Feb.2016 Quietlylaunchessevenprivate-labelbrands

May2016 AcquiresMyHabit.com

Source:Amazon.com

Marketresearcher360pirecentlycompletedastudythatcalculatesatotalof12.2millionproductsonAmazon’swebsite,excludingbooks,media,wineandservices.Thegraphbelowillustratesthenumberofproducts listedonAmazon’smainwebsiteanditsMarketplace,bycategory.

Figure14.NumberofProductsListedonAmazon’sWebsiteandMarketplace(Mil.)

Source:360pi

82.0

64.3

33.4

31.6

24.0

21.6

19.3

16.9

16.3

11.2

6.8

5.7

5.5

3.1

3.0

2.5

2.0

1.5

1.1

1.0

0.9

CellPhones&Accessories

Home&Kitchen

Clothing,ShoesandJewelry

Electronics

Sports&Outdoors

Industrial&Scienmfic

Computers

Collecmbles&FineArt

Automomve

Tools&HomeImprovement

OfficeProducts

Toys&Games

Health&PersonalCare

Arts,Crazs&Sewing

Pamo,Lawn&Garden

Other

Beauty

Baby

PetSupplies

Grocery&GourmetFood

Appliances

Marketresearcher360pirecentlycompletedastudythatcalculatesatotalof12.2millionproductsonAmazon’swebsite,excludingbooks,media,wineandservices.

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QUIETENTRYINTOPRIVATELABEL

In February 2016, Amazon quietly launched seven in-house fashion labelsthat offer a variety of apparel and accessories for men, women andchildren.ThenewbrandsweretrademarkedinEuropethroughasubsidiarycalledAmazonTechnologies,basedinLuxembourg.Thesebrandsarelistedinthetablebelow.

All of the Amazon private-label items are available with free, two-dayshippingforPrimemembers.

Figure15.AmazonPrivate-LabelBrands

Brand TypeofApparel

Franklin&Freeman Men’sshoes

FranklinTailored Men’stailoredsuitsandaccessories

James&ErinWomen’s clothing (tops, plus-size,dresses)

Lark&RoWomen’s clothing (tops, dresses,swimwear)

Scout+Ro Children’sclothing

NorthEleven Women’sandgirl’sclothing

SocietyNewYork Women’sclothingandaccessories

Source:Amazon.com

Franklin&Freeman

Franklin&Freemanisalineofmen’sdressanddressycasualshoes;attimeofwriting,onlyonetypeisavailable.

Product Description/Price

Men’sRobinsonWingtipMedallionOxford

Price:$125.00

Men’sDavisCapToeOxford,Chestnut

CurrentlyUnavailable

Men’sMitchellPlainToeChelseaBoot

CurrentlyUnavailable

Source:Amazon.com

InFebruary2016,Amazonquietlylaunchedsevenin-housefashionlabelsthatofferavarietyofapparelandaccessoriesformen,womenandchildren.

Franklin&Freemanisalineofmen’sdressanddressycasualshoes;attimeofwriting,onlyonetypeisavailable.

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FranklinTailored

Franklin Tailored offers a line of men’s suits. Prices as low as $250 havebeenmentioned,buttheonlysuitavailableattimeofwritingsellsformorethan$1,000.


FranklinTailoredMen’sTexturedWindowpaneTracySuit

Price:$1,069.12

Men’sSharkskinTracySuit,Charcoal

CurrentlyUnavailable;Was$281.97

Source:Amazon.com

James&Erin

James&Erinisalineofwomen’sclothing.


James&ErinWomen’sCrewNeckTop

Price:$53.57

Source:Amazon.com

Lark&Ro

Lark&Roisalineofwomen’sworkwear.


Lark&RoWomen’sSleevelessColorBlockA-LineDress

ListPrice:$69.50

Price:$49.90

FreeShippingforPrimeMembers&FREEReturns

Source:Amazon.com

FranklinTailoredoffersalineofmen’ssuits.

James&Erinisalineofwomen’sclothing.

Lark&Roisalineofwomen’sworkwear.

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Scout+Ro

Scout+Roisalineofchildren’sclothing.ProductlinenamesincludeRocketPocket,Ro,RoDress,RoGirls,Robot,RocketKitandRoBoys.

Source:Amazon.com

Source:Amazon.com

NorthEleven

At time of writing, there were no items available under this brand.However,Amazon’ssearchfunctionidentifiesthefollowingcategories:

• Women’saccessories

• Girls’clothing

• Clothing,scarves,ponchos

SocietyNewYork

At time of writing, no items were available under this brand. However,Amazon’ssearchfunctionidentifiesthefollowingcategories:

• Women’sclothing

• Women’shandbags

Scout+Roisalineofchildren’sclothing.ProductlinenamesincludeRocketPocket,Ro,RoDress,RoGirls,Robot,RocketKitandRoBoys.

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• Dresses,sunglasses,glasses,totebags,bags,lacedresses,plus

AMAZONFASHION

AmazonFashion still appears tobe in stealthmodeonAmazon’swebsite.Thefashionsectionisnotdirectlyaccessibleviathehomepage,butonecanenter “Amazon Fashion” into the search window or enterwww.amazonfashion.com into a browser window in order to go to thelandingpage.

Source:Amazon.com

And the name “Amazon Fashion” then appears on the “Departments”menu.

Conclusion

Althoughe-commercehassteadilysiphonedoffmuchofthegrowthintheapparel industry, timeshavebeenrelativelypeacefulandpredictable.Thisis likely to change soon, though, as Amazon is intensifying its activities inapparel, leveraging several websites and acquisitions, and developing itsown private-label brands. If Amazon is as successful in apparel as it hasbeen in digitalmedia, the company couldwell be operating a $50-billion-plusapparelbusinessby2020.

AmazonFashionstillappearstobeinstealthmodeonAmazon’swebsite.

IfAmazonisassuccessfulinapparelasithasbeenindigitalmedia,thecompanycouldwellbeoperatinga$50-billion-plusapparelbusinessby2020.

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:[email protected],CFASeniorAnalystHONGKONG:10thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223002470LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017

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Amazon Apparel: Is the E-Commerce Giant About to Take the ... · Source: Euromonitor...

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