UBS believes that Amazon’s (AMZN) next opportunity is apparel.
The bank’s analysts recently stated in a note that “Amazon is increasingly well positioned to capture a portion of the fast-growing [North America] online fashion market.”
UBS estimated that a push into clothing could generate nearly $40 billion by 2022 for the Seattle retailer in North America’s gross merchandising value (GMV) — a measurement used in the e-commerce retail industry that refers to total sales — up from $15 billion in 2017. Online fashion market share is also expected to increase considerably.
The analysts argued that since Amazon offered more private-label and high-profile brands, had more initiatives in place to push these out, and added convenience with Prime, the tech giant can tap into a big growth pocket as retail shifts online.
‘Significant runway ahead for Amazon’
Amazon has been sowing the seeds of its nascent clothing business — beginning with its acquisition of ShopBop in 2006. The company recently signaled that it was going further by getting into sports clothing this week, and launching a private label called The Fix, a women’s shoes and handbags outlet that’s available exclusively to Prime members.
The biggest reason why UBS sees a “significant runway ahead for Amazon” in the fashion market is convenience.
Based on its survey of 9,000 respondents, UBS found that convenience was a huge motivator for consumers — 49% of respondents spend their annual budget on clothing and accessories online.
The analysts noted that Amazon continues to develop its own proprietary brands (e.g., Paris Sunday, Lark & Ro, Ella Moon) — it currently features around 6,500 private-label fashion products on its U.S. website as of June 2018 — and high-profile partnerships with Nike, Calvin Klein and UGG. They also saw the Echo Look, Prime Wardrobe, and the Body Labs acquisitions as “key fundamental drivers to Amazon’s longer-term opportunity in fashion.”
Challenges in the fashion category
A key roadblock for Amazon, however, is perception.
“Despite some high-profile brands joining the platform recently (e.g., Calvin Klein), one of the main challenges for Amazon in the fashion category remains consumer perception of Amazon as a discount fashion platform,” UBS stated.
Therefore, as the platform ramps up its private label business, the perceived lack of quality deprives them of access to valuable consumer data and risks their reputation further.
Furthermore, high fashion brands are reluctant to sell on Amazon because they see it as competition. And luxury names like Gucci and Prada may not want to be associated with the same online platform that sells everything from Hanes T-shirts to toilet paper.
UBS analysts list Amazon with a “Buy” rating and a 12-month price target of $1,830.
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