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How Private Label Collections Are Giving Amazon the Upper Hand

There was a time—not too long ago—when labels and logos were everything. Back then having the right name brand was paramount when shopping for apparel and accessories. But these days, more and more consumers are evaluating products based on their attributes rather than the status they confer.

The rise in fast fashion, which gave shoppers the looks they loved for less, and social media, which prizes aesthetics over all else, have helped erode brand loyalty, especially among younger shoppers.

This brand agnosticism is what’s helping Amazon realize its apparel aspirations, according to Bloomberg. Further, the publication says, it was the rise of private label that not only bred our collective designer ambivalence, but ultimately cracked open the door for the online behemoth to dominate the fashion landscape.

The consumer

First taking a look at today’s—and tomorrow’s—shoppers, it’s easy to see a trend toward private brands. A recent IRI Consumer Connect survey of more than 2,000 consumers showed that emerging age demos have a clear affinity for private labels. The poll found that 83 percent of millennials and 78 percent of Gen Xers were more likely than the population as a whole (75 percent) to feel that store brands offer the same quality as national brands. And when it comes to value, 76 percent of millennials see the value as equal, compared to 69 percent of the overall population.

Moreover, a survey by Cadent Consulting Group found that while 39 percent of baby boomers have no preference between private label and national brands, 51 percent of millennials feel the same way.

This mindset on behalf of younger generations is significant since there will be 15 million more millennials than boomers by 2027, the firm noted. In its “Sea Change for Private Label” report, Cadent calculated that the 12-point difference between the two age groups could yield a 6-point share advantage for private brands with millennials.

The assortment

This shift in consumer thinking coincides with retailers’ increasing reliance on private-label assortments. Seen as a vehicle for delivering more attractive margins, these collections are under the microscope at store chains as the scramble to boost foot traffic and profits. Retail execs are also hoping to use these lines to combat the sea of sameness and differentiate themselves in the face of over-distributed national brands.

Currently, Macy’s has vowed to increase its selection of private and exclusive brands from 29 percent to 40 percent. Similarly, The Bon-Ton Stores plan to beef up these collections from 17 percent to 25 percent in the coming years. Target upended its merchandising in this area, jettisoning stale house brands in favor of 12 fresh collections. Even grocers like Kroger—which helped pioneer the private label movement—are jumping on the apparel bandwagon. The chain will launch activewear for the whole family in the fall.

But what does this surge in private label have to do with Amazon? Well, the online leader too is rolling out a steady stream of house brands. And with consumers predisposed to look at attributes like color and fit rather than designer names, Amazon’s product introductions stand on equal footing with established lines in consumers’ minds.

The advantage

What tips the scales of this equal opportunity in Amazon’s favor, however, is the disproportionate number of times its products appear in the company’s search results.

As noted in the Bloomberg story, Bain & Co. found that shoppers today are more likely to search for a generic term like “holiday sweater” rather than a brand name when shopping online. When these product rather than designer queries happen on Amazon, the firm found that more than 25 percent of the first-page results are private-label items.

Layer this advantage on top of the propensity of Prime members—which total 90 million in the U.S., according to Consumer intelligence Research Partners—to turn to Amazon for almost everything, and it’s no wonder that the e-commerce giant dominates private label sales. One Click Retail found that Amazon sold more than $250 million in private brands through the beginning of October. The women’s clothing line Lark & Ro alone earned $10 million in sales in that same time frame.

Even as sales increase, however, apparel shoppers don’t consider themselves Amazon customers. WGSN’s Barometer report found that only 6 percent of those surveyed consider Amazon to be a shopping destination for women’s clothes. Despite this shortcoming, the trend service found that once shoppers purchase something on the site, the retailer rarely loses a customer. The report showed the site’s lapsed customer rate is only 20 percent, the lowest number of all brands it tracks, relative to its customer base size.

So with a consumer who’s now predisposed to ignore brands and a customer base that’s extremely loyal to its platform, Amazon has a clear advantage that other retailers can’t beat, right? Not necessarily, says Francesce Muston, head of retail at WGSN.

She said other retailers should study Amazon to learn the ways in which they can compete. “The fashion industry’s fear of Amazon lies in its scalability and proficiency in using convenience to hook in its customer, but there are other strategies in Amazon’s tool kit which fashion retailers could leverage,” she said. “Amazon Prime effectively drives brand loyalty yet there are few fashion retailers who offer loyalty schemes which are truly compelling for the customer. Amazon also offers the ability to drill down to a specific product yet many fashion retailers’ search results are too broad. Fashion retailers could also make more of their basics lines to encourage replenishment purchases with push reminders and personalized product suggestions.”

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