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Cowen: Amazon Inches Closer to Apparel Domination

Amazon, already king of the e-commerce world, looks set to not only become the number one apparel and accessories retailer in 2017, but to snag further share and reduce massive fragmentation.

Following an Amazon apparel focus group, analysts at Cowen and Company reiterated in a report Monday that the e-tail giant will reign supreme in apparel next year because of its broad offering and 26 percent year-to-date growth of apparel purchasers.

Gross margin value for Amazon is expected to rise from $22 billion this year to $62 billion by 2021.

What exactly are consumers buying? Replenishment items, basics, branded or well-known items and specific items when they knew exactly what they wanted.

And what’s driving consumers to buy this apparel at Amazon really boils down to convenience. Those in the focus group named Prime (for reliable, fast delivery) as the number one key positive for buying at Amazon, followed by convenience, customer service and reviews.

There’s still a silver lining for brick-and-mortar, however.

Shoppers said they still want to be able to try on goods, benefit from loyalty programs and have better browsing and curation—though these are just a few fixable setbacks for Amazon. Price and selection were also sometimes cited as unfavorable with Amazon, but Cowen said that issue should work itself out over time as Amazon provides third-party sellers with better pricing tools and further ramps up first part brand partnerships.

“Ultimately we don’t view the U.S. apparel markets as a winner take all, but rather winner take most, an Amazon specialty,” Cowen noted.

In another focus group about how consumers shop for branded merchandise, Cowen found that there’s still a few ways for brick-and-mortar to win.

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Other retailers got higher marks than Amazon when it came to breadth and depth of brand selection, store experience, curation of content and sometimes even free shipping and returns.

“Consumers like the pricing and convenience associated with e-com, especially for replenishment items; however, also noted brick-and-mortar is still very highly valued, especially with higher-end items and a rich retail experience,” Cowen analyst John Kernan said. “Amazon is always in the mix with Prime offering top-tier service, however, brand stores and websites and department stores indexed highly in terms of selection and sometimes navigation.”

Amazon Fashion also got just a “lukewarm” review for focus groupers who felt the site personalization and ease of use could use some improvement.

Cowen said differentiated brick-and-mortar retailers like Burlington, Dick’s Sporting Goods and Foot Locker should see growth earnings higher than their peers.

“We believe retailers need to prioritize providing customers a seamless shopping experience across stores and online which leverages merchandise driven talent and capabilities,” analyst Oliver Chen added. “Product and brand innovation must evoke emotion and inspiration in order to drive differentiation and pricing leverage.”

Nordstrom and Walmart will be best positioned against Amazon, according to Cowen.

Cowen analysts are now more cautious about the environment for vendors as wholesale brick-and-mortar partners have become tighter with their open-to-buy budgets and inventory commitments for 2017 because of consumers’ increasing need for now.

“The ongoing contraction in the wholesale channel could lead to more companies/brands expanding their relationship and product distribution with Amazon while balancing visual presentation and merchandising on Amazon’s site,” Kernan said.