Mall-based apparel retailers, beware: Amazon is gaining on you.
According to a just-released report by New York-based equity research firm Cowen and Company, Amazon will displace Macy’s as the number one apparel retailer in the U.S. by 2017.
Rapid growth in the Internet giant’s clothing and accessories business is driving the Electronics and General Merchandise (EGM) segment that comprises 70 percent of total Amazon revenue. If that growth continues as expected, Amazon’s U.S. apparel business will grow from $16 billion (gross merchandise value, or GVM) in 2015 to $52 billion by 2020, resulting in a five-year market share increase from 5 to 14 percent. In that same period, Cowen estimates, Macy’s share will decline from 7.3% to 6.9%.
Amazon’s base of apparel purchasers grew by 36 percent in the first half of 2015 compared to the same period in 2014, a faster rate than its overall EGM purchasers, according to Cowen’s monthly Retail Tracker Survey, and in stark contrast to low-single-digit declines in the number of apparel purchasers at Walmart and Target.
Breadth of product is a key factor. Amazon has a reported 19 million apparel-related SKUs, 1.2 million of which qualify for free shipping on Prime, compared to 292,000 at Walmart, 85,000 at Nordstrom and 35,000 at Target.
Among the top Amazon apparel brands by SKU count are Calvin Klein (3,891 SKUs), Disney (2,333), Columbia Sportswear (2,160), Puma (2,122) and Nautica (2,045).
The report concludes that “middle of the mall” specialty retailers are the most at risk of market share loss to Amazon, particularly if they lack e-commerce distribution. Traditional retailers with strong e-commerce and mobile commerce, a strong brand positioning and a developed omnichannel shopping experience are the best positioned to compete against Amazon.
Amazon has made the clothing and accessories vertical a key priority. Although still in relatively early days since its debut 13 years ago, the business has come a long way since 2002. The company has invested heavily in the area, hiring key personnel and expanding technology to enhance search and discovery capabilities. It has worked to build relationships with key brands and enhance its image in the fashion community.
Most importantly, however, the company has invested in infrastructure to increase its speed of delivery. Amazon quadrupled its fulfillment capacity in North America since 2009, strategically locating distribution centers close to its customers. This is in stark contrast to U.S. retailer’s square footage, which grew by only 1.4% annually during that time.
Recently, Amazon Fashion President Cathy Beaudoin disclosed that Amazon Fashion has over 40 million customers. Cowen and Company data suggest that 14 percent of Amazon purchasers bought clothing and accessories products in the first half of 2015, up from 12 percent the prior year.