2016/09/01

Amazon Has Already Gobbled Up Books, Electronics: Are Fashion And Beauty Next?

Put aside for now, speculation on how many stores Amazon might open.
Too little is said about the online giant’s ever tightening grip on the U.S. retail market from the lens of the consumer products we buy.

The very unscientific gauge of all those Amazon Prime boxes strewn in my building’s mailroom suggest everyone and their mother is buying their T-shirts, tablets and toasters from Amazon alone — and maybe sometimes from Macy’s and J. Crew.
Photo credit: (AP Photo/Paul Sakuma, File)
While that of course can’t be true, this is: Amazon forever changed the bookselling business, fueling the demise of Borders, once second in size to Barnes & Noble, which is now the last remaining national bookstore chain.

Next up, the e-tailer is projected to become the nation’s biggest consumer electronics retailer, and is now gunning for fashion and beauty.

It’s gotten to the point where today, consumers in buying mode search Amazon first.
Its Prime loyalty program, which accounts for an estimated 60% of its gross merchandise value, is like a gateway drug. “It has a halo effect on the entire business,” Frank Layo, partner and retail strategies at Kurt Salmon, told Forbes. Customers double the amount they spend on Amazon after they become a Prime user, and triple it by their second year of membership, according to Deutsch Bank.

But not all retail product categories are equally susceptible to Amazon’s encroachment. While the site is lauded for its convenience and low price, it won’t win any awards for merchandising panache. The utilitarian shopping experience of scrolling through Amazon is akin to walking the no-frills, factoryeseque aisles of a warehouse club, not necessarily the optimum venue for merchandise that relies on a little romancing, like beauty.

Consumer Electronics: Amazon Poised To Displace Best Buy As Number One
Amazon’s market share grab from old-school retailers will play out to varying degrees, depending on product-category trends, the wild card that is a retail landscape upended by e-commerce and digital technology, and the whims of shopper tastes. But its takeover of the consumer electronics business is unequivocal, even as Best Buy’s recent signs of a comeback are solid ones.

The last standing national consumer electronics chain, which was losing the price war to Amazon, began matching them on price while reducing its own operating costs to go up against a competitor with no store overhead. Best Buy also worked to differentiate its in-store experience via shop-in shops from brands like Samsung andMicrosoft MSFT -0.73%. Still, Amazon is on track to displace Best Buy as the nation’s biggest consumer electronics seller, predicts Deutsch analyst Mike Baker. Last year, Amazon edged out Wal-Mart, the nation’s biggest retailer, according to TWICE magazine.

Baker says the-etailer singlehandedly propped up the consumer electronics product category in 2015, accounting for 90%, or $5.1 billion, of total industry growth. “Amazon has continued to chip away, and now at an accelerating pace, from the smaller players,” he said in a June research note. “The electronics-only stores (no appliances) performed the worst, lead by Radio Shack.”

The Beauty Factor: Amazon’s Ulta, Sephora Challenge
Beauty, an emotional, aspirational purchase, has been on fire of late, driven by upscale lines and hot chains like Ulta and Sephora. U.S. prestige beauty sales in 2015 rose 7% to $16 billion from the year ago period, compared to only 2% in the mass channel, reports the NPD Group and Nielsen, respectively.

Today, Amazon is the largest online beauty retailer. But whether it can ever become a preferred place to actually explore beauty products, and not just replenish them, remains to be seen. The retailer has been working to do just that, and to capitalize on the “premiumization trend.”

Amazon launched the Luxury Beauty store in 2013 in a bid to create a destination for curated, tony products, taking a design page from fashion magazines with features like “editor’s picks.” The idea was to “make it easier than ever for customers to explore these brands, follow trends and develop their beauty regimens,” Chance Wales, director of beauty and health & personal care, said in a statement upon the launch.

And this year, Amazon launched its first live show, dubbed, “Style Code Live,” offering fashion and beauty tips that steer shoppers to make a purchase.

But Amazon has its work cut out for it. Excitement in the category is coming from freestanding specialty retailers Ulta and Sephora, where shoppers can play with products in open-sell environments unlike department stores, where merchandise is locked up behind glossy counters manned by salespeople.

Ulta’s “mass-and-class” model means brands like Maybelline and Clinique comingle on shelves in stores that also feature salons, a format that’s been called “unAmazonable” by Cowen & Company.

Meanwhile, Sephora has been investing heavily in digital technology to enhance the in-store experience with its new “teach, inspire and play” format that includes a 12-station hub for beauty classes flanked by a “beauty board,” a shoppable online gallery that broadcasts shopper-generated content via a giant digital screen. Sephora also gives Amazon a run for its money online: The retailer’s penetration of digital to physical retail sales is double that of the prestige beauty industry.

Analyst: Amazon To Displace Macy’s As No. 1 Clothing Retailer
Although apparel showed some signs of life this month, declining foot traffic in malls and stores, department stores’ woes, and the trouble at specialty retailers like the Gap, Aeropostale and J. Crew, spell opportunity for Amazon.

In a statistic that turned heads this year, Amazon is expected to eclipse Macy’s as the largest apparel retailer in the U.S. by 2017,according to Cowen & Company.
The e-tailer has been on a mission to grab fashion market share by upping its credibility in the category with sleeker visual merchandise presentations coming out of its Brooklyn photography studio, which bowed in 2013. Brands that a decade ago would have turned their noses up at the retailer are now warming up to the site. Today, Kate Spade and Calvin Klein, for example, sell directly to Amazon, according to the Wall Street Journal.
But there’s one apparel sector that could be Amazon-proof.

Offf-price merchants like T.J. Maxx and Nordstrom Rack, which sell high-profile brands and designer goods for 20% to 60% percent below department and specialty store prices, represent 75% of apparel purchases across all retail channels, according to NPD’s receipt mining service Checkout Tracking, which analyzes store receipts and tracks consumer-purchasing behavior over time.

And what’s remarkable about this channel is that despite physical stores’ feverish drive to counter the encroachment of online shopping, the off-price brick-and-mortar business is thriving like it’s 1999. T.J. Maxx, for one, the behemoth of the sector, has virtually no online business.
Take that, Amazon.

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