Until recently, Amazon’s apparel ambitions remained relatively under the radar, largely going unnoticed until they surpassed Macy’s as the number one retailer of apparel in 2017. For over a decade, large fashion retailers were dismissive of the book retailer’s foray into the challenging, nuanced world of fashion.
After raising over $100 million of venture capital at my last e-commerce business, I witnessed this dismissal first hand, discussing Amazon’s ambitions with the leaders of several Fortune 1000 retailers. To a person, they came to the same conclusion: Amazon was great at selling books, but would never succeed in fashion. My own investors, Dillard’s, shared this belief as well.
(Disclaimer — I have tremendous respect for the Dillard family and their business. They invested in my last e-commerce company and we both turned a big profit when we sold the business in 2013.)
After becoming the largest apparel retailer, I believe Amazon is just getting started. To wit, they’ve launched 80 private label brands in the past several months.
I’ve long been of the opinion that Amazon’s ambitions were much greater than simply becoming the largest apparel retailer in the world: I believe they will seek utter dominance of the entire category through aggressive vertical integration through development of countless private label brands.
While much has been written about their threat to traditional apparel retailers like Nordstrom, Macy’s, and my friends at Dillard’s, very little has been written about the impact on the fashion brands themselves. Unbeknownst to them, the fashion brands are in similar, and perhaps in greater danger than the retailers. A massive paradigm shift of retail discovery is occurring at lightning speed.
This disruption thesis is finally beginning to attract the attention it deserves with a few notable press mentions over the past couple months. Perhaps my favorite of these is a powerful Techcrunch think piece by Sunny Dhillon from Signia Venture Partners titled Amazon’s Next Conquest will be Apparel.
I agree with everything he says, and then some.
In a post-Amazon world, retailing other people’s products online has largely become a fool’s errand. Brands, on the other hand, still have hope. The rise of digitally native vertical brands like Everlane, Glossier, Bonobos, Carbon 38, Stance, and many others should give established brands (as well as newly emerging brands) hope.
So then, if you’re an apparel brand trying to survive in a post-Amazon world what should you do?
For brands to survive in a post-Amazon world it comes down to three things: 1) product discovery 2) establishing a direct relationship with the consumer and 3) the right technology to facilitate product discovery and build that direct relationship.
1. Facilitate Product Discovery
Let’s start with discovery. Fashion’s new product cycles are driven exclusively by discovery. If a new product is invisible, it can’t be discovered.
In the old days, most of this discovery was done in department stores and other brick and mortar experiences. Today most product discovery occurs online. As brick and mortar retail stores close, legacy brands are losing their primary mechanism of discovery. Without this distribution, new products from legacy brands will fall into obscurity.
Increasingly Amazon (and Wal-Mart and Google and Facebook) control the online discovery process. As such, the brands who haven’t yet mastered the challenges of online product discovery are in a world of trouble.
Interestingly, as Amazon launches additional private label brands, legacy brands will be pushed lower and lower on Amazon’s pages, being replaced by Amazon’s own products. Adding further to the discovery problem, Amazon’s Wardrobe project is currently opening up to more customers. They will certainly do the same thing there … of course, they will feature their own private label brands where they make 80% margins in preference to outside brands where they only make 40% margins.
2. Establish a Direct Relationship with Customers
Next, let’s talk about establishing a direct relationship with customers.
While Google, Facebook, and other online channels are invaluable in the discovery process, the forward-thinking brand must quickly get the customer off of those platforms and secured onto their own. Done correctly, a customer only needs to be acquired one time, but many online retailers have become reliant on Google and Facebook to re-acquire existing customers. By doing this, they are at the mercy of ever-changing, finicky search engine and social feed algorithms.
As I’ve said before, don’t be Google’s (or Amazon’s or Facebook’s) bitch … quickly move the customer off external platforms and onto your own.
In my last business, we accumulated 9 million Facebook fans. After several algorithm changes, those fans quickly became worthless. Luckily, we migrated the fans off of Facebook an onto our own platform, eventually acquiring 11 million email subscribers that we could speak to (for free) whenever we desired.
Another great example is Menguin, an online Tuxedo rental business. In 2015, Justin Delaney and his team moved to Arkansas to join my e-commerce venture studio. At the time, their revenue was around $5000/month. For the next two years, we focused solely on building direct customer relationships through email utilizing compelling, entertaining content. Two years after switching their focus, revenue approached $1 million/month, and the business sold for $25 million! (Read more about that story here.)
3. An E-commerce Platform Designed for Discovery and Direct Relationships
Now to software. To facilitate discovery and establish a direct relationship with the customer, you need the right software to execute the strategy. Many of the existing e-commerce platforms fall short on those fronts.
As you’ll notice, very few of the world’s most disruptive digitally native vertical brands use off the shelf e-commerce platforms like Shopify. As I’ve written before, once a company scales revenue to around $1 million, the limitations of simple e-commerce platforms become a bottleneck.
The software platform you choose should be a) mobile-first and image-centric b) customer-based and c) powerful and customizable.
In the past, retailers had two choices — live with the deficiencies or build your own software. That’s why we’re building Engine — a highly customizable cloud-hosted e-commerce platform built for rapidly growing direct to consumer brands. Engine is driven by the insights gained by building the software that drove our last business from $100,000 of monthly revenue to $14 million of monthly revenue in just 180 days.
Easy to Use, Yet 100% Customizable
Pick one: easy to use, or fully customizable … you can’t have both. At least until now.
If ease of use is the goal, the modern cloud-hosted e-commerce platforms like Shopify fit the bill perfectly. Unfortunately, while easy to use, most modern platforms are built for mom and pop retailers, not rapidly scaling brands.
On the other hand, if the merchant wanted a custom, unique shopping experience, they needed to go with a server-based solution like Magento or even build their own platform from scratch.
Engine is different. It’s a cloud-hosted, easy to use, managed solution. But it’s also powerful and fully customizable, designed for high volume stores with unique needs.
Mobile-First and Image-Centric
Discovery today is largely image-driven, and increasingly done on mobile devices.
The three largest e-commerce platforms were built before mobile phones became mainstream, and well before image-heavy social networks like Instagram even existed. These legacy platforms (Open Cart, Magento, and even Shopify) often struggle to deliver the needed mobile-first mentality.
Stores built in 2018 should look more like Houzz than a boring grid-based Yahoo store built in the last decade.
Establishing a direct relationship with the customer is the key.
Existing e-commerce platforms are focused on the back-end, day-to-day management not customer growth. As such, the customer experience is lacking.
To build a relationship, you must develop the ability to send customized, personalized, timely communications to your customers in a scalable manner. In our previous business, we developed event-driven, user-specific marketing cascades that were built into our custom-built e-commerce platform. These customer relationship tools allowed us to we grow revenue to an annual run rate over $100 million. Engine is built around those best practices.
If you’re a retailer approaching $1 million in annual revenue or an established brand that is scared to death of Amazon’s encroachment onto your turf, give us a shout … we can help.
Email me at email@example.com if you’d like to learn more.