News & Blog • Jan 27, 2020
Why Amazon's business model won't fly in luxury.
For many, Amazon can seem like brand suicide. Between its reputation of exposing first-party sellers to price-slashing and its lowbrow mass-market appeal, it’s no wonder why Amazon has struggled with getting luxury brands on board. This year, according to WWD, Amazon plans on launching a new platform in the U.S. where luxury brands can pay for “mini-shops” with complete control over aesthetics, product selection, and discounts while taking advantage of Amazon’s logistics capabilities.
On the surface, this makes sense. At its core, Amazon is a logistics company, winning customer loyalty by offering the largest catalog on the web with a revolutionary promise that changed the way mere mortals shopped forever: any product at our doorsteps within two days or less. Simple, memorable, and down-right addictive. Today, the company has amassed 112 million Prime subscribers, who on average, spend about $1,400 a year. The only problem for Amazon: most luxury brands held off on engagement through the platform, and Amazon customers are increasingly demanding them.
But the larger question at hand, is, how will Amazon’s mindset of more selection at a lower cost expand to include luxury brands that don’t want to cheapen their reputation or appeal to a mass market by discounting their high-end inventory? Will Amazon ultimately have to abandon its “flywheel” business model that’s attributed to their success?
Some Brands Are Jumping Ship
According to our data, last year, the most searched for belt on Amazon’s platform was the coveted Gucci belt, with brands like Louis Vuitton and Hermès also ranking in top searches in the category. The most searched brand of sandals? Tragically, Birkenstock, who has pulled the plug on selling directly through Amazon in recent years along with Nike. Both brands left due to continuous issues with counterfeiters on the platform.
Other brands are taking action. In September 2019 Patagonia filed a copyright infringement lawsuit against third-party seller, Kimberly McHugh and her Amazon store, Our Little Corner, for markup tactics that alluded customers into believing the higher prices originated from Patagonia. Despite this effort, there are still Patagonia products on Amazon being sold by unauthorized sellers, many of which remain unidentifiable.
So, what will Amazon’s new luxury platform necessitate to garner brands’ and consumers’ trust?
Top 5 Searches for "belt"
Queries containing the word "belt" with the highest average Search Frequency Rank between Jan 1, 2019 to Dec 31, 2019.
| Search Term | Average Rank |
|---|---|
| gucci belt | 996.72 |
| gucci belt for women | 1134.67 |
| belts for men | 1300.58 |
| belts for women | 2186.55 |
| belt | 2579.90 |
Search Interest
Numbers represent average search frequency rank relative to the highest point on the chart between Jan 1, 2019 to Dec 31, 2019. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term.
1. Lay Down the Law
The harsh reality for most brands, luxury or otherwise, is that it’s very likely third-party sellers already have listings of their products on Amazon, and there seems to be very little Amazon will do about it. When left ignored, these unauthorized sellers can not only hurt the brand’s image but potentially put customers at risk.
Amazon has been making efforts to curb the influx of counterfeits through programs like Brand Registry and Transparency, but in order for those programs to be successful brands have to pour additional capital resources.
If Amazon wants any chance of success in wooing the Louis Vuitton’s and Chanel’s of the world, they are going to have to restrict third-party sellers from the luxury marketplace. The benefit is two-fold: brands are happy, and customers have increased purchasing confidence knowing the product sources are direct.
2. Abandon the Flywheel
Amazon’s rapid ascension to becoming the world’s largest retailer owes much of its success to one key tenet: The Amazon Flywheel. While the Flywheel model is incredibly beneficial to Amazon and its customers, it can prove disastrous for brands. The never-ending spiral for more and more selection at lower and lower pricing causes profitability challenges, cross-channel conflict, and relationship strain with more traditional retail channels.
To make way for luxury brands who won’t (and shouldn’t) discount their high-end prices, Amazon will need to adopt a new approach to onboarding designer brands and maintaining a positive consumer experience.
3. Tantalize What’s Behind the Curtain
Will online shoppers turn to Amazon to purchase a $4,700 Louis Vuitton handbag? Most likely not. But they might purchase LV’s $190 bandeau with Prime shipping. Amazon’s current modus operandi is “give us everything.” But through an intelligent and curated category selection strategy, companies can offer Amazon consumer’s a small tease of their brand without needing to discount. Offering “less-expensive” and more accessible products on Amazon can be a gateway to brand familiarity and eventual conversion to purchasing higher-priced goods in the future.
With the launch of the new platform, a slew of inventible concerns is now added to the mix. Though, ultimately, you can’t blame Amazon — it’s never loved before — it doesn’t know how to. Only recently has Amazon taken on a more maternal role in nurturing their brand relationships, and even still, it’s survival of the fittest.
While it’s beginning to recognize the delicate framework of being the stomping ground where consumers and brands meet, it’s still just that — a juncture, where it’s ultimately up to brands to mitigate a space that consumers feel comfortable purchasing in — but the reward could definitely be worth the risk.
4. Don’t Put Lipstick on a Pig
Tmall, China’s business-to-consumer online platform, has successfully put an emphasis on transforming a company’s Tmall store into the brand’s second official website by enhancing the look and feel of the eCommerce platform — a design aesthetic Amazon clearly lacks.
“We believe that the designers and artists are not just selling products to us, they are also selling an artistic concept…As a result, maintaining and transferring that artistic concept to our Tmall platforms is crucial to brands,” says Jessica Liu, President of Tmall Fashion, quoted in Jing Daily.
While Amazon’s luxury platform agrees to give brands visual control, it’s vital that Amazon establishes what a customer experience looks like across the platform. Amazon’s platform definitely doesn’t exude, high-end couture. And why would it? Doing so is like putting lipstick on a pig. At the end of the day, it’s still Amazon.
Amazon’s flywheel business model has always centered around enhancing the customer experience by offering a massive selection at a lower cost. Amazon will either need to deviate from its infamous business model or let-out its seams to make way for a luxurious approach — something that’s in direct opposition to how Amazon thinks and operates today.
News & Blog • Jan 27, 2020
Jan 20, 2021
Jan 20, 2021