A little more than a couple years ago, yours truly here opined that Amazon.com, Inc. (NASDAQ:AMZN) might regret its foray into the fashion world. While a failure on this front would hardly torpedo the AMZN stock price, I suspected it could be a fairly fruitless effort.
Two years later, I’ve officially changed my mind.
That’s not to say Amazon has become a fashion apparel trendsetter because it most definitely hasn’t. Designers and manufacturers with a finger on the pulse of what’s actually selling and where “looks” are going are still setting the pace Amazon is following. From a pure revenue-generating standpoint though, Amazon has become an undeniable force in the apparel arena, too.
And it’s about to become an even bigger monster in this retail category.
A Long Way in Just Two Years
For the record, my assessment from October of 2015 (when Jeff Bezos first started to get serious about clothing) was:
“The bad news is this ill-conceived — and plain weird — notion that it has any concept of how to ‘do’ fashion is another piece of scary evidence that Amazon is running out of growth ideas and is now simply throwing spaghetti on the wall to see what sticks.”
I still contend Amazon is running out of growth ideas that will lead to meaningful profits, though I have to concede the acquisition of Whole Foods and the proliferation of its Echo digital assistant have expanded its footprint. More than anything though, I’m more than happy to admit Amazon has become a clothing powerhouse, even if in a goofy, uninspired way.
“Goofy” and “uninspired” doesn’t mean we should be laughing though. At the midpoint of this year, Cowen analysts estimated Amazon would sell $28-billion worth of clothing in 2018. That’s more annual revenue than Macy’s Inc (NYSE:M) is generating, by the way. By 2021, Cowen is looking for $62 billion in annual clothing sales through Amazon.com.
That growth is not just driven by the movement of millennials — a generation that’s never known anything but the internet — into their higher-earnings and highest-consumption years. But, the maturing of millennials certainly helps.
Amazon scored nearly 17% of all online clothing sales to 18-to-34-year-olds last year, edging out a trendy Nordstrom, Inc. (NYSE:JWN) for the demographic’s clothing dollars.
Partial credit for its amazing growth in the apparel industry also has to be given to Amazon’s willingness to try a little of everything.
Case in point: This holiday shopping season, Amazon is erecting temporary “pop-up shops” to sell Calvin Klein clothing. It’s more of an experiment than an outright initiative right now, but if the experiment goes well, it could become a full-blown initiative in the future.
Perhaps more telling of Amazon’s apparel ambitions than anything else, however, is how it’s followed through on its previous promise to come up with its own lines of clothing brands to fill in the gaps it sees in its selection of clothing online.
Paris Sunday and Ella Moon are just a couple of the labels owned by Amazon. The manufacturing of the apparel is outsourced, just as it is for most brand names.
No piece of the apparel market is going to go untouched either. Outside of traditional clothing — the “basics” — Amazon is going full throttle against athletic apparel names like Under Armour Inc (NYSE:UAA) and Nike Inc (NYSE:NKE).
It was reported in October that it had been in touch with clothing producer Makalot Industrial Co. to discuss manufacturing yet another private label line for Amazon.com.
As owners of AMZN stock have seen so many times before, Amazon CEO Jeff Bezos seems ready, willing and able to simply willpower his way to success within the apparel vertical as well.
Bottom Line for AMZN Stock
To be clear, it’s not entirely clear if Amazon’s deeper move into the apparel game has been or will be a profitable one. The e-commerce giant has never been wildly profitable in this arena, and apparel retailing is a thin-margin game as well.
It’s unlikely Amazon.com is faring better than the norm, particularly if the website offers better prices and its handling costs have to absorb whatever costs its Prime subscription revenue doesn’t cover.
On the flip side, it doesn’t entirely matter. Regardless if Amazon is turning a profit with its apparel initiatives, it’s clearly proving to be disruptive to everyone else in the business. In the meantime, while its clothing sales may not be directly profitable, clothing sales continue to bring more people deeper into Amazon’s web.
And by the way, Cowen’s outlook of $62-billion worth of revenue next year for AMZN stock is actually a relatively conservative call. Instinet’s Simeon Siegel recently suggested that Amazon’s apparel sales could reach as high as $85 billion by 2020. Even Siegel’s low-end estimate of $45 billion for 2020’s apparel sales keeps the e-commerce outfit at the top of the heap.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.