Reports that Amazon is teaming up with some of the world’s biggest athletic apparel suppliers ahead of a move into sportswear have sent stocks tumbling and raised concerns over new supply and pricing pressures in the sector.
The e-commerce giant has declined to comment on the speculation – although the signs of such a move have been there for some time.
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Earlier this year the company advertised for brand managers to “build authentic activewear private label brands.”
And the chairman of Taiwan-based apparel maker Eclat Textile in August told the Nikkei Review the company was gearing up to start shipping to a new e-commerce customer – widely believed to be Amazon – that would overtake Walmart to become the biggest clothing retailer in the next three to five years.
But the market’s response is a measure of just how unwelcome such a move would be for activewear companies already weighed down by unsold inventory, and struggling to differentiate themselves in a heavily promotional retail environment.
It also points to the vulnerability of the entire sector, where barriers to entry continue to fall for new brands with direct access to the consumer.
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By GlobalDataShares of Lululemon closed down 2.2% and Under Armour fell 2.18% after Bloomberg reported on Amazon’s sportswear efforts. NIKE also slipped, through its shares recovered.
According to Bloomberg sources, Amazon is working with athletic apparel suppliers in Asia to design, source and market its own private-label activewear line.
The main vendor is said to be Taiwan-based manufacturer Makalot Industrial, which also produces for Gap Inc, Uniqlo and Kohl’s. Also contributing to the project is Eclat Textile, whose customers include Nike, Lululemon and Under Armour.
The suppliers are currently said to be making small batches of test pieces and no long-term contracts have yet been signed.
Making waves in apparel
If it pans out, Amazon’s latest move is not surprising, since the online giant has been making waves in the apparel space in recent months.
Not only is it selling major brands on its platform, but also building its portfolio of own labels too. Some 14 private brands have been launched between 2016 and 2017, including Mae intimate apparel, Ella Moon bohemian-style casual clothes, and Paris Sunday womenswear. Also in the line-up are Amazon Essentials, its men’s and women’s basic apparel, and Buttoned Down men’s dress shirts.
In May the retailer added Find men’s and women’s wear to its portfolio, offering around 400 items online through Amazon’s Prime membership, with prices ranging from around GBP21 (US$27) for a pair of women’s jeans to GBP30 for a dress or a hoodie.
It also recently launched a “try before you buy, and only pay for what you keep” service – Prime Wardrobe – featuring 1m items, including brands outside of Amazon’s private labels, such as adidas, Calvin Klein, Levi’s and Hugo Boss.
Pushing into activewear has undoubtedly been on Amazon’s radar for some time. The job postings on the retail giant’s website hinted that it was planning to build “authentic activewear private label brands that have compelling and unique DNA and deliver amazing consumer valued innovation.”
And last month a spokesperson told just-style: “As a company we’re always listening to our customers, learning and innovating on their behalf and to bring them products we think they will love.”
Sportswear shake-up
Indeed, the $78bn global sportswear sector could be ripe for a shake-up.
Just-released research from investment bank and asset management firm Piper Jaffray suggests US teens are turning their backs on athletic apparel brands like Nike and are instead gravitating toward streetwear labels including VF Corp-owned Vans and Supreme. Its latest ‘Taking Stock With Teens’ survey also saw a surge in the number of teens who prefer to shop online, with Amazon their favourite website.
Nike losing its teen appeal, streetwear on the rise
Amazon’s move into activewear is also “symbolic of a significantly oversupplied market in apparel – barriers to entry continue to fall across apparel, footwear, accessories as smaller, specialised brands have full access to the consumer,” Cowen analyst John Kernan wrote in a note at the weekend.
He believes mass market athletic brands built on promotions and volume are most at risk, “while authenticity and high quality product will endure: the era of stacking it high and letting it fly is over.”
The general view is that a deeper reach by the e-commerce giant into the athleticwear category will also intensify pricing pressure.
“It will create additional supply and deflation in a category that already has inventory piled high in the US wholesale channel,” Kernan notes.
On top of this, he suggests Amazon is working to secure more factory capacity in Taiwan, China and Bangladesh to design, source and market underwear, basic apparel and baby clothes – “all of which are categories that lend themselves well to replenishment through Amazon’s unparalleled distribution network.”
For suppliers like Eclat, forging alliances with e-commerce companies reflects the rise in online sales and provides new opportunities for growth. Eclat chairman Hung Chen-hai has also hinted that the margin to supply the e-commerce customer was higher than for traditional brands.
just-style has also been told by vendors working with Amazon that the retailer has a totally different way of working: “Their supply chain is completely different from regular retailers or brand owners. The inventory is going to belong to both of us and when we sell product then we share revenue. Other retailers today own everything.”
While own brands fill gaps in the Amazon Fashion inventory, a lack of curation and inconsistent experiences across its fashion offering are among its downsides. ‘Cowen’s Amazon Apparel Focus Groups’ have pointed to its strengths in price-checking items, but weakness when it came to finding inspiration.
Glen Tooke, consumer insight director at Kantar Worldpanel, also counters the view that Amazon is sending out the message that if brands won’t sell their products on its site then it will start to compete by launching its own lines.
“Amazon can’t compromise existing relationships: if its goods are priced too low and are undercutting the competition, the company may see brands limit what stock they sell via its platform.”
