There was a time in which one of the biggest threats to clothing retailers was the proliferation of product knockoffs. But if there's anything the shift toward eCommerce has taught retail, it's that a threat can come from any corner at any time.
It's not simply the pandemic that has affected retailers around the world. Some of the most well-known brands were already witnessing a sharp decline in sales due to both greater consumer discernment as well as market saturation well before 2020.
But can third-party sales help address the crisis facing big apparel companies?
The Crisis in Big Apparel Retail
The number of shopping centers in the US was estimated at 114,258 in 2012, approximately five years prior to what many analysts had already begun to forecast would be the death spiral of multi-retail stores across the country.
Except those analysts had no way of predicting the events of the past two years.
A 2021 report from Moody Analytics projected an increase of 12.7 percent for retail vacancy rates from the year prior when the number of retail stores across closures had already exceeded 12,000. It's been reported that TJX Companies, considered by many to be the largest fashion group for discount apparel, faced a $1 Billion loss as a result of 2020's sales slump.
It's a depressing thought for big apparel clothing retailers, many of whom built their reputation on widespread physical visibility. But while the increased consumer attention towards digital retail should have given new life to many global brands, the transition wasn't always seamless.
Many retailers who have historically relied on regular foot traffic to maintain sales may have gained new life in the wake of 2020's eCommerce shift. But other brands haven't been so lucky.
Venerable institutions including Neiman Marcus, JC Penney, and Men's Warehouse parent company Tailored Brands declared Chapter 11 bankruptcy in 2020; victims as much of their own strength in brick and mortar as they were victims of outright consumer pessimism.
Apparel retail may be far from flatlining, but the priorities have shifted. eCommerce represented approximately 46 percent of all apparel sales in 2020, with mass merchant clothing retailers claiming an increasing portion of that share.
In March 2020, Amazon reportedly became the top clothing retailer in the US, with apparel sales of over $45.1 billion projected for the following year—outpacing even mainstays like the Gap, Old Navy, and Kohl's.
And with revenue on Amazon Marketplace for last year estimated at $295 billion in 2020, it shouldn't come as a surprise that big apparel retail has its eyes on the third-party market.
The Amazon Halo Effect and the Value of Independent Sellers
It's easy to judge retail success using Amazon as a yardstick in 2022. After the past two years, even the most vocal Amazon opponents can no longer deny that the retailer's presence has altered the very makeup of retail models as many of us have come to know them.
But while big apparel brands struggle to maintain both relevancy and profit margins in the wake of the digital shift, smaller third-party businesses saw a $95 billion increase in sales on Amazon between 2019 and 2020.
For many analysts, that success was dumbfounding—especially since many Amazon customers are still entirely unaware that their purchases have been conducted through independent marketplace sellers.
But rather than diluting brand power, third-party sellers have both contributed to and thrived by the strength of Amazon. It's a mutually shared effect where Amazon's digital empire is broadened considerably while seller visibility is extended simply by the virtue of being active participants in its landscape.
Why Big Apparel Retailers are Embracing Third-Party Sales
Product diversity has always been a hallmark of digital commerce. And that diversity is in no small part responsible for Amazon's immediate success.
But in brick and mortar, product line diversity has historically diluted a retailer's branding and image; not the least of which included big apparel clothing companies.
The cultivation of an exclusive, brand-specific retail image was a contributing factor in the market capitalization of shopping mall traffic. And it's one that is still fresh in the minds of many consumers.
But as digital commerce expanded, so did the very possibilities of retail. Shoppers were no longer isolated in their purchasing options but gained increasing control over the retail narrative.
That sense of influence proved to be a key factor for millennial shoppers, whose spending power was estimated at $700 Billion in annual sales as early as 2012. By and large, brands like Banana Republic, Tommy Hilfiger, and North Face have targeted much of their spending on appealing to that same millennial demographic in recent years.
It was a strategy that seemed more than sufficient by advertising standards in 2012. But 2012 isn't 2022. Not only have consumer habits changed, but so has the retail landscape. And some of the most recognizable clothing companies in the world are being left out in the cold.
Express, Inc., long considered one of the key assets of their parent company, Ohio-based L Brands, reported a year-over-year sales decrease of 34 percent in Q3 2020. Yet that wasn't the only blow to L Brands, whose star players Bath Body Works and Victoria's Secret were spun off into two separate lines in 2021. Even long-standing retail linchpin J. Crew was forced to declare Chapter 11 bankruptcy protection earlier in May, spurred by sluggish growth and a failure to adapt to retail transformations.
Retailing in the Age of Amazon
In order to compete, some clothing companies have already begun collaborating with third-party sellers by curating independent product lines in an attempt to rebrand themselves in a post-Amazon retail landscape. And it's not without due cause.
Customers in 2022 aren't simply looking for the best deal. They're becoming increasingly demanding of variety in both product lines and purchasing options.
While larger retailers may have historically had a final conversion rate nearly twice as much as those of smaller stores online, customer loyalty is being sorely tested by both a change in purchasing habits as much as economic circumstances no one could have predicted.
But for clothing companies like L Brands, whose reputation is secured by the strength of their subsidiaries alone, the future can sometimes mean transforming their physical footprint to a digital one.
“The marketplace was an opportunity for us to offer merchandise that our customers desire, and that our customers want to purchase, but are outside of our core categories,” Express's CEO Timothy Baxter, Timothy Baxter told the Wall Street Journal earlier in June. “Our strategy is to edit those categories and showcase brands that we know our customers will like.”
Apparel Retailers and Third-Party Sales: Too Little, Too Late?
The advantage of a third-party-friendly platform like Amazon is that it is a one-stop shop for the vast majority of its customers. For better or worse, it has become the future of shopping—a wildly diverse ecosystem that provides customers with everything from daily household essentials to an increasingly high number of luxury retail items.
Yet if retail sales are transformed by the phenomenon of Amazon, so is the world of advertising. And traditional metrics in marketing don't always align with digital standards.
Product breadth and diversity can sometimes hinder sales performance in multi-store retail centers, where customers can feel overwhelmed by the sheer amount of choices when making a purchase. Yet digitally, product breadth and diversity result in both higher search rankings as well as reduced cart abandonment rates—recently estimated as high as almost 70 percent in 2022 for all consumer purchases.
For apparel, it can be much higher. Recent data from Sale Cycle indicates cart abandonment rates of almost 90 percent for the fashion industry.
In a changing medium, big apparel clothing retailers who cultivated their identity long before the rise of eCommerce are just as vulnerable to abandonment as they are to decreased customer loyalty. But in an increasingly crowded marketplace, reputation can frequently be the sole lifeline for brands transitioning from brick-and-mortar strength to digital opportunity.
Is There a Disconnect Between Big Apparel and Third-Party Collaboration?
The third-party marketplace has already become flooded with counterfeiters and assorted bad actors, as prevalent on Amazon as they are in any untested market. And if big apparel retailers don't carefully vet just who they're collaborating with and ensure there's a high potential audience in place, they could easily risk permanently tarnishing their very brand image.
All parties involved need to be aware of just how tricky the transition from a successful physical store to an online business can be. Big apparel brands need to recognize that online consumer habits can deviate significantly from their physical counterparts. And smaller third-party sellers need to be aware that the introduction of well-established brick-and-mortar entities into the marketplace won't always mean a level playing field.
But for the likes of Express, which views third-party partnerships as critical to their 2024 goal of $1 Billion in online sales, it's a gamble which has already begun to pay off.
“We are very, very happy with the quarter-over-quarter and month-over-month growth we are seeing in the marketplace,” said Express CEO Timothy Baxter in reference to third-party partnerships.
Can small businesses and big apparel thrive online in an increasingly complex marketplace? Find out more at Color More Lines.
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