Lost in the Maze of Selling Luxury Goods on Amazon
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One of the most intriguing business dilemmas I’ve encountered recently is the conundrum of how luxury brands should think about their relationship with Amazon (and its subsidiaries Zappos and Shopbop). The “core” global luxury market – personal goods and services – is a $250 billion global business with an increasingly anemic growth rate. Amazon, on the other hand, continues to grow at strong double-digit rates. Surely this is a marriage made in heaven?
It definitely is from a consumer perspective. Luxury consumers in the US are huge fans of Amazon. According to Business Insider, last year 72% of households with $500,000 or more in income bought something on Amazon within the prior month. And an astounding 83% of these households agreed with the statement that “Amazon is better than other stores.” The wealthier you are, the more highly you are likely to regard and use Amazon.
Since luxury consumers are clearly favorably disposed toward Amazon, are luxury brands embracing the site and providing more and more of their products for sale?
Well, not so much.
It’s really hard to determine which luxury brands are “officially” distributing on Amazon. However, in the past week or so, the Dandelion Chandelier team took a look at 120 top luxury brands – 40 each in the fashion, beauty, and watch & fine jewelry categories. Of the fashion brands, only 25% appear to have product officially distributed on Amazon. Of these, the majority offered only highly-licensed product categories like sunglasses.
Luxury beauty brands were far more actively engaged with Amazon – 67% distributed product on the site, and of those, two-thirds were selling relatively broad product lines, not just lower-cost items like fragrance.
That’s a stark contrast to the watch & fine jewelry category, where as far as we could tell after making a few phone calls, only one brand out of 40 (Movado) seems to have official Amazon distribution.
So what gives?
First, Amazon doesn’t provide an environment consistent with the expectations of a luxury brand. Search results pages are cluttered with images and data. More troublingly, the aura of scarcity and exclusivity is non-existent, in part due to gray market goods. A recent search for “Rolex” on the site yielded 830 results in the clothing, shoes and jewelry category. Yet Rolex does not appear to officially distribute product on the site.
Second, the marketplace environment eliminates a luxury brand’s ability to maintain premium pricing. A recent search for a L’Oreal Paris beauty product that is officially priced at $97.55 yielded results from three marketplace sellers offering the exact same product at $82.99, $89.99 and $84.00. That’s conduct unbecoming to a luxury product.
In the quest for top-line growth and reach, most luxury brands will find that having their own “first-party” websites is going to be necessary but not sufficient. The brands’ own sites offer maximum control, but they are expensive to operate, reach a limited consumer audience, and require an entirely different skill set than their traditional merchandising skills. Therefore, they will need to find “third-party” sites on which to distribute their products, whether marketplaces like Amazon and eBay, or omni-channel retailers like Sephora and Neiman Marcus, or pure-play e-tailers like Net-a-Porter.
There are some interesting “rules of the road” emerging about how to do this successfully.
As a first choice, luxury brands have been turning to trusted retail partners from the brick-and-mortar channel as their sherpas into the world of e-commerce. For example, of the 40 fashion brands that we assessed, almost 90% were present on NeimanMarcus.com. Even 20% of the top watch & fine jewelry brands were there. Two-thirds of the top luxury beauty brands sell on the site.
Trusted specialist omni-channel retailers like Sephora also fit this bill – two-thirds of the top luxury beauty brands we reviewed are selling product on Sephora.com. The category expertise provided by Sephora creates a brand-right environment, and the company’s innovations in chat, user-generated content, product sampling and incentives to come into the store all help drive incremental brand sales.
As a second choice, luxury brands have chosen to partner with pure-play luxury e-tailers, who have created an online environment consistent with the look-and-feel and functionality that they require. For example, 25 of the top 40 fashion brands are present on Net-a-Porter.
The Amazon family of brands consistently remains third choice so far for luxury brands in every category except beauty. Shopbop, wholly owned by Amazon, carries only one-third of the top 40 fashion brands, and none of the watch & fine jewelry brands. And the core Amazon site, as mentioned already, has only a quarter of those top luxury fashion brands.
What is it about the beauty category that causes luxury brands to be more willing to partner with Amazon? One is that their price points are lower on an absolute basis. Two, as documented by L2, is that some brands appear to have managed to use their presence on Amazon to help clean up the gray market for their products on the site. And finally, perhaps the beauty brands have been faster to embrace the sales generation potential of user-generated content, direct product comparisons and ratings and the like.
What seems to be certain is two things: Amazon isn’t going away. And luxury brands should proceed with caution when they approach this potential partner, as well as other marketplaces. An upcoming blog post will share a few thoughts about how all of this may evolve.