Amazon and Zalando, two titans turn their eyes towards luxury
By Fabio Bonavita19 mai 2020
After having long since conquered the retail market for consumer and premium brands, online giants Amazon and Zalando are now setting their sights on luxury customers. Only one thing stands in their way: multi-brand online stores.
Zalando's business volume growth in 2019
280 billion dollars
Amazon's sales in 2019
the online share of luxury sales in 2025
One is the world leader in e-commerce, the other is an over eight billion Swiss Francs heavyweight in ready-to-wear sales, and both have decided to bring luxury brands onboard. Amazon and Zalando have stepped into this arena almost simultaneously, primarily to compete with multi-brand retailers like formidable e-commerce leader Net-A-Porter. For Zalando, it’s also a great opportunity to increase the value of the average customer shopping cart by adding some established high-end brands: Armani, Moschino Couture, Alexander McQueen, Versace and Vivienne Westwood. For both of them, the ambition is clear: triple their turnover in the luxury segment by 2023. Lena-Sophie Röper, Head of Premium & Luxury Purchasing at Zalando, says, "By developing a premium profile, we are making progress on our mission to become the first stop for fashion and tap into the potential of the European online market." Röper says that Zalando can claim the largest European customer base of generation Y and Z customers, and that these groups are expected to account for 55% of all luxury purchases by 2025. “This is of particular interest to our partner brands, because it means that Zalando can give them access to new customers,” she explains.
The Amazon offensive
Of course, Amazon is eyeing the exact same market opportunity, and has been for some time. Since last September, Jeff Bezos' company has been discreetly testing a new platform: VRSNL. While the name may not exactly roll off the tongue, on the menu is a catalogue of ready-to-wear articles and accessories from the most prestigious labels like Dolce&Gabbana , Balmain, Stella McCartney, Jimmy Choo and Yohji Yamamoto. Browsing through the sections confirms the impression that VRSNL seems, above all, intended to test the market and get feedback from customers. A tentative foray that could be beneficial to the luxury sector, according to Filippo Bianchi, Regional Lead for the Fashion & Luxury division for Central Europe, the Middle East, and Africa of the international firm Boston Consulting Group in Milan. "These platforms are generally the first to innovate and push the envelope in terms of service levels,” he says. “For example, with Prime Now Amazon changed the game by reducing delivery times to next-day, and the industry had to keep up. Meanwhile, Zalando shook things up by extending the time to return goods to an unheard of 100 days. As customers become increasingly accustomed to these levels of service, they eventually extend the same expectations to the brands' own online channels as well."
Attack of the cannibals
The risk of cannibalization would seem to be very real, considering that all projections indicate that online sales growth should continue over the next few years. And that, as Bianchi points out, was already the case before the Covid-19 crisis, which can only be expected to fuel online sales even further, at least for the near-term future. And then he brings up another threat that looks set to start plaguing the luxury industry soon. “Selling on third-party platforms brings with it an inherent risk of cannibalizing the brands’ own channels,,” he says, meaning a brand’s own official online store. But despite this, it remains tempting for brands to throw their lot in with an Amazon or a Zalando, to take advantage of their almost unimaginable firepower in the online arena. The two behemoths post double-digit annual growth rates that seem unshakable. In 2019, Amazon’s turnover reached a record 280 billion dollars, while Zalando posted sales for 8.2 billion euro for the same period, that is a 23.6% increase. According to Bain's latest forecasts, by 2025 the web could account for a quarter of global luxury sales. A figure that could be even higher as long as the coronavirus keeps the doors of physical shops closed.
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