Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Amazon is already the biggest clothing seller online. It might soon overtake most of its brick-and-mortar rivals in fashion sales, as well.

Ill-Fitting Gains
Amazon's shares have vastly outperformed those of department stores
Source: Bloomberg

There were no runway models on any Amazon catwalk at last week's New York Fashion Week. But the e-commerce giant still loomed large in the minds of retail executives watching it elbow its way into the fashion industry. 

Stretching Out
Amazon is expected to triple its share of the U.S. apparel market over the next five years
Source: Euromonitor, Forrester, Morgan Stanley Research

For the past decade, fashion brands had viewed Amazon as the enemy. Brands swore off selling goods on Amazon, bemoaning its cluttered website and the risk of counterfeit goods. Many reluctantly started their own websites, but continued to rely on department stores for the bulk of their sales. 

So Amazon started making its own private-label clothes. It bought Zappos in 2009, turbo-charging shoe sales. And it focused on selling the basics, such as t-shirts, leggings, and jeans -- things people felt comfortable buying online and replenishing regularly.

As shoppers got more confident buying clothes on Amazon, that eroded the steady consumer spending on basic goods department stores once enjoyed. 

Amazon increased the number of apparel and accessory products on its website by 87 percent last year from the year before, as its apparel sales hit $16.3 billion, according to "Behind the Online Apparel Boom," a research report from Internet Retailer. That's more than the combined online sales of its five largest online clothing competitors -- Macy's, Nordstrom, Kohl's, Gap, and Victoria's Secret parent L Brands.

the right  fit

Amazon's apparel sales still pale in comparison to the $24 billion in U.S. clothing sales at Walmart, America's largest apparel seller. But it's not too far from Macy's $21 billion in annual apparel sales and TJX Cos. $17 billion. It's already surpassed the Gap, Kohl's, Target, J.C. Penney, and Nordstrom in 2015 apparel sales. 

Stocking Up
Top 10 clothing sellers, by U.S. revenue from apparel and accessories
Source: Bloomberg Intelligence, company filings, Internet Retailer
Note: Sales reflect U.S. revenue from women's, men's and children's apparel, as well as accessories. Does not include home goods or footwear.

Amazon -- and its marketplace sellers -- also figured out a clever way to ding department-store profit margins: Take a popular product -- say, a purse or jacket -- that's only available in limited stock (maybe five or ten items) from Amazon sellers. List it a vastly discounted price. Retailers whose websites automatically match Amazon's prices, or those that have price-match guarantees, end up losing out on profits. 

And department stores are feeling the pain. Collective sales at the six largest U.S. department stores fell $660 million in the second quarter from a year before. A lot of those sales went to Amazon, whose clothing sales rose $1.1 billion in the quarter from a year earlier, estimates Morgan Stanley analyst Kimberly Greenberger. 

Trouble At The Store
Collectively, U.S. department stores lost $660 million in sales in the second quarter from the year before
Source: Bloomberg, Morgan Stanley Research
Note: Sears sales reflect revenue from U.S. Sears locations

A fifth of U.S. consumers now "frequently" buy clothes on Amazon, according to a Morgan Stanley survey in April. That rises to 35 percent for Amazon Prime members. 

The most interesting thing the survey found, however, was that the top reason consumers gave for shopping on Amazon was "ease and convenience," followed by "Prime free 2-day shipping." In other words, the sexiest part of Amazon's fashion push was not the clothes on its site but its logistics.

Prime Position
Question: Do you purchase any clothing from Amazon for yourself or for your family?
Source: AlphaWise, Morgan Stanley Research
Note: AlphaWise conducted the online survey on April 18, 2016 with 1,112 respondents. Sample is nationally representative in terms of gender, age, and region. Margin of error per total sample at 95% confidence level is +/- 2.86%.

Still, nearly 60 percent of consumers said they would buy more clothing on Amazon if it sold a wider selection of well-known, fashionable clothing brands, according to the Morgan Stanley survey. 

To court brands, Amazon is kissing the fashion industry's ring: It has sponsored Men's Fashion Week in New York and India Fashion week. Soon, Tokyo Fashion Week will be renamed Amazon Fashion Week Tokyo. It has a live fashion web show and sponsors a web series on the Council of Fashion Designers of America/Vogue Fashion Fund, backed by fashion arbiters Anna Wintour and Diane von Furstenberg. Earlier this month, it stepped up counterfeit controls on marketplace sellers.

The fashion flattery helps prop up brands' perception of Amazon. Already, brands such as Kate Spade, French Connection,  7 for All Mankind, and Vince prominently display their goods on the e-commerce giant's website. 

But the biggest game-changer for Amazon is still unfolding. With sales waning at department stores -- where many brands get the bulk of their revenue -- Amazon has more leverage than ever before to accelerate its moves into apparel. Talk about fast fashion. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net