Amazon into Apparels

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Authors: Pradip Ranjan Sinha,
Associate Consultant,
ICMR (IBS Center for Management Research).

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Why Apparels?

Amazon has diversified into many businesses, since its inception. So the question here is not about diversification. The question here is, why did they choose apparel sector as their next diversification.

There are quite a few important reasons for this seemingly inconsistent move of Amazon. The growing competition in the book sector seems to be one of the big reasons, because Amazon was incurring huge losses and desperately wanted to substantiate their losses by diversifying themselves into a profitable business. The growing competition from other publishers is becoming more day-by-day, as many of the publishers like John Wiley, McGraw Hill, Andrew Tucker, Steve Martini etc., have their very own websites from where the customers can order the book they want, instead of going and buying it from Amazon. "When a company shows profit, investors start breathing faith on that organization again, and there is no better time than that to expand" according to Gaurav Chadha, a solution architect at NIIT and the co-author of the book eLearning. That's what exactly Amazon did. After years of struggle, they showed profits in the third-quarter of 2002, and the investors started forgetting in them.

The other reason according to Professor Rajeev K Tyagi, Graduate School of Management, University of California is that "the company has sunk its fixed cost of establishing an excellent ordering/delivering and tracking system. Expansion into any positive-margin product which can share the same ordering/distribution infrastructure, and which meets the above condition about consumer, purchases decision is a profitable strategy." And apparel is one of the biggest upcoming retail categories on the Internet with sales continuously going up years. In fact, it is the third most popular online sales category at present and is growing strong, according to Shop.org, the online arm of the national retail federation. The market segments in which Amazon is competing are rapidly evolving and intensely competitive, and they have many competitors in the online retail industry. The nature of the Internet as an electronic marketplace facilitates competitive entry and comparison-shopping and renders it inherently more competitive than conventional retailing formats. This increased competition may reduce their sales and operating profits. This fear would also have contributed to their idea of diversifying into apparel sector.

Amazon's customer loyalty and its faith in customers definitely contributed at a psychological level to its entry into the apparel and accessory store. Besides books, apparel is one of the few products in the world that have brand orientation, according to Gaurav Chadha. Brand is a promise that guarantees quality, value or any other perception factor that translates into customer-satisfaction. Brands give a sense of security/guarantee to the customers. Brand is perhaps the biggest force behind online buying and selling, and Amazon's apparel and accessory store has plenty of them on its portfolio. This definitely will bring the customers to buy online from them. And because brands are easier to sell online, so the loyalty factor would also had played its own role in the idea of diversifying into apparels.

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