Amazon'S Global Supply Chain Will Disrupt The Entire Fashion Industry In An Unprecedented Fashion.

Aiming at the past 5 years

Industrial market,

Make a series of moves far beyond the scope of print advertising.

For a long time, Amazon's founder and chief executive, JeffBezos, has always focused on the fashion industry as a key to its long-term sales ambition of over $200 billion.

In 2012, Amazon sponsored the Metropolitan Museum of Art charity dance in New York (MetGala), and later sponsored the photography studio in New York and London in 2013 and 2015, and said that this would enable the company website to add 500 thousand clothing and clothing images every year.

Recently, Amazon has sponsored new New York.

Zhou also played the third quarter of the American Fashion Designers Association / Vogue (CFDA/Vogue) reality show "TheFashionFund" at AmazonPrime.

At the same time, Amazon is also known as the sponsor of India fashion week (IndiaFashionWeek), and the Tokyo fashion week since October 2016 will also be renamed "Amazon Tokyo Fashion Week" (AmazonFashionWeekTokyo).

At the same time, Amazon executives spent countless hours meeting designers and brands from the entire pricing spectrum, trying to persuade them to sell products through Amazon.

Although there are brands that agree, many people still think that Amazon will never be the destination of fashion shopping.

At present, the front end shopping experience is not the most preferred product with special feelings, and the discount also makes the luxury brand lose its appetite.

Despite the fact that socks, sports shoes and other practical items may be the best-selling products of Amazon, many people still doubt whether Amazon can become the dream world of selling thousands of dollars in clothes bags.

Nevertheless, it is only a small part of Amazon's broader fashion strategy to buy consumers luxury goods on its website.

Dozens of initiatives from the public and private sectors are not hard to see the bigger move that Amazon is about to announce: Amazon's global supply chain (GlobalSupplyChainbyAmazon), which will disrupt the entire fashion industry.

Long term vision

To understand Amazon's fashion plan, it is impossible to understand the JeffBezos thinking of the founder and CEO.

In an interview with magazine in 2011, Bezos explained his idea: "in 1997, our first letter to shareholders was" the most important thing in the long run ".

If you need to invest in the next 3 years, you will have many competitors; but if you are willing to extend the time span to 7 years, only a few people who are competing with you will still be able to stick to it, because few companies are willing to do so.

You only need to extend the time span, so you can put your energy into it, otherwise you won't be able to do so.

In Amazon, we prefer to do work that focuses on 5 to 7 years.

We are very willing to sow seeds, waiting for seeds to germinate and grow up, almost stubborn.

We are stubborn in developing vision and flexible in details. "

Like Amazon, which lacks cash and time at all, and respects the company quickly and mentally, once it starts focusing on a certain goal, it will find out its own way of doing things.

Amazon's fashion ambitions are also true.

Fashion industry focuses on the seasons; Bezos focuses on every ten years.

Amazon has also been involved in the clothing industry for some time, but Amazon's existing fashion assets are AmazonFashion, Zappos, Shopbop, Endless.com and EastDane, one of the main sites. Amazon's fashion dream is just beginning.

Polymerization theory

Amazon's unparalleled understanding of consumers is the first element to assess its position in the fashion industry.

AggregationTheory, an analyst at BenThompson, explains that power is shifting from a company that controls distribution to a company that specializes in aggregated customers.

Thompson wrote: "the foundation of distributor competition is no longer exclusive supplier relationship, but afterwards consider the idea of consumers and users.

Instead, suppliers can be gathered on a large scale to give the first priority to consumers / users.

By extension, this means that the most important factor in determining success will be user experience: the key to the success of distributors / integrators / marketers is to provide users with the best experience.

It also helps them win most consumers / users, attract most suppliers, and continue to improve user experience, forming a virtuous circle.

The rise of shopping mode (showroomming), which is "first look at goods in stores, then buy online", is the practice point of Amazon's theory, but it has not received much attention.

In this mode, consumers evaluate a product in a physical store, but ultimately choose to buy online, because it is cheaper and more convenient.

This mode has destroyed the technology market of consumer goods, and stores such as BestBuy and CircuitCity have struggled to catch up with Amazon in terms of price and convenience.

For example, Amazon launched Prime services, the next order of millions of products can receive free two days of service and return, users happily start to Amazon to order consumption, driving the company's "virtuous circle".

Amazon Prime services currently has more than 63 million members worldwide, perhaps the greatest consumer loyalty plan ever built - no point set points, no additional costs.

Amazon's deep understanding of polymerization theory is also crucial to its fashion strategy.

When fashion trends change more rapidly, maintaining relevance can also challenge brands and retailers, because customer relationships based on single products are pient.

But Amazon's relationship with customers is based on millions of products, which means consumers continue to visit the website no matter how the fashion trend changes.

Amazon is facing difficulties in the face of changing trends.

Amazon's own customer data magnifies this advantage.

One of the biggest obstacles to online trading is the addition of services and credit card information.

Amazon's 285 million active user account is invaluable (next to nearly 1 billion of Apple).

Because of these accounts, Amazon is often the first destination for people to search for products.

Amazon's "default product search engine" is extremely powerful.

Data driven proprietary brand

Having such a strong customer relationship also generates huge amounts of data.

These data include information from selling salable products to their underlying driving trends.

The power of such information is so important that Amazon has even established an alliance marketing plan to support consumer surveys that are used only for data collection.

Because the data is too precious, Amazon doesn't care if the plan can make money for the company.

Traditionally, these data allow Amazon to know which third party products should be bought or pushed.

But now Amazon is starting to run proprietary products, and its functions are even stronger.

Since 2009, Amazon has continuously tested its own brand AmazonBasics, which sells other household products such as batteries, shredders, and so on.

According to Bloomberg report, as of April 2016, there were more than 900 kinds of products with AmazonBasics trademarks, of which 284 were introduced last year.

In June 2016, the company started selling self perishable products such as proprietary brands of food and beverages.

Amazon's approach to self brand is the way to success - fast and iterative, regardless of success or failure.

If the sale of a proprietary brand is poor, Amazon will cease to operate, and few people will notice it.

Nevertheless, Amazon's data operation also keeps its low failure rate.

Once a product starts to generate traction, taking into account the huge scale of hundreds of millions of customers, Amazon will immediately negotiate with suppliers for the lowest price, which will lead to cheaper future products.

This is good for customers and suppliers of daily commodities.

Amazon has recently focused its own brand on fashion and clothing. It still uses an unparalleled unified database and an iterative mindset as a support to strengthen its move towards consumer packaged goods.

Amazon's data are incomparable to any other organization entity: you can know what is happening at any given time.

"By accurately tracking countless online shopping pactions, Amazon always has the ability to compile an information" core "database," retail expert RobinLewis wrote. "They can instantly understand what is hot and what is not.

They can quickly find that "blank", and there is no style and price.

Amazon recently launched the first batch of 7 self run clothing brands to fill these gaps, brand names such as Franklin&Freeman, Scout+Ro and SocietyNewYork.

While retailers push stocks, Amazon has another notable advantage.

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Forget the "profit push".

Retailers promote their proprietary brand products, which can fill gaps in existing products and eliminate wholesalers or distributors' links, resulting in higher profits.

But the huge difference between Amazon and fashion industry is that Amazon does not care much about profit margins, and the most important thing is cash flow.

"Profitability is not our priority," Bezos said in 2013 when he spoke to HarvardBusinessReview. "What you want to maximize is absolute free cash flow in the US dollar. If we reduce profit margins to achieve this, we will choose to reduce profit margins.

So if you can make free cash flow, investors will pay for your stock.

Investors will not pay for profit margins. "

Here is an example of Bezos's logic.

Fashion brands produce a T-shirt that costs 10 dollars and sells for 50 dollars, which will earn 80% of the profits and may eventually sell 100 or 1000 shirts.

But if shirts are not sold, the brand may have to sell at a discount.

But the damage has already happened, because the brand has already paid for the production of clothing, and consumers have decided not to buy this T-shirt.

But instead of Bezos, he prefers to spend 5 dollars on the production of a T-shirt at a price of $6.5, which only generates a 23% profit.

If the price of $6.5 is still not sold, Amazon will raise and lower the price for different consumer groups, and constantly adjust the price to assess until it finally reaches the maximum selling price.

Amazon has built up a large scale business by flexibly adjusting its selling price.

BoomerangCommerce's recent study found that Amazon adjusted its price by 9.2 times on average, compared with Macy's s average adjusted 2.1 times, and Messi's Kohl s adjusted 1.5 times.

In terms of profits, Amazon's pricing structure is rather poor.

But Amazon may sell tens of thousands or even hundreds of thousands of such T-shirts to generate unlimited free cash flow.

Yes, it requires huge capital and scale to squeeze out a little profit from every shirt, but this is Amazon's new business model.

In the second quarter of this year, Amazon's retail operating profit margin was 2.09%, an increase of 181% compared with the same period last year, while the retail business profit margin of the first quarter was only 1.73%.

Seemingly insignificant, but Amazon's business model has solved this problem through large-scale operation, which is totally different from the traditional retail mode of maximizing profit.

Amazon's fascination with "the most appropriate price" helps to maximize free cash flow and away from the possibility that prices are too high or too low.

Some brands are impatient with continuous testing pricing, because price inconsistency or brand recognition will be affected, especially in the luxury goods industry. Prices are often indicators of consumers' perception of product quality and uniqueness.

"Cool" fashion vs technology's "cool"

Amazon's pricing strategy and its negative attitude towards fashion brands symbolize a big gap between the two sides: the fashion industry and Amazon have very different definitions of what is "cool".

In the fashion world, "cool" is based on experience, feelings, emotions and aesthetics; in Amazon and the wider scientific and technological community, "cool" is based on construction, learning and rapid expansion.

A memorandum written by Bezos in 2011 is called "Amazon.love". It lists 24 things that he defines as "cool."

But his "cool" has little overlap with the "cool" of the fashion world.

The most powerful argument against fashion in the fashion world is that Amazon doesn't know what is cool.

But there is another problem. In the top of the fashion industry, most enterprises can only choose two from "cool" and "popular".

"Cool" is often associated with scarcity.

Businesses that thrive on large scale are not scarce, and Bezos may agree with that.

Amazon will capture part of the entire apparel industry's "Volkswagen" and not "cool" and harvest billions of dollars in revenue.

If Amazon sees the market demand for women's tops from 6 to 12, it can immediately run its own brand to fill the gap.

Although this is not very cool for the fashion industry, only these products can bring tens of millions of dollars in sales.

For Bezos, this is cool.

Is it not only the low end market that subverts?

Amazon looks like a secret action, which has caused a huge "subversion" in the field of clothing.

According to a recent report by Cohen group, Amazon will replace Messi's department store as the number one clothing retailer in 2017 at some time in 2017.

Morgan's recent estimate of MorganStanley is more optimistic, biting the Amazon market share of 7% of clothing sales in the United States, and is expected to rise to 19% before 2020.

The report also points out that Amazon is the second largest clothing retailer in the United States behind WAL-MART (Wal-Mart).

"Amazon has a great advantage for everyone," says JohnBlackledge, managing director of Cohen group. "Many players in the market are past."

Amazon's approach to clothing reflects the destruction of the low-end market, as Harvard Business School professor ClaytonChristensen mentioned in her book "TheInnovator sDilemma".

According to his theory, "module" suppliers like Amazon can start to serve the public from the low-end market, such as clothing.

But because of its continuous improvement in technology, process and price, the same "model" supplier slowly moves to the top end of the market.

As long as the suppliers' products are "good enough", other people who buy high-end products will not buy them anymore, because they buy only a little better, but the price is more expensive.

Fast fashion follows the same path, cutting off the middle end distributors and markets.

With the scale and resources that fast fashion can not match, Amazon has to cut even more.

Amazon is concentrating on practical clothing and the mid end market, which is a big piece of cake.

From clothing to fashion

Clothing is one thing, fashion is another matter.

Fashion consumers do not buy fashion products out of need.

On the contrary, it is an emotionally driven process.

Despite high quality photography or lively copywriting, Amazon's visual aesthetic and tonal qualities are hard to reach the expectations of the current fashion for its exquisite and complex aesthetic style.

"No one will buy Amazon products because of" good-looking, "said ForresterResearch analyst SucharitaMulpuru." what they are looking at is functionality and ease of use. "

Unlike most successful fashion retailers, some believe Amazon also lacks its own views and editorial planning.

"Lack of careful planning is also one of the problems of Amazon's own brand," Blackledge said.

For today's observation, these observations are all right.

But Amazon has built one of the highest performance shopping sites in history. "One click order" and "fast shipping and shipping" are the key innovations.

Looking back, Amazon also needs to increase its incredible conversion rate slowly and steadily to improve its aesthetic style.

Amazon is also one of the strongest brands in the world (according to Interbrand's ranking list, Amazon ranks tenth in the world) and is trusted by hundreds of millions of customers.

Yes, Amazon's brand is now more pragmatic than luxury goods, but Amazon can also narrow this gap by learning.

Don't forget, Amazon has sold books recently, and Bezos's strengths include attracting the best talents to work alongside them.

They will be able to figure out how to cater for the "cool" brand at the right time, which is the remaining part of the current clothing market that Amazon has not yet taken.

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New global supply chain

While developing the luxury strategy, Amazon will undoubtedly dominate other areas of the fashion industry.

The most profound thing is that Amazon hopes to firmly grasp the key parts of the logistics sector.

Amazon is building pport capabilities (airports, freight charters, shipping licenses), performance centers (warehouses, FulfilledbyAmazon, "Amazon distribution"), "last mile" express (PrimeNow, UAV) and other service capabilities.

This series of efforts is called Amazon global supply chain (GlobalSupplyChainbyAmazon).

Bloomberg reported this year: "the new business will enable Amazon to dominate the entire logistics industry.

This industry not only has FedEx, UPS, and other middlemen, but also undertakes international trade freight and paperwork.

Amazon hopes to bypass these intermediary agents, accumulate inventory in thousands of businesses from around the world, and buy space such as trucks, planes, ships, etc. at preferential prices.

Businesses will be able to book cargo space online or through mobile phone terminals, creating Amazon's "seamless connection with international trade and shipping".

There is another key factor in ensuring the smooth operation of Amazon's global supply chain: Amazon built it for itself.

The top priority and the biggest customer will always be Amazon, which is just like Amazon's cloud computing product "Web service" (WebServices).

This product enables enterprises to scale easily and at low price.

Amazon itself needs a global supply chain or Web service platform, which in turn will ensure the success of these products.

Just as Amazon poses a threat to the existence of department stores and large retailers, the global supply chain will also have a devastating impact on the existing logistics providers: for example, Amazon's UPS, USPS or Fedex will not completely replace the three, but it will complement the existing express operators to a large extent, making their business more routine and more in line with Amazon's willingness.

In the UK, Amazon has taken up 50% of its express business because of its ability to exceed RoyalMail.

For many fashion brands, though they are less willing to sell their products on Amazon.com, they may be eager to take advantage of Amazon's lean supply chain and restructure the fragmented logistics infrastructure.

As more and more entity businesses move to the Amazon platform, Amazon will be able to charge a percentage commission on all pactions through its ecosystem.

It is also interesting to look at the fashion world through Amazon's global supply chain.

In an interview with New York Times in 2012, Bezos expressed his interest in fashion.

"Amazon decided to make haute couture, purely for economic reasons," the report said.

Because it costs almost $10 to pport a book or a $1000 skirt, Amazon costs almost the same price.

"If it's a fashion product, the gross profit per unit will be much higher," Mr. Bezos said.

Amazon's global supply chain is also fixed into fixed costs with other infrastructure.

Whether the logistics system is a pencil or a Herm s handbag, Amazon has to spend the same cost.

The higher the value of the product, the more profitable it is.

(Note: Bezos is not talking about higher profit margins.

When other percentage based Amazon charging services, such as credit card processing, listing and performance centers, etc., the "explosion" of website paction data also means the "skyrocketing" of revenue.

Amazon credit

Another interesting but rarely talked about Amazon B2B strategy is its AmazonLending, which provides microfinance to eligible Amazon businesses.

By offering attractive interest rates and approval standards, Amazon strives for factoringcompanies, while cash shortage fashion brands often let these companies guarantee their fashion production.

The Wall Street Journal (WallStreetJournal) has reported: "the merchants who interviewed this newspaper said that Amazon offered loans ranging from US $1000 to US $38000, and the interest rate was less than 1% (one of the respondents provided) to 13.9% (most of the respondents offered).

Small business credit card interest rates range from 13% to 19%.

According to this report, Amazon has issued pre qualification invitations and extended preferential conditions to large businesses.

Amazon's powerful data operation leads to a fairly accurate risk analysis.

Amazon's loans are almost always retractable, because Amazon can get its own financial position on its platform through its own platform.

With AmazonLending to perform its core services, Amazon will continue to win more businesses and take up a large amount of factoring business.

Old factoring companies will be relatively more expensive, less attractive and underwritten.

The impact of Amazon's trend on fashion industry

There are two ways to look at Amazon's future: optimism or pessimism.

And what seems terrible is that Amazon's game plan will open up the next great market frontier for real consumer company, especially fashion brands.

In the era of polymerization, Amazon can make the most of its large scale and truly own the production and sale of basic and daily commodities.

But still open up is still fashion start-ups to fill the gap in the design driven market and create incredible physical goods, especially on Amazon's incomparable express logistics.

With Amazon sharply reducing the threshold of supply chain, distribution and distribution, the cumbersome links in many consumer company operations will evaporate.

This could lead to the new gold rush that small businesses are fully built on Amazon's platforms, which will grow rapidly to millions of dollars in sales.

Entrepreneurs of the new generation may selectively use platforms such as Amazon to raise funds, resources and produce products and sell them to consumers in a faster and more effective manner.

Yes, on the Amazon platform, the operation company can get huge strength data.

But if fashion brands try to control every detail of their work, they will never have time to focus on their own advantages.

Amazon's move will bring democratization to various industry entities and consumer companies, including the fashion industry, and will drive more million dollar companies to emerge.

This result is good for consumers and creators in the economy, because success will no longer be limited to companies with capital and supply chain and logistics expertise.

On the contrary, powerful, design driven brands can thrive.

This is probably the best thing that has ever happened in the fashion industry.

Amazon executives declined to comment on this, but their spokesman said: our vision includes the hope of becoming a fashionable consumer destination that brands and customers love, providing a wide range of options, using technology to innovate shopping experience and ensuring the best customer service is part of this vision.