Can Amazon Prove It Has Style?

Source: Knowledge@Wharton

Wharton’s Santiago Gallino speaks with Wharton Business Daily on SiriusXM about Amazon’s plans to open its first clothing store.

Clothing stores are disappearing across America by the tens of thousands, yet even the so-called retail apocalypse isn’t enough to scare away Amazon from the apparel business.

The company announced it will open its first clothing store, called Amazon Style, later this year at a shopping center in suburban Los Angeles. The 30,000-square-foot space will offer men’s and women’s clothing from well-known and emerging brands at prices up to $400. While that sounds like a typical department store, what’s different is the use of technology. Amazon Style customers will use an app to facilitate most of their shopping.

Santiago Gallino, a Wharton professor of operations, information and decisions, said a physical store is an important next step for Amazon, but there’s no guarantee that the company will succeed where so many other retailers have failed, especially lately. More than 80,000 stores are predicted to close by 2026, devastated by financial woes, declining sales, high rents, and pandemic-related problems.

“It’s going to be an interesting challenge for them because the fashion business is one that requires excellent execution,” he said during an interview with Wharton Business Daily on SiriusXM. (Listen to the podcast above.) “We have yet to see if Amazon can do something as great as they’ve done in the online space.”

Fashion is fickle, and so are consumers. Clothing stores need to carry desirable styles in a range of sizes, or they risk customers going elsewhere to find what they want. Availability is a critical component of success for clothing stores, Gallino explained, but so is the shopping experience. In-store customers are looking for great service, personalized attention, and perks they cannot get from shopping on a tablet while lounging on the couch.

“It’s going to be a challenge for them because the fashion business is one that requires excellent execution.”–Santiago Gallino

Amazon certainly has experience with brick-and-mortar stores. The company has opened Amazon Go, Amazon 4-Star and operates Whole Foods. But Gallino said that as a customer in those stores, he’s been “a bit underwhelmed.”

“There’s nothing wrong with those locations, but there’s nothing game-changing that will make me think of Amazon as my first stop when I go to a physical store, like it probably is when I think of my online transactions,” he said. “I’m still wondering how much of a disruption they can create in the physical world, and for me that’s yet to be seen.”

Amazon said in a release that it plans to provide a tech-driven shopping experience in the California store. An app will enable shoppers to request items be sent to a fitting room or directly to the pickup counter, find different sizes and colors, and explore similar items.

“Amazon Style is built around personalization,” the company said. “Our machine learning algorithms produce tailored, real-time recommendations for each customer as they shop.”

The Omnichannel Experience

The professor pointed out that many retailers have realized the value in an omnichannel strategy that seamlessly integrates online and offline shopping. Even digital-native companies like Warby Parker have opened physical stores to expand their reach. Gallino said savvy brands know that it becomes more difficult over time to attract new online customers, so building a brick-and-mortar store is an opportunity to lure shoppers with the promise of an experience.

“I think Warby Parker understood that very well,” Gallino said. “If you are thinking of your company as an omnichannel company, it makes sense to think of the offerings in the same terms. You’re going to be taking care of your customer regardless of whether that customer is approaching you online or in a physical store.”

Amazon Style is also a way for the company to compete in the clothing segment against Target and Walmart, which both sell a significant amount of apparel through hundreds of stores nationwide. That’s a high bar for Amazon to hurdle, Gallino said. But with online retail accounting for only about 13% of all retail sales, it’s smart for Amazon to try.

“I think it’s a move that makes sense, but it’s not an easy one,” he said.

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