Amazon Is Now America's Biggest Apparel Retailer, Here's Why Walmart Can't Keep Up - Forbes

Topline

Amazon has passed Walmart as the top apparel retailer in the U.S. partly due to the Covid-linked boom in online ordering, Wells Fargo said on Wednesday, while Amazon’s share in this market segment is expected to keep climbing this year.

Key Facts

Amazon’s U.S. apparel and footwear sales grew by about 15% in 2020 to more than $41 billion, Wells Fargo estimated, about 20% to 25% higher than giant rival Walmart.

Wells Fargo projects Amazon’s apparel and footwear sales will exceed $45 billion this year

Amazon now has 11%-12% market share of all apparel sold in the U.S. and 34%-35% share of all apparel sold online, Wells Fargo analysts wrote in a research note.

Hatem Dhiab, managing partner at Gerber Kawasaki Wealth & Investment Management of Santa Monica, Calif., which has $1.7 billion in assets under management, says Amazon is one of the winners from the Covid pandemic “as we all are more comfortable buying everything online, even apparel, so they will continue to gain market share as these habits will stay even post-Covid.”

Dhiab thinks Walmart will struggle to gain apparel market share as many brands do not think the typical Walmart shopper is the “ideal consumer.”

Key Background

As the pandemic forced millions of Americans to order online – for both basic and nonessential items — Amazon’s overall revenue reached a record $386.1 billion in 2020 (up 38% from the prior year), while net income doubled to $41.83 per share. The momentum is expected to carry over this year —for the first quarter of 2021, Amazon projects sales of between $100 billion and $106 billion, up 33%-to-40% from the year-ago period. Meanwhile, Walmart said its sales of apparel fared poorly in the fourth quarter – due to “weaker demand” and “softness” — hurting the company’s operating margins – but did not break out specific sales figures by category. Dhiab notes that in its last earnings report, Walmart mentioned it needed to increase their apparel mix as people shift to going back to work through new partnerships with more brands, so maintaining and gaining market share is a priority. “[But] I don't think they'll have much success though as they grapple with the challenge that a lot of brands, do not view the Walmart consumer as an ideal consumer and margins aren't as attractive as [with direct-to-consumer]” he adds.

Tangent

Wells Fargo warned that Amazon could be hurt by alienating brands from its platform. For example, in November 2019, Nike withdrew its products from the Amazon website after two years of counterfeit issues. Bloomberg reported that some brands were leery of counterfeit products proliferating on Amazon, which can lead to undercutting of prices by unauthorized merchants. “Nike doesn't need Amazon since [Nike] has such a robust [direct-to-consumer] segment and brand loyalty,” says Dhiab. “[But] smaller brands have no options other than being on Amazon since that's where the clicks and consumers are found.” In 2017, German shoe manufacturer Birkenstock cancelled its business relationship with a European unit of Amazon, citing that counterfeit Birkenstock products were offered for sale on the platform in Europe. “Until Amazon becomes a platform that works with companies to elevate brands, rather than viewing the relationship as transactional, companies who are fiercely protective of their brands [like Nike], will not sell to Amazon,” Wells Fargo analysts said in Wednesday’s report.