Why Amazon loses big on apparel (and how to fix it)

Last month, Amazon CEO Jeff Bezos released a letter to shareholders defending the company’s corporate culture and assuring them that the company isn’t done making big bets. When the company first started turning a small profit last year, many said that a profitable Amazon was the new normal, although it’s hard to think of new industries and categories that are left for the company to move into.

One area where the company has apparently struggled is high-end fashion, something that has prompted it to create a number of in-house labels and to publicly mull some big-name acquisitions like Rent the Runway.

Amazon’s aspirations make sense: You can make a lot more money selling luxury goods than the more utilitarian items for which Amazon has become such a popular destination. However, there are few changes the company needs to make before Amazon can truly become a home for high-end designers.

A reputation beyond affordability?

People may like to buy electronics and hardcover books on discount, but they don’t feel that way about all consumer categories. You wouldn’t visit a restaurant advertising "discount sushi." There are a lot of things where consumers prefer to pay full price.

This is particularly true when we look at specialization. One study from the Harvard Business Review found that if you’re in the market for a watch, you’ll pay more to buy that watch from a watch store than you would to buy the exact same watch from a mall (or online store). That’s probably why Amazon wants to develop or acquire its own aspirational brands. TechCrunch reported that 25 of the jobs listed on Amazon’s website are related to the company’s new high-end, in-house fashion labels, suggesting a pretty significant investment in moving beyond its reputation as "the everything store."

Improve usability for third-party vendors

Amazon is known for giving the myriad businesses that fall under its umbrella a high degree of autonomy. Part of that comes from the understanding that shoppers in Berlin are looking for different things than shoppers in New York or Mexico City. One of the most impressive accomplishments cited in Bezos’s latest shareholder letter was that Amazon now has more than 70,000 third-party vendors with revenue in excess of $100,000 a year.

That’s impressive progress, especially considering that many report that the process to set up an online store through Amazon is quite tedious. Amazon should streamline the process to make it simpler, while still taking care to improve quality control, which still leaves something to be desired. One way might be to start sharing internal data with its vendors as opposed to keeping it under lock and key. That would help third-party vendors price their goods more accurately and encourage more to come into the fold.

Stop trying to out-compete all retailers

It’s difficult to quash your competitors while focusing on profitability. There’s a tension between profit-taking and Bezos’s aspiration to outcompete all retailers. Presumably, Amazon’s path to profitability involves continuing to dip its hand into many pots. Its web-hosting business is now a major driver of revenue.

Some 25 percent of the jobs listed on Amazon's website are related to the company’s new high-end, in-house fashion labels, suggesting a pretty significant investment in moving beyond its reputation as "the everything store."

Bezos hinted at this in his shareholder letter as well, saying that the company was hard at work finding a fourth major "pillar" for the business. Perhaps this was a tacit confession that Amazon Retail alone won’t be able to create enough value to reward stakeholders. If that’s really the case, maybe it’s time to stop trying? There are lots of possibilities for what that pillar could be within Amazon already, from its entertainment business to getting its hardware right.

Amazon is a fascinating, controversial company. It’s unconventional for a company worth billions of dollars to make no money. And its success has inspired countless other companies to innovate with the same appetite for risk — the ride-share company Lyft recently revealed plans to lose up to $600 million this year in its quest to catch Uber.

That type of competition — and big spending from VCs — can create a lot of value for consumers who are getting free rides. But does it lay the groundwork for a profitable company?

The jury is still out.

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Mona Bijoor is the founder and CEO of Joor, the world's largest online wholesale marketplace, connecting more than 155,000 brands and retailers, with more than $7 billion in transactions in 2015. In 2014, Joor was named a "Company to Watch" by Inc., and one of the most "Innovative Companies in Fashion" by Fast Company. Prior to launching Joor, Bijoor worked as a senior buyer at Ann Taylor, and in corporate strategy for Chanel and Elie Tahari. She is on the advisory board of Saban Brands, and has an MBA from The Wharton School. Reach her @MonaBijoor.