Monday, September 18, 2017

Amazon should buy Zara... or not, and put them out of business

At the suggestion of my friend Josh, who also publishes a great food newsletter, I gave this recent Recode Decode episode a listen.

I'm typically a fan of Kara Swisher, but not a huge podcast listener. There is a lot of  content out there and it's hard to find the nuggets among all the noise, so if you have any suggestions for good podcasts/episodes, send them along!

In this episode, Swisher speaks with Scott Galloway, a professor at NYU and futurist of the tech scene. Swisher noted his prediction of Amazon's purchase of Whole Foods just a few days before it happened.

They discuss a lot of fun stuff, at one point mocking Mark Zuckerberg and noting his oddities, but one of the things that caught my ear was Galloway taking out his crystal ball again and suggesting that Amazon should buy Nordstrom next. He noted the relatively low price and strong branding as reasoning, but both Galloway and Swisher agreed that Amazon is not likely to make another big purchase. Instead, it will probably digest the Whole Foods acquisition and see what they can learn from it first.

I agree that Amazon will likely make another retail purchase, but I don't think it'll be a department store like Nordstrom (if anything, maybe Sears). Instead, I think they're more interested in a business that more closely mirrors their own and has equally impressive logistics knowledge: Zara.

Zara has been case studied to death by business schools and drooled over by logistics professors for years. Their "fast fashion" expertise and time to market is unparalleled; often they beat designers to market with their own copycat pieces.

Zara's low inventory strategy would play well with Amazon's logistics management system. Using limited supply and exclusivity, Amazon could drive faster purchasing and delivery quickly to customers who want the latest designs. However, Inditex, Zara's parent company, has a market cap of over $100 billion; and Zara has been bucking the retail tailspin and is actually growing; so a buyout is unlikely.

Oddly enough, this article came out a couple days ago while I was contemplating this. Worth a quick read (only two paragraphs), but it highlights a new Amazon initiative where you can purchase clothing you see during a fashion show and get it via one-hour delivery.

This could hint at Amazon's actual strategy: not buying a brand, but developing their own reputation within the fashion community and become a go-to retailer for designers. This would also eliminate the retail middle-man, something it has done consistently across industries.

To become successful in fashion, I see Amazon needing to do three primary things:

1. Get product to customers quickly. Obviously, Amazon has this and can do it better than anyone in the world.
2. Get products in inventory quickly. In order to sell quickly, they'll need the inventory in stock almost instantaneously. They're not there yet, but it could acquire or partner with companies and manufacturers to streamline this. Possibly consider niche companies like Ministry of Supply for their IP.
3. Get access to designers. Amazon could follow Zara and hire their own designers to quickly replicate whatever's seen on the runway, however I suspect they will more closely replicate what Target has done and partner with designers to get designs before they're presented and get exclusives.

There are certainly barriers, but if Amazon is serious about fashion and clothing, they're not anything it can't overcome and quickly take over the market.

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