Did you know that consumers throw away an estimated 60% of clothes within a year of purchase? This is shocking to me, as I still own a T-shirt or two from my high school years. The fashion industry is responsible for about 10% of global carbon emissions, more than international flights and maritime shipping combined. Companies mass-producing a continuous flow of new, cheap designs like Shein have a disastrous impact on the environment. Some experts also claim that fast fashion has a negative impact on customers’ mental health, leading to feelings of inadequacy if they don’t regularly purchase new items, to impulsive buying decisions, followed by regret and guilt. We have all bought something online and regretted it weeks later, but the fast fashion industry takes it to the next level.
Besides consumers and the environment, established companies are also suffering from the recent dynamics of the industry. Notably, Amazon reacted with a surprising strategic move, a very strong signal that they want to be better positioned to compete with Shein.
Amazon Lowers Fees for Low-priced Clothes
Shortly before the Shein IPO, Amazon announced they were going to reduce the fees they charge their 3rd party sellers on clothing products priced below $15 to 5%. For items priced between $15 to $20, fees will drop to 10%. That is a massive improvement from the previous 17% they were charging. For items priced above $20, prices will not change.
This is newsworthy, Amazon very rarely decreases fees for their sellers. The fees 3rd party sellers are paying to Amazon are such a large source of revenue that they must have very strong reasons to reduce them, even if only focusing on very specific items. It is very clear that this decision targets competitors in the fast fashion industry. These changes will go into effect January 15, 2024, once the holiday season is over.
What Does That Mean for 3rd-party Sellers and for Shoppers?
This new strategy will directly impact shoppers as well as 3rd party sellers. I am not qualified to analyze how a more favorable environment for fast fashion brands will influence customers’ mental health and perception of environmental issues. However, I am certain that this will give them more options at lower price points. As of 2023, Amazon Prime has a total of 174.9 million users in the United States, and certainly many of them will enjoy free shipping and free returns on low-priced clothes.
The situation is darker for 3rd party sellers. A decrease in selling fees sounds like a great thing and immediate improvement of their bottom line. Unfortunately, the industry is so competitive that this will most likely trigger further price wars and lower prices.
In this fictional example above, a company decides to lower their price from $12 to $10 to reach the 5% fee threshold and be more competitive. Their fees decrease by $1.5, but every other expense remains the same. At the end of the day, the company will need to sell twice as many units as before to maintain their total net profit.
As you can see, a decrease in fees does not always mean a higher net margin for sellers. But again, this is just a fictional example and there is no way to accurately forecast how things will play out.
Collateral Damage of the Amazon-Shein price war
The intensifying competition from Shein and Temu in the fast fashion industry, and the attempts from Amazon to capture part of this market are significantly affecting established retailers like Etsy or Gap. These companies are struggling to match the low prices and rapid production rates of the fast-fashion giants. It is also putting a lot of pressure on advertising costs.
This competitive pressure is forcing these traditional retailers to reevaluate and innovate their strategies, focusing on differentiating aspects like customer service, store experience, or unique marketing approaches to retain customer interest and market share. Competing on price can be a winning strategy, but in that case, established companies will need to provide value beyond pricing. That being said, with the ever-increasing cost of logistics, I wonder how ultra-low-cost clothing sellers will remain profitable. If large companies such as Amazon start charging for returns (yes I know, this sounds crazy), customers may return to retail stores to try clothes before purchasing.
Conclusion
Amazon’s surprising but logical strategy to lower their fees for some clothing items will shake things up in the fast fashion game. It’s a bold move to attract customers with lower prices and compete with Shein, but it also means sellers have to get creative to stay profitable in a market where prices keep dropping. This Amazon vs. Shein showdown isn’t just about who sells more tees; it’s reshaping the future of the fast fashion industry. With increasing costs and pressure on traditional retailers, we can expect continuous change in that space.
https://www.pcmag.com/news/amazon-drops-seller-fees-on-inexpensive-clothing-to-compete-with-shein
https://capitaloneshopping.com/research/amazon-prime-statistics/
