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CREDIT SUISSE: Amazon Prime Wardrobe is the perfect service for taking over fashion retail
(Amazon)
Amazon announced its "Prime Wardrobe" service on Tuesday, and share prices immediately jumped on the news.
Lots of pundits, including Business Insider, have hailed the service as a great addition to Amazon's fashion retailing operation. But what they haven't said yet is that services like Prime Wardrobe have already been proven to work.
In a note to clients Friday, Credit Suisse wrote that the German service Zalando has been successful using a very similar business model to the one announced for Prime Wardrobe.
"This product release matches from a customer service perspective what Zalando ... has had for some time," Credit Suisse wrote. "One of the key drivers of Zalando's success in the [German] region has been its ability and willingness to handle from a logistics perspective a relatively higher merchandise return rate (~50%)."
The higher cost of customer service and logistics has proven to be worth the expense for Zalando. The company has a higher gross margin, 44%, than many of its competitors, according to Credit Suisse.
Customers often complain that even with the free return shipping that Amazon already offers, finding a box and printing a label to return an item of clothing is a pain. By putting a return label in the box, Amazon eliminates this friction for the customer. Credit Suisse also expects the ease of returning items will mean customers will order more than one item of clothing in different sizes because they know the ones that don't fit can be returned without much effort.
The ease of returns and better customer service could increase sales for Amazon and partner brands, according to Credit Suisse. As brands look to expand their business beyond failing department stores, Credit Suisse thinks they will turn to Amazon to expand their businesses.
"The improvements in both selection as well as delivery/service should both help to improve Amazon's likelihood for success in this segment," Credit Suisse wrote.
Nike is reportedly close to selling its products on Amazon, a reversal of previous resistance to selling on the online retailer. With Prime Wardrobe, other brands might follow Nike's lead, which would be an even bigger boost for Amazon.
Credit Suisse has a price target of $1,100 for Amazon, 9.7% higher than Amazon's current price of $1,003. The company has risen 33.02% this year.
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(Markets Insider)
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