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E-COMMERCE REPORT

Amazon Expected to Sell Apparel

By BOB TEDESCHI

AMAZON is getting some new clothes.

The company, which has held the line on product expansion for the last nine months, will open an online apparel store this summer or in early fall, in time to fix any problems before the holiday shopping season begins, according to retail industry executives who have been approached by Amazon.

The move will help Amazon fill in one of the most glaring holes in its product mix, and one that has become popular with online shoppers. According to comScore, an online research firm, consumers spent $5.3 billion on the Web on apparel and accessories last year, roughly 10 percent of total merchandise spending online.

Patty Smith, an Amazon spokeswoman, would not confirm the company's plans, other than to note that Amazon's chief, Jeffrey P. Bezos, "has said it's an area we'd be getting into at some point."

The final structure of the apparel store is still in flux, but retail executives who spoke on condition of anonymity — because they did not want to alienate a potential retail partner as powerful as Amazon — said the company had been actively seeking partners who would sell their goods through Amazon's site in a sort of online mall. Nordstrom and Gap — and perhaps Gap's sister companies, Banana Republic and Old Navy — will probably be included in the initial roll-out, among other large retailers and smaller accessories companies.

That formula, in itself, would be a departure for Amazon, which until now has allotted space within a given category to one merchant, like Expedia for travel or Toys "R" Us for toys. But such an arrangement would not work well in apparel, because no single apparel maker offers a spectrum of goods broad enough to satisfy Amazon's 34 million customers and 37 million monthly visitors.

Nor, analysts said, would it be a particularly good idea for Amazon to try to build an apparel store on its own, to compete with the likes of LandsEnd.com, EddieBauer.com and other Web sites of established retailers and catalog merchants. Analysts have long said that clothing is one of the more difficult things to sell on the Web, given the importance of an item's fit and feel, and the customer service problems that accompany such sales. (Customers send back roughly one-third of the apparel they buy online, analysts say.)

Similarly, it would be unlikely that Amazon could persuade experienced catalogers and retailers to hand off their warehousing and shipping operations to Amazon, as have retailers like Toys "R" Us and the Virgin Entertainment Group. Analysts said the apparel companies that shoppers would most want to see on Amazon have already refined online and shipping operations of their own.

That is just one reason Amazon's search for merchant partners has been difficult, said Carrie A. Johnson, an analyst with the technology consulting company Forrester Research. "Amazon went to a lot of premium-name apparel catalogers, but it was asking for too much," Ms. Johnson said. "It was acting like a portal — asking for too much money upfront and too big a piece of the transaction."

"These retailers are already paying AOL, Yahoo and MSN so much money, they don't need another distribution deal that sucks a significant portion of their marketing budget," she added. "And it's not clear whether customers will want to buy apparel from Amazon, so no major brand wants to be the test-tube subject."

But some retail executives, who spoke on condition of anonymity, said Amazon's terms were not particularly onerous, and that the company had shown a fair amount of flexibility during more recent negotiations. Still, the partnerships would require an upfront investment by retailers, to integrate the technology between the parties and these executives were not sure if Amazon would bring them a meaningful number of additional sales, or whether it would simply attract customers who would have gone directly to their online stores to shop.

The Amazon partnership would also require a significant amount of staff attention, these executives said, to ensure that Amazon maintained the retailers' customer service standards. While Amazon receives generally good marks for customer service, catalog retailers in particular often take pride in their willingness to spend half an hour on the phone with a customer to resolve an issue. Amazon's site is set up to discourage phone calls.

There is precedent for selling apparel on Amazon — although the transactions themselves occur outside Amazon. ELuxury, a division of LVMH Moët Hennessy Louis Vuitton, has occupied space on Amazon's site since November. As part of that arrangement, Amazon customers who click on the eLuxury link are taken to an eLuxury site within Amazon, so eLuxury handles the transaction. (Through a spokeswoman, eLuxury executives declined to comment.)

The Target Corporation, too, sells apparel on its Amazon-based store, with Target handling the sales, shipping and customer service. Beginning this summer, Target plans to rely more heavily on Amazon to conduct the transactions, ship products and handle customer service inquiries.

But the fact remains that neither Target nor eLuxury is a powerhouse apparel brand, which Amazon needs to anchor the new category. It is highly unlikely, though, that a company so widely cited as the exemplar of online shopping would roll out an apparel store lacking marquee names. If the initial deals Amazon offered did not entice many retailers, analysts and executives agreed that the company would probably change its stance enough to attract a greater number of well-known merchants.

Some retail executives who have spoken with the parties involved in the negotiations say Gap Inc. has filled the void, a deal that at first glance appears a good fit for Amazon's customer base. Both Gap and Banana Republic appeal to the type of shoppers who frequent Amazon, and Amazon's customers are some of the more upscale on the Web, with a median household income of $77,000, according to Forrester. Through Gap's Old Navy brand, which is aimed at more price-sensitive shoppers, Amazon could also attract lower-income shoppers who browse the site for clothes. (Gap declined to comment.)

Moreover, through Banana Republic, Old Navy and Gap — with the latter brand's stores for maternity clothes and baby apparel — Gap Inc. can, unlike many other retail companies, cover a wide swath of the apparel category alone. If, in fact, Amazon was having trouble attracting big-name retailers in the short term, Gap could remedy that, and do itself some good in the meantime, analysts said.

"Gap has had their problems lately and they need to do some brand-building, so maybe this is something they'd consider," said Holly Gustafson, an analyst with Legg Mason, an investment firm. "The main thing is not to be shelling out a bunch of cash. They need that to rebuild."

Whoever joins the first incarnation of Amazon's clothing store will probably have plenty of company if the first selling season goes smoothly. As one retail executive, who spoke on condition of anonymity, put it: "We're in no hurry on this. If we see that it's working for other people, we could always do it next year."




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