ADVERTISEMENT

CREDIT SUISSE: Amazon Prime Wardrobe is the perfect service for taking over fashion retail (AMZN)

A German company has already proven the business model behind Prime Wardrobe can be successful.

null

Amazon announced its "Prime Wardrobe" service on Tuesday, and share prices immediately jumped on the news.

ADVERTISEMENT

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%)."

ADVERTISEMENT

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.

ADVERTISEMENT

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.

FOLLOW BUSINESS INSIDER AFRICA

Unblock notifications in browser settings.
ADVERTISEMENT

Recommended articles

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

10 most dangerous African countries in 2024

10 most dangerous African countries in 2024

Russia’s nuclear influence expands further north of Africa

Russia’s nuclear influence expands further north of Africa

Navigating the future: How AI transforms selling on Amazon

Navigating the future: How AI transforms selling on Amazon

Wall decor tips: Transforming your space with style and creativity

Wall decor tips: Transforming your space with style and creativity

Putin's African diplomacy: Security talks with West, Central Africa take centre stage

Putin's African diplomacy: Security talks with West, Central Africa take centre stage

Infinix users get over 35% exclusive discount on Showmax premier league & general entertainment subscription

Infinix users get over 35% exclusive discount on Showmax premier league & general entertainment subscription

10 longest bridges in Africa

10 longest bridges in Africa

India issues free heart surgeries to 150 Ugandan children

India issues free heart surgeries to 150 Ugandan children

ADVERTISEMENT