Why Are Amazon’s Fashion Prices So Low?

Ever wonder why Amazon Fashion’s prices are sometimes so low on such high-end designer labels?

Well, most of the time, Amazon Fashion — the apparel retail arm that the massive eCommerce giant launched a few years ago as a way to segue into the fashion retail biz — is selling steeply discounted clearance items that it can afford to discount lower than most competitors because it is the dominant online seller.

According to a study of Amazon Fashion’s pricing habits by L2, a digital and social media advisory firm, Amazon is intentionally offering fashion apparel at a steeper discount than most of its competitors, but the company’s sophisticated pricing algorithm is allowing it to stay ahead of the curve.

The study found “most” fashion products sold by Amazon Fashion to be discounted at “steeper rates” than even third-party off-price sellers, mostly fueled by “clearance products with deep discounts.”

Amazon and most third-party off-price retailers offered about the same value for apparel products under $50, but the study found Amazon’s pricing algorithm to be “most aggressive” for luxury items priced over $100.

But Fashion offerings were actually among the least adjusted items on Amazon due to its algorithm, amounting to an adjustment just around once a day, according to the study.

Amazon’s pricing algorithm is an interesting engine fueling pricing on the site at the moment, both for items that Amazon Fashion is selling directly and for third-party discounted retailers trying to remain competitive on the site.

While both Amazon and third-party retailers selling through Amazon both offered more than 10 percent of their high-end fashion brands at discounts of greater than 50 percent, the study found that Amazon’s wholesale inventory was “more steeply” discounted than the third-party sellers.

So, Amazon is actually driving the Fashion prices on its website, not the brands or third-party resellers.

But an interesting thing happened recently with a pair of shoes that might illustrate how third-party resellers are actually grabbing back some control of pricing of their goods on Amazon, according to the study.

A pair of Cole Haan loafers that went on sale on Amazon in Jan. 2014 at the retail price of $158 eventually began to drop in price as the shoes remained on sale on the site and the wholesale inventory built up, eventually falling as low as $39.50, before “stabilizing” at $101.80.

But Amazon wanted to clear its remaining inventory of the shoes in Feb. 2016, so it dropped its price on the item to $74.98.

Once Amazon sold through its inventory on the loafers, the online listing was taken over by third-party resellers who still had inventory remaining, and these retailers began to increase the price back up to $117.99 over a period of 12 days.

“[This case study] illustrates that third-party sellers are not always the downward force in pricing … third-party discounting can be a reaction to the pressure of Amazon’s pricing algorithm and that, if not forced to compete with Amazon’s discounting, sellers would return prices to natural levels,” the study found.

Brands were also warned to “actively monitor” and “clean up” third-party pricing if it would jeopardize their own price points on the item. They were also warned that, just because a brand chooses not to offer its products available for sale through Amazon, does not always mean that they will not appear on the site — oftentimes for sale at a much steeper discount, either through Amazon or some third-party seller, than they would prefer.

“While Amazon’s discounts may be steep, choosing not to distribute does not protect brand equity if brand products are already available from third-party retailers,” according to the study.

As Amazon continues to grow and expand into the fashion retail market, brands and retailers are going to have to learn new tricks to stay competitive and ahead of the curve of the eCommerce giant that is forecasted to become the largest apparel retailer by 2017.

Interestingly enough, Amazon might just be offering a tool on its own site that will allow some of these retailers to remain competitive — Amazon’s Automate Price tool, which will “standardize many third-party sellers to a single, more aggressive pricing algorithm.”