In a surprising move last December, e-commerce leader Amazon slashed referral fees for merchants selling apparel items below $20 on its platform. The move, which came amidst rising competition from Chinese fast-fashion competitors Shein and Temu, appears to have yielded positive results according to recent data.
Traditionally, Amazon rarely tampered with the commission fees it charged its merchants, often hiking them across the board. However, the online retailer diverged from this norm in December when it dropped the commission on clothing items selling at or below $15 to 5%, with the commission remaining at 10% for items between $15 and $20. The announcement was part of a broader revision of Amazon’s seller fee structure, which took effect from January 15.
The positive impact of this change in referral fees is felt mostly in the arena of inexpensive clothing, with both the selection and sales of affordable apparel on Amazon rising since the amendment came into play. Clothing items priced below $20 saw a growth of 27% from mid-January to late August.
The trend impacted how brands were setting their prices. To benefit from the commission adjustment, many outfits lowered their price tags. For instance, the percentage of clothing products priced between $15 and $16 fell from 3% to 2.2% YoY, while items priced between $20 and $21 saw a reduction from 1.9% to 1.1% YoY. This price adjustment drove sales and attracted more budget-minded shoppers, indicating an increase in low-cost apparel brands entering the market.
Amazon’s CEO, Andy Jassy, acknowledged this positive development in the company’s second-quarter earnings report. According to him, the decision to reduce seller fees on clothing yielded substantial YoY unit growth in apparel, with Amazon also observing lower average selling prices during the quarter.
While the results so far are promising, there’s growing concern about an increase in retail arbitrage on the marketplace. The reduced fees could potentially result in resellers winning over first-party brands and taking over the coveted “buy box.”
Additionally, concerns over fast fashion’s environmental impact cannot be ignored, especially considering the visible uptick of low-cost apparel on the platform. Overconsumption linked to fast fashion could fuel adverse environmental impacts, exacerbated by Amazon’s generous return policy.
In response to these concerns, Amazon has made strides to drive down costs associated with returns and advance sustainability initiatives: hitting 100% renewable energy seven years early, reducing plastic in delivery packaging, and expanding its electric vehicle delivery fleet globally.
Despite its push for low-cost apparel, Amazon has also tried to attract more premium brands, including luxury clothing companies, to its marketplace. The growth of fast-fashion may deter some brands, but most are unlikely to exit due to Amazon’s industry dominance.
