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Amazon likely to dash past Walmart in the apparel wars, says Morgan Stanley

Analyst Brian Nowak says the ecommerce giant will be the king of the US apparel industry in 2018
A computer and phone displaying the Amazon website
Amazon's 100 million Prime members are fueling its apparel sales

Morgan Stanley just came right out to declare that Amazon.com Inc. (NASDAQ: AMZN) will become the No.1 player in the U.S. apparel industry in 2018, surpassing Walmart Inc. (NYSE:WMT). Of course, Amazon is a force of nature and the apparel industry has seen the giant-killer coming from a mile away.

In a note to investors seen by CNBC on Thursday, Morgan Stanley said the ecommerce giant will become the top player in the US clothing industry this year, having gained 1.5% of market share last year.

Amazon's 100 million Prime members are fueling its apparel sales. The gains will largely be driven by millennials moving dollars away from bricks and mortar, the firm said in the report.

READ: Amazon announced 100 million Prime members, but analyst maintains Overweight rating

Its private-label offerings comprise the fourth-most-bought clothing or footwear “brand” on Amazon, even though the ranges are still relatively new, according to Coresight Research. One in 9 Amazon apparel shoppers surveyed by the research firm said that they have bought Amazon private-label apparel.

"Amazon's online pure-play model is becoming increasingly critical for many brands to maintain overall market share," analyst Brian Nowak wrote in a note to clients. "Brands are plugging the department store 'leaky bucket' hole with growth on Amazon.com."

Technology news website Recode recently estimated that Amazon had over 70 private labels, most of them in the apparel space, while parsing a list prepared by business intelligence firm L2.  

To date, Amazon trails only Walmart to claim the top spot among other apparel retailers Target Corp. (NYSE:TGT), Kohl's Corp. (NYSE:KSS) and TJX Cos. Inc (NYSE:TJX).

Amazon's double threat

Amazon is a prime distribution channel for large national brands and smaller firms, but even they are starting to view the sheer number of Amazon’s own products and private labels as a lurking threat.  

By selling in their own marketplace, Amazon gains advantages that no one else has. It has access to mountains of raw competitor data, they can watch what other labels do, and then use this advantageous perspective to turn around and do it even better.

The new wave of private labels launched by the digital-savvy online retail giant have their own value proposition, and in many cases a competitive advantage versus the national brand.

Take for instance Amazon’s push in the clothing category. It recently rolled out private-label sportswear brands, including affordable Goodsport which now competes with Champion, Rebel Canyon and Peak Velocity, which all sell on the ecommerce gian'ts website.

“In the same way that private labels took market share from mainstream brands in the '70s and '80s, Amazon is entering the market where it owns the channel as well as the product,” Lavanya DJ, managing director of technology-driven marketing and communication firm Hudson Cutler, told Proactive Investors.

“When you couple that with the power of digital assistant Alexa, it will put Amazon in a position to be an alternative to existing market leaders,” she added. "This is a wake-up call for brands selling on Amazon – it's truly time to pay attention."

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