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Could This Be Amazon's Next Big Growth Driver?

By Harsh Chauhan - Jun 25, 2021 at 9:00AM

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The e-commerce giant is making huge strides in a market that could be very lucrative in the future.

With $419 billion in revenue over the trailing 12 months and year-over-year sales growth exceeding 43% last quarter, Amazon (AMZN -0.26%) is dominating e-commerce markets across the globe. The really good part is that the online shopping and cloud computing giant should be able to keep delivering such high rates of growth in the long run by tapping fast-growing niches.

One such lucrative area is India's online fashion and apparel market, which is still in its infancy. Let's see how this space could move the needle for Amazon in the long run.

Lady holding a card and looking at a tablet.

Image source: Getty Images

India's online fashion and apparel market opportunity is huge

In 2018, Indian fashion e-commerce company Myntra, which is a part of Walmart-owned Flipkart, estimated that India's fashion and lifestyle industry was worth $100 billion, with 4% of sales coming from the online channel. What's more, Myntra added that the industry was growing at an annual pace of 8% to 10%, and the share of the online channel could reach as high as 20% by 2023.

According to another estimate from RedSeer Consulting, the online fashion market in India is clocking a compound annual growth rate (CAGR) of 32%. It is also worth noting that apparel and accessories account for 20% of India's organized brick-and-mortar retail market, the third-highest segment after jewelry and watches (26%) and food and grocery (23%), according to Wazir Advisors.

More importantly, India's online fashion market appears to be resilient to the grim economic scenario in the country. Unicommerce reports that the gross merchant value of the online fashion industry grew 45% in fiscal 2021, which ended in March, driven by volume growth of 51%.

Not surprisingly, fashion/apparel is expected to be one of the key pillars of India's e-commerce growth story, cornering a sizable chunk of the overall e-commerce industry, which is expected to hit $200 billion in revenue by 2026. This presents a solid opportunity for Amazon to substantially boost its revenue in the long run -- and the company is already making progress on that front.

Amazon's progress in this space bodes well for the future

Amazon's sales in the online fashion category in India jumped 40% year over year in the fiscal year that ended on March 31, 2021, indicating that the company nearly matched the broader industry's growth. An Amazon India executive told Indian business magazine Business Today that fashion and beauty is one of its largest categories in the country. It is also the fastest-growing category for Amazon India in terms of adding new customers.

One-in-three new customers on Amazon India is from the fashion category. Additionally, 65% of Amazon's online fashion demand is coming from the smaller tier two, three, and four cities and towns, which are the growth hotspots in India's e-commerce market. These stats should encourage Amazon to step up its online fashion game in India, where it is currently lagging Flipkart's Myntra.

The Flipkart subsidiary reportedly controls 60% of India's online fashion market, but it is evident that Amazon is now taking the game to its rival, as sales growth last year suggests. Amazon has been taking aggressive steps to boost its growth in the online fashion space.

It launched 6,200 new fashion brands in India during the festive season last year, followed by an apparel and beauty-focused sale this month, allowing buyers to choose from over 1,000 fashion brands and over a million beauty products. Throw in the company's growing dominance in other key areas of India's e-commerce space, and it wouldn't be surprising to see the company draw a substantial chunk of its sales from the country in the future.

Gene Munster of Loup Ventures estimates that India could account for up to 20% of Amazon's growth in the next five years, and the company's northward trajectory in the fast-growing online fashion and apparel market is likely to play a key role in driving that growth.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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