The rumored deal immediately raised speculation about Amazon’s growing ambitions in the fashion business.
But an acquisition of the struggling clothing retailer could also help Amazon by solving one of the biggest problems it currently faces: tension with president-elect Donald Trump.
Trump, who frequently criticized Amazon during his campaign, won his way to the White House in large part by promising to keep US manufacturing jobs in the country. He claims some of his recent deals with Carrier and Ford helped save thousands of jobs from moving overseas.
American Apparel, best known for its “Made in the U.S.A” slogan, says it’s the largest clothing manufacturer in North America. With 4,500 workers employed, it also calls itself the “largest sewing facility in North America.”
That means by acquiring American Apparel, Amazon would get to save thousands of US manufacturing jobs, while helping Trump continue to play up the “keep jobs in the US” rhetoric — and also win Trump’s support in one master stroke.
And given that the starting price to buy part of American Apparel is currently $66 million, according to Reuters, Amazon could score a big win by spending a relative pittance (Amazon had roughly $12 billion in cash on its balance sheet at the end of the last quarter).
Of course, there are a lot of unknowns in Amazon’s reported bid and it’s not clear if Amazon even wants to buy American Apparel’s manufacturing facilities. The only official bid, from Canadian clothing brand Gildan, just includes the rights to American Apparel’s brand, with an option to buy its manufacturing operations and inventory. Gildan’s bid doesn’t include American Apparel’s 110 retail stores, according to Reuters.
Also, Amazon may have to convince shareholders the logic behind acquiring a failing apparel business that has hundreds of million dollars in debt. With Amazon reportedly accelerating its investments in other areas, like logistics and grocery stores, investors may not welcome the idea of taking on American Apparel’s mounting losses.
But if Amazon could somehow pull off a deal for all of American Apparel’s factories and retail stores, there are a lot of other potential business benefits to go along with the political and PR benefits, especially given the company is forecast to take over Macy’s as the top US apparel seller in 2017. Some of them include:
- Increased brick-and-mortar presence: Amazon has been quietly launching its own private-label brands over the past year. Having a physical space to showcase its product will significantly increase its sales and brand awareness.
- More channels to promote Prime: Amazon has already made its bookstores pretty much Prime-exclusive, making it another channel to promote Prime’s many benefits. Also, one of its private-label brands, Buttoned Down, is only available to Prime members. American Apparel’s retail network could help Amazon promote Prime in other parts of the country.
- Solves the biggest structural flaws of online apparel sales: Most people still want to try on clothes before buying them online. They also like to return to a physical store. Ownership of American Apparel stores would solve both problems.
This certainly makes for a very interesting play in Amazon’s growing ambition in the fashion retail space. But it could also very well just be one of the many speculations Amazon gets thrown into: in 2015, Amazon was reported to be in the run for Radio Shack, which turned out to be just a rumor.
Amazon’s representative wasn’t immediately available for comment.
Visit Markets Insider for constantly updated market quotes for individual stocks, ETFs, indices, commodities and currencies traded around the world. Go Now!