While online product search, discovery and shopping are already being influenced by AI agentic e-commerce, this will be the primary mechanism for search, discovery and purchase decision-making for most US adults by the 2030s. In a note to clients, Bernstein SocGen analysts discuss the AI disruption impact on online search and shopping over the next 5-7 years, and how it will be an improvement on the status quo for apparel brands.
At present, discretionary brands do not have access to or control over consumer data, and they have to sell their product to multi-brand retailers at low margins. Agentic AI will bring control back, wresting it away from multi-brand retailers, allowing them unprecedented control on pricing, onsite experience, upselling, and the transaction itself, the firm said.
Far from being disrupted, apparel brands will come out as winners in the agentic AI shopping world.
To gain exposure and loyalty from a big audience, brands currently have to depend on multi-brand retailers. This forces them to give up 40-50% of the GMV of their products, and spend on add-on marketing and placement fees, while also ceding control over pricing, merchandising, and the purchase experience.
This might all change as searches more often begin with agents rather than multi-brand retailers, and then move to brand DTC to complete a purchase. For brands this will translate into “better margins, more control over customer experience, more access to customer data, and more choice on where to invest marketing and placement dollars to maximize ROI,” say Bernstein analysts.
DTC brands and retailers are concerned that the agentic AI driven changes in search and discovery will pull traffic away from them. But the firm believes this AI disruption will be favourable for brands at the expense of multi-brand retailers.
“Compared to today’s model of selling via multi-brand retailers, AI agent-driven traffic offers higher margins, better data availability, and a better connection with the consumer.”
Under the present multi-brand retailed model, status quo brands take 50-60% of the actual gross merchandise value or retail price, getting a considerably lower gross margin than from selling DTC. Even if some of this GM delta is offset by costs incurred in SG&A, websites/apps, marketing, fulfilment including last mile delivery, returns and customer service, the operating margin for DTC is still 10ppts or higher than what brands realise from Wholesale.
Premium brands with higher ASV face even greater margin dilution when they sell Wholesale. For instance, “the delta between receiving revenue of 100% of GMV vs. 60% of GMV is far greater for a premium brand, more than enough to cover the higher operating costs of a DTC business.”
At premium price points DTC online is more accretive when compared to wholesale at premium price points.
What brands get from Wholesale after accepting smaller margins is greater reach to a wider customer base and enhanced discovery which make future sales at potentially better margins possible.
AI agentic will make transactions routed through agents more accretive to margins compared to those made via wholesale. Giving a sense of the magnitude, the analysts say, the delta between online DTC and wholesale margins for premium brands is between 15-20 ppts. If 10% of customers use agentic search which then directs them to DTC instead of multibrand retail, there is a ~150 bps tailwind to brand operating margin.
Brands already pay for ~15-25% of traffic as well as paying for marketing and placement on multi-brand retail sites. As AI agents compete for the same dollars, brands will be able to choose and optimize ROI across multiple customer acquisition channels.
For instance, a brand could choose between Amazon (NASDAQ: AMZN), Dick’s (NYSE: DKS), Macy’s (NYSE: M), and AI agents, taking into account the fully loaded costs, conversion rates, order volume, and basket sizes to optimise for the highest ROI.
As AI agents will take searches to the DTC site, brands will have significant control over the rest of the customer experience. This includes features like on-site navigation, basket building, cross-sell and upsell, and the final transaction itself.
source https://www.investing.com/news/stock-market-news/why-apparel-brands-will-be-winners-in-an-agentic-ai-shopping-world-4694554
