Clothing retailers, beware. Amazon is expected to make a big leap in the apparel market this year.
According to Morgan Stanley, the e-commerce giant will become the top player of the U.S. apparel industry in 2018, having gained 1.5 percent of market share last year. The gains will largely be driven by millennials moving dollars away from bricks and mortar, the firm said in a new report.
Amazon has found the most success in selling casual items for everyday wear, while brands like Nike and Calvin Klein are helping bolster the platform with their popular merchandise.
"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."
Morgan Stanley found the biggest losers in the apparel industry in 2017 included Sears Holdings, Macy's, Ascena Retail Group, L Brands, Ralph Lauren and Chico's. Amazon's gains have a lot to do with losses at traditional department stores, the firm said.
Morgan Stanley is predicting department stores will only comprise about 8 percent of the total U.S. apparel market in 2022, compared with 24 percent in 2006.
Amazon meanwhile is picking up sales from its Prime shoppers. The company disclosed this week that it has more than 100 million paying members. According to Morgan Stanley, Prime shoppers are now two times more likely than non-Prime shoppers to buy clothes on Amazon.com, up from 1.5 times as likely a year ago.
"Amazon's efforts to pursue fashion, specifically the launch of its own private label brands, adds more pressure here," Nowak said.
CNBC previously reported that Amazon was quietly beefing up its private labels. The company recently started rolling our Prime Wardrobe, a subscription service, to a wider array of shoppers following pilot tests in certain markets.