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Amazon is doubling down on its private label business, stoking ‘huge fear’ in some sellers

07 Oct 2018

Sellers and brands may not like it, but Amazon is clearly doubling down on its private label business. This is where Amazon sells its own branded products, or products with third-party brands that are sold exclusively on Amazon.

Private label brands benefit Amazon in many ways. They expand product selection while giving Amazon better profit margins. Supply chain management becomes easier too. It can also pressure bigger brands to cut prices on Amazon to stay competitive.

Last week, CNBC reported that Amazon is more aggressively growing its private label business, having launched a new “accelerator” program for third-party sellers to become part of the “Amazon family of brands,” and a special feature that promotes its own brands at the bottom of competitor listings. That followed recent reports of Amazon having significantly ramped up the number of private label brands sold exclusively on its website.

This comes at a time when sellers and brands are increasingly reliant on Amazon, where almost half of all online sales take place. More Amazon-owned brands mean they will have to directly compete with Amazon for consumer wallet share.

Amazon’s effort to grow the number of private label brands is the clearest sign yet of how far it wants to go in its quest to become the “Everything Store.” But that’s stoking more fear and concern among sellers and brands that sell on Amazon’s website, as they have to go head-to-head with the e-commerce giant in a growing number of categories.

“Amazon’s dominance of the e-commerce sphere has forced brands to adopt an Amazon-first strategy in order to remain relevant, but now those same brands are facing off against the retailer’s own products in the fight for the digital shelf,” Peter Andrews, director of insights at One Click Retail, wrote in report published this week.

Amazon first got into the private label business in 2009, with commodity products such as batteries and USB cables. That slowly expanded to diapers and baby wipes, and now its catalog of exclusive brands ranges from toys and shoes to food and mattresses.

The company currently has over 120 of them, according to a report published by TJI Research. That’s more than a nine-fold increase since early 2016, SunTrust Robinson Humphrey wrote in a note in June. The firm expects Amazon’s private-label business to generate $7.5 billion in sales in 2018 and $25 billion by 2022.

“The goal of [Amazon’s] private-label products is to provide consumers a large selection as well as good prices and quality,” D.A. Davidson’s Tom Forte wrote in a note from June.

‘Huge fear’

Multiple sellers and brands told CNBC that they are concerned about Amazon’s move into the private label space. If big concerns to date have been counterfeits and reliance on Amazon as a platform, now they are worried that Amazon will be a bigger competitor in the market.

Jeff Benzenberg, director of marketing at eRetailing, a Columbus, Ohio-based company that sells custom apparel, told CNBC that it just makes being a seller on Amazon much more difficult.

“It’s a huge fear,” he said. “We’re worried all the time that they’re about to enter our space in private label or whatever method they choose.”

Data shows Amazon can quickly become a formidable competitor if and when it decides to get serious about a certain category.

According to One Click Retail, Amazon’s Mama Bear diapers now outsell other smaller brands like Honest Company and Bambo Nature, after lagging behind in sales earlier this year. The report said that Mama Bear’s sales jumped over 40 percent between the second and third quarters of this year, after Amazon ramped up its promotions, to reach an average sales of $200,000 per week.

“Competition has never been so fierce,” One Click Retail wrote in the report.

Bigger ambition

Amazon’s goal could be much bigger.

Forte at D.A. Davidson said pressure from Amazon’s private label brands can make competitors to purchase more ads on Amazon, so they could be found more easily on the marketplace. Amazon gives its private label brands more exposure across its site, listing them high in search results under a separate box titled “Top Rated from Our Brands.”

But the bigger ambition may be in becoming a massive retail juggernaut that can handle everything from manufacturing and storage to storefront and delivery, according to Juozas Kaziukenas, who runs the e-commerce research firm Marketplace Pulse.

Amazon is a dominant force in parts of the retail sales cycle, such as warehousing, fulfillment and storefront, but lacks expertise in areas like product development and manufacturing. By diving deeper into the private label business, Amazon could fill those missing pieces and become a true end-to-end retail service provider, much like it already does with its AWS cloud service, he said.

“Amazon ultimately wants to build a retail cloud — think AWS but for retail,” Kaziukenas said. “Amazon in the future will be an infrastructure provider for all retail supply chain steps.”

Source: Yahoo Finance UK