Sources: Amazon – “Our Brands”
Should Amazon ax its private labels to appease regulators?
Amazon.com has considered exiting its private label business altogether in order to alleviate regulatory pressures, according to multiple reports.
The company, downplaying the conversations, said in a media statement, “We never seriously considered closing our private label business and we continue to invest in this area, just as our many retail competitors have done for decades and continue to do today.”
Amazon’s in-house brands, however, are at the core of investigations launched by U.S. and European regulators over the alleged abuse of its dominance in online shopping.
Amazon has faced criticism that it sometimes gives advantages in search listings and other ways to its own brands at the expense of products sold by other vendors on its marketplace. The company has also been accused of using in-house sales data to select and copy best-selling products sold by third-party merchants.
Recode reported that as recently as last year, several top executives, including Amazon’s new CEO of Worldwide Amazon Stores, Doug Herrington, and general counsel David Zapolsky, were open to exiting private labels as a negotiating tactic with U.S. and European regulators to avoid extensive fines and more constrictive penalties.
The Wall Street Journal and Bloomberg also reported that Amazon had considered the exit option. In Europe, Amazon has already offered to refrain from using sellers’ data for its own competing retail business and its private label products.
In-house brands reportedly account for about one percent of Amazon’s revenues and include its Amazon Basics all-purpose line and numerous others. As of 2020, Amazon’s private label business offered 45 house brands across 243,000 products. The exits would not include Amazon’s tech gadgets, such as Kindle, Echo and Fire TV.
The Journal reported Friday that Amazon has also been significantly reducing its private label assortments due to disappointing sales. The goal includes culling its in-house label assortment in the U.S. by well more than half.
Reports from 2019 indicated that much of Amazon’s private label program, started in 2009 with consumer electronics accessories, was underperforming. One shortcoming seen at the time was that Amazon doesn’t invest significantly in private label brand building, instead focusing on price and basic descriptions.
- Amazon Has Been Slashing Private-Label Selection Amid Weak Sales – The Wall Street Journal
- Amazon reducing its private-label items as sales fall – WSJ – Reuters
- Amazon Considered Ending Private-Label Sales to Appease Regulators – Bloomberg
- Amazon considered ending private-label sales to appease regulators – Los Angeles Times/Bloomberg
- Amazon executives have discussed ditching Amazon Basics to appease regulators – Recode/Vox
- Are Amazon’s private labels falling short or just getting started? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Is Amazon’s use of national brand data to inform its private label decisions different from the way other retailers handle that information? Should Amazon consider exiting its private label business to end charges and overall speculation that it unfairly favors its own brands on its platform?
Poll
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Amazon should absolutely not ditch private labels to appease regulators. Frankly, Amazon has no case to answer here – just as other retailers like Walmart, Target, Costco, Tesco, Aldi – all of which have extensive private label collections that have been built off the back of customer data and intelligence – have no case to answer.
However Amazon has a vast number of private labels and not all of them deliver solidly. The proposition is also muddled, piecemeal and somewhat confusing. It is right to assess and trim the number in the name of efficiency and meeting customer needs. Even if Amazon halved the number of private labels it has, it would still have a very large assortment.
How Amazon handles the data may not be different in this case, but giving other suppliers half a chance is a good thing for all of us and our industry.
It sounds like it’s more complicated than just a case of regulatory risk – but that is surely a great story to tell, that “regulators made us” rather than “we haven’t been able to make it successful.”
At the end of the day, what Amazon does IS different than other companies, because its marketplace is such a huge part of its business. It’s not like a grocer who uses private label to exploit gaps in national brand coverage. The grocer is taking the inventory and sales risk across both national brands and its own, which serves as a bit of a check and balance. With Amazon, they’re using marketplace data – where they take no inventory risk – to pick off successful products with copycats. It would be like Etsy rolling out competing Christmas ornaments against its best seller – which it would never do because Etsy is not a retailer too, just a marketplace.
With that much noise, if it’s 1 percent of sales and not delivering like they anticipated, then sure, throw that into the negotiation with regulators…
Back in the early ’70s, when I was in marketing for Hefty Bags, there were few private label bags. When I left, PL had about a 35 percent share, taking share from Hefty and Glad.
Restricting PL in any form is surely anti-competitive, hurts the consumer and subsidizes those who can’t handle the heat.
I don’t see how using customer data collected from the sale of branded goods is either illegal or unethical. It’s up to the brands to tell Amazon to cease and desist if they object to this practice. With the volume of private-label sales sitting at 1 percent of total sales, and facing scrutiny from the government, Amazon would be wise to abandon its private label online business.
I think the article prompting this discussion post is mistaken. The controversy isn’t whether Amazon used customer data, but it’s that Amazon used “proprietary” third-party seller data. Amazon is both a direct seller and a quasi-two way marketplace, and they’ve said that the marketplace data is not theirs to use, and especially not use to produce a cheaper white label product.
The 2nd and 3rd paragraphs from an April 2020 Wall Street Journal article:
“The online retailing giant has long asserted, including to Congress, that when it makes and sells its own products, it doesn’t use information it collects from the site’s individual third-party sellers—data those sellers view as proprietary.
“Yet interviews with more than 20 former employees of Amazon’s private-label business and documents reviewed by The Wall Street Journal reveal that employees did just that. Such information can help Amazon decide how to price an item, which features to copy or whether to enter a product segment based on its earning potential, according to people familiar with the practice, including a current employee and some former employees who participated in it.”
I don’t think that each of these actions in a vacuum would be grounds for anti-competition. But taken together and with Amazon’s track-record, this is a legitimate concern, and I side with the regulators. If Amazon’s response is to take the ball and go home with Basics, so be it.
To the platform owner goes the power. Amazon’s digital-forward business model ensures that the data it does collect is robust, connected, and relevant. In the scheme of things, Amazon’s private brands could be sheared off without doing much damage. Any disappointing performance is likely due to oversaturation as Amazon flooded its platform with owned brands in every major category. Competition from the flood of Asian brand factories that sell on the Amazon platform has created further brand dilution and confusion. It’s no wonder more brands are attempting to wean off of the free-for-all that is now Amazon. If Amazon backs off of private brands, will it open the floodgates to brand-based scrutiny for other retailers?
If (and this is a mighty big if) Amazon is transparent about how its private label is ranked compared with other brands, there is no reason for the company to abandon the line. Who can make that assessment is for brains bigger than mine, but it will have to go way beyond Amazon asking regulators to trust them.
Amazon is hardly the only retailer to offer private label products. Why should they abandon these when every other retailer is expanding their adoption to drive margins? And yes, the other retailers use their own sales data just like Amazon does…
This is a complex question, actually.
As the Amazon rep pointed out, retailers have been doing this forever, but they weren’t marketplaces servicing the customers of competitors.
On the flip side, Amazon doesn’t make much profit selling the mountains of branded goods that it sells, so, just as other retailers have been doing, it makes sense to build a brand on its private label. But not with other retailers’ data. That goes over the line.
It seems to me that branded goods sales are fair game and, to be honest, Walmart can be used as an argument to demonstrate that one doesn’t create a successful private label business with a wave of a wand. But data gathered in-store is just not as robust as data gathered from an online sale.
Overall, Amazon’s problem is big and its position precarious. By almost any standard, it should be broken up into three or four separate companies, but Bezos’ high percentage ownership in the company makes that unlikely. So to keep itself out of the eye of regulators, giving up a small percentage of higher margin business, private label, seems like a good idea.
To be honest, I’ve bought Amazon’s “basics” cables before and they’re basically bad. They don’t last long and remind me of the old days of private label — before the products actually got good.
So I’d just not make big statements and continue selling whatever is selling well today and add no more. I would definitely avoid expansion.
What Amazon is doing isn’t illegal but it is poor sportsmanship. The data they use to drive merchandise decisions is earned directly from their own customers, which is what other retailers like Target, Walmart and Kroger do as well. However the scale and breadth of information generated by Amazon’s third-party marketplace platform does give them an unfair advantage that can’t be easily replicated by others.
Sportsmanship is not part of competitve business.
Amazon is doing absolutely nothing wrong here. Every retailer involved in private label uses sales data to figure out which products to bring to market. This is simply an example of Amazon being called out because of their success.
At 1 percent of their revenues, ending their private label brands would not be a fatal blow to the business. And if it eliminates regulatory hassles/fines/restrictions and simultaneously improves seller trust, perhaps it would be a smart move. I have never had great luck with Amazon private label products anyway. I tried a few of them and have been consistently underwhelmed/disappointed. Perhaps the product quality is a reflection of the importance of those products to their business. I do, however, have much more faith in Amazon’s Choice labels applied to third-party brands. Perhaps there is a greater opportunity to expand those labels?
There’s nothing very difficult about copying a product that already exists in the market. The article says it — it’s been going on for decades. The hard part is merchandising and developing a meaningful brand promise, a brand story that resonates with the customer. Amazon has proved to be not very skillful at merchandising and brand development. No problem. They just bump their stuff to the front of the line. That’s also been going on for decades, but maybe not at the level of and sophistication of Amazon.
The negotiators would settle for Amazon exiting the proprietary label business? That’s ridiculous. All the brand and consumer data would still be sitting there. You think Amazon won’t find some way to monetize it? Product and process. Amazon proves to be mediocre at product, but remains brilliant at process. Neither the problem nor the solution sit in the product bucket. They’re sitting in the process bucket.
It’s their platform – if you don’t like how they treat your marketplace data or product listings, don’t sell them on Amazon. This seems way too simple.
Rivals already imitate each other’s in-demand product features. Private labels mimic national brands. It’s nothing new. The difference here is Amazon is faster at seeing what sells and getting to market.
Should Amazon axe private labels? Absolutely not.
As the cost of living soars, consumers need affordable private label options across categories. Cutting underperforming own-brands makes sense. Eliminating the entire private label altogether would harm consumer access to variety, quality and affordability.
Amazon has an unusual business model, in that their most famous line of business – the marketplace – may be the smallest contributor to their bottom-line profitability. It appears that their largest contributor is advertising (third largest in the U.S., trailing only Google and Facebook) followed by cloud services, with AWS being the world’s dominant player. Their private label products are a minuscule portion of their revenue and profitability.
The big question is whether Amazon would even know which products to sell in competition with their vendors without the performance metrics the marketplace provides, and at what price point. They can fight the U.S. regulators, maybe even successfully. But it doesn’t appear that the benefit is justified by the cost and the relative IRR compared to their other lines of business.
It’s called a free market. This is a slippery slope. Any purchase connects to a lifestyle. Dropping private label in any one category does not serve the needs of the customer population.
Amazon is both a retailer and the largest electronic landlord in the world. Except it’s a landlord that sees every possible expression of customer behavior and probably collects and understands more data than its marketplace tenants ever will see, even though (in some respects) that customer “belongs” to the marketplace tenant. Then Amazon creates its own products, based on its one-sided command of data, and competes with its tenants. It used to be said that retailers compete with supply chains — that’s true, but today retailers compete with customer information chains, and Amazon has a one-sided advantage that invites regulatory review.
I agree with Stephen, it’s Amazon’s platform. I am sure this is pervasive, it’s a smart business practice. Take a legacy business like Kroger; it likely favors its brands on kroger.com having its private label equivalent pop up under relevant searches. And at the end of the day, shoppers still have a choice to choose whichever brand they like. If they are that influenced by web searches on Amazon.com, maybe we have other issues.
No, no, no. Private label branding, design and positioning should be a key component for every retailer in today’s environment including Amazon. Amazon also offers all of its Fulfilled by Amazon (FBA) partners the complete set of data from Amazon’s consumers so that Amazon’s FBA retail competitors can get a better marketing snapshot of each category and product that the retailer is considering. Why shouldn’t Amazon have the same access to this data that they are also selling to their FBA retail partners? Amazon should not reduce or change their private label forays into any category just because of possible government intervention.
No. Fundamentally Amazon is not doing anything different than pretty much all its major competitors are doing. Private labels/brands are inherently part of the retail playbook and can deliver real customer value. But Amazon should do two things. One, it should do a much better job demonstrating to consumers, regulators and suppliers alike that is has processes in place to avoid any potential major conflicts of interests. Gaining more trust through transparency and guardrails is the goal here. Two, if Amazon retail is to be more than a loss leader for its advertising business, the company needs to get better at merchandising. The Bezos era was characterized by too much throwing stuff at the wall to see what sticks, and that’s created some real challenges. A more focused and thoughtful “owned brand” assortment strategy is what is needed, which will necessarily result in some pruning–and may cool the jets of regulators.
I don’t know any retailer who doesn’t develop their private label based on sales data and trends. This is not a new phenomenon. This is good business.
If Amazon can’t do it, then what happens to Walmart or Kroger?
When retailers and brands enter Amazon’s marketplace and ecosystem, they know the company will leverage their data and insights for their private label ambitions. While this certainly gives Amazon a competitive edge, how Amazon chooses to leverage the customer data, analytics and intelligence is entirely up to them and should not be subject to regulatory considerations.
Amazon has every right to continue offering private labels, similar to the business model their main competitors, Target, Walmart, Kroger, and others, offer. However considering the ubiquity of Amazon’s private label offers, the company should take a prescriptive and strategic view and perhaps look to optimize these assortments. Maybe a way around all the regulatory pressures is to provide quality over quantity in the private label space.
Since when did Amazon drive decisions based on industry speculation? In business if a company is not favoring their own brands they would be considered negligent from a fiduciary responsibility perspective. The story here is really that Amazon’s 250,000 private label products are not doing that well, despite the very real advantage they possess of being able to place these products side by side with the top sellers in any market. Bezos targeted 10 percent of the business would be driven by high margin private label – but only 1 percent has been reached. Culling segments that aren’t performing only makes sense. Regulation concerns are a red herring.
Private Label is madly lucrative, once shopper behaviors are ingrained. Is appeasing regulators the only reason for ditching this? If sales are disappointing, is the assortment optimized? I agree with Nikki, it seems like there is more to this than meets the eye.
No and yes: “no” in the sense that it does what all businesses do (make use of every bit of information it can obtain); “yes” in the sense that it likely has access to far more bits of information than most companies do. (How it compares to other large retailers like Walmart is harder to say).
Based on the (admittedly small) “bits of information” provided in this post, it sounds like private label is something of a fringe issue, both for Amazon itself and those that dislike it.
How is Amazon different from every other retailer which offers its own merchandise for sale? The only real difference I see is that Amazon offers more of a price differentiation. This is the strategy employed years ago by retailers entering the private label business. The goal at that time was to knock off the branded options. Only when they realized that attributes other than price might generate incremental store visits, did they pursue this strategy. Amazon’s strategy appears to be branded knockoffs. If it wants to stay in/grow this business, it needs to develop brands with attributes not found in national brands.
No, Amazon should not ax its private label business to appease regulators. But the company cannot ignore the attention it has garnered.
Retailing is structurally changing, and the amount and type of data capture, and implications, are very different than it was a decade or two ago. Like any competitive business, Amazon uses all its strengths to build deeper and broader business moats. The cries of foul play should be expected, as are regulators’ concerns and inquiries. However, that does not automatically suggest a strategy reversal is required, but perhaps a course correction to avoid a pyrrhic victory.
Technology’s constant advances, new business models, and disruptive social forces create uncertainties even for the most prominent companies. Regulators are necessary to curb unsavory players and pariahs feeding on vulnerable consumers, but please tread carefully so innovation doesn’t become the accidental victim.
Amazon has been outperforming all its competitor retailers. Being a marketplace and owning private labels is not a new concept. Just like Amazon, Walmart has its own labels for almost every product category. So I think regulators are being unfair to Amazon. The regulatory norms must be applied to all the other retailers as well.
Following through the current circumstances, Amazon shutting down its private labels might turn out to be a good call. Losing 1 percent revenue from those labels won’t strap Amazon’s overall gains. Additionally, vendors will be able to sell more confidently with Amazon. To steer away from jeopardizing that, the decision to ditch the private labels might prove favorable.