Should Amazon ax its private labels to appease regulators?

Sources: Amazon – “Our Brands”
Jul 18, 2022 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.

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?

Please practice The RetailWire Golden Rule when submitting your comments.
"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."

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31 Comments on "Should Amazon ax its private labels to appease regulators?"

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Neil Saunders

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.

Zel Bianco

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.

Nikki Baird
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… Read more »
Gene Detroyer

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.

Bob Amster

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.

Derek Lee
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… Read more »
Carol Spieckerman

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?

Ron Margulis

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.

Trevor Sumner

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…

Paula Rosenblum
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,… Read more »
DeAnn Campbell

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.

Gene Detroyer

Sportsmanship is not part of competitve business.

Gary Sankary

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.

Dave Bruno

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?

Jeff Sward

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.

Dr. Stephen Needel

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.

Lisa Goller

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.

Dion Kenney
4 months 17 days ago

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.

David Slavick

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.

Peter Charness

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.

Raj B. Shroff

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 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, maybe we have other issues.

Kai Clarke

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.

Steve Dennis

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.

Gene Detroyer

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?

Brandon Rael

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.