Photo: iStock
August 15, 2023
Why Is Amazon Slashing Its In-House Brand Portfolio?
Amazon is significantly pruning its wide range of private brands as it battles both bloated overhead costs and antitrust scrutiny.
As first reported by the Wall Street Journal, Amazon is eliminating 27 of its 30 apparel brands, leaving it with just Amazon Essentials, Amazon Collection, and Amazon Aware. Its Rivet and Stone & Beam furniture brands are also being dropped.
Amazon insinuated that the move was a merchandising decision.
“We always make decisions based on what our customers want, and we’ve learned that customers seek out our biggest brands — like Amazon Basics and Amazon Essentials — for great value with high-quality products at great price points,” said Matt Taddy, VP of Amazon Private Brands, in a media statement.
Taddy added that the products being cut “aren’t resonating with customers.”
Critics have charged that Amazon doesn’t invest in enough brand building around its private labels, in part because of its extensive lineup. As of 2020, Amazon had over 45 different private-label brands.
The private-label streamlining is also believed to be part of broader moves to slash expenses as sales have slowed following the pandemic-induced surge. CEO Andy Jassy has targeted some of Amazon’s more unproven bets as part of the cost-containment efforts.
However, in-house brands are also at the core of investigations launched by U.S. and European regulators over the alleged abuse of Amazon’s dominance in online shopping. Amazon has been accused of giving advantages to its own brands in search listings as well as copying bestsellers sold by third-party merchants based on internal sales data.
Several reports felt it was more than a coincidence that the private label consolidation comes as Amazon representatives are scheduled to meet with the FTC this week in a “last-rites” meeting, typically a final step before the agency votes on filing a lawsuit.
Reports arrived last year that some of Amazon’s executives were open to exiting private labels altogether to avoid extensive fines and more constrictive penalties.
Stacy Mitchell, a co-executive director of the advocacy organization Institute for Local Self-Reliance and an Amazon critic, told the New York Times last week, “What we need to see from the FTC is a case that targets the core of Amazon’s monopolization strategy.”
Discussion Questions
DISCUSSION QUESTIONS: Do you think Amazon’s elimination of dozens of its private brands was the right move from a merchandising standpoint, or was it necessary to counter antitrust concerns? How should Amazon be rethinking its private brand strategy?
Poll
Loading …BrainTrust
Lisa Goller
B2B Content Strategist
Peter Charness
Retail Strategy - UST Global
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
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Amazon went through a phase of developing a lot of private label products. Like most things Amazon does, this was partly experimental to see what they could learn and to test what worked. Fast forward to today and a lot of the brands have been unsuccessful. Many lack a strong personality and are not clearly targeted at consumers; they just fade into the background of Amazon’s enormous offer. Amazon is cutting them because they don’t do the volumes needed to be economically viable and it currently has a laser like focus on profitability. Of course, all of this puts pay to the fallacy that Amazon can use its power to push its private labels to the detriment of other brands. It can’t. Consumers don’t just buy any old thing; a lot of skill and effort is needed to create a compelling private label offer.
It’s impossible to say which factor was the ultimate one in deciding the fate of the these private brands. However, what was clear is that Amazon’s private label brands just weren’t resonating with consumers – it’s an easy decision to drop these brands if by doing so Amazon also alleviates the antitrust concerns. Amazon also has a history of dropping under-performing products or even business lines if they’re not performing, so this decision is also consistent with Amazon’s past behavior.
Why would a company discontinue brands that are selling well? They don’t. Why would a company keep brands that are not selling well? They don’t. It costs as much to operate a small brand as a large brand. And, if the inventory for a brand is not turning, it is quite costly. Retail profit is made on annual turns. Amazon is smart. This is a smart decision.
The anti-trust issue is all theater by the politians. Brand coying for private labels has been happening since before the old Sears catalog. Copying best sellers and using data for private brand development is exactly what successful retailers do.
Gene,
As usual, right on target. If you are smart, you sell what sells. As for the antitrust piece, that’s a laughable issue.
It is difficult to ascertain what is truly driving the decision to eliminate 27 of Amazon’s 30 private label apparel brands. It seems like a very extensive slashing of many brands at one time to be completely a strategy based on profitability. The timing is also probably more than a coincidence that the announcement is right before Amazon’s meeting with the FTC about its dominance in online shopping.
On the surface, cutting private labels seems counterintuitive amid high inflation. Yet Amazon is always testing, learning and retaining only profitable and popular products.
Cutting underperforming private brands reduces costs and a source of public controversy.
Now Amazon can free up resources for B2B revenue drivers like ads and logistics.
This is standard operating procedure at any large retailer and most other merchants. You throw a lot of product, merchandising and promotional ideas out to the customer and some work and others don’t. Amazon is the elephant in the room so there are more ideas tested.
On the second question, Amazon should take a lesson from Costco and Kirkland and mimic the most popular brands in each category, then innovate with engaging new products.
Amazon just proved how difficult private label development really is. Their brands had every advantage from a data development and search positioning point of view. And they failed. So they failed at the merchandising, design and marketing level. If Amazon can push decent to good product to the front of the line and it still doesn’t perform, then clearly there was no resonance with the customer.
Anti-trust aside, 30 different brands in apparel for Amazon is ridiculous. The point of private labels is to drive margin and build loyalty. Successful brands are focused on target segments and points of differentiation. Supporting 30 different brands creates confusion for customers. It’s hard to focus on what each brand stands for when you have to divide that message up 30 ways. This move makes a ton of sense for Amazon; they build more focused campaigns for each brand and give their customers a clear message about what differentiates one brand from another.
Things always look easy when someone else is doing it. Private label apparel needs time, money, a level of understanding of your customer that may not come from the “numbers”, and taste. If there wasn’t enough money coming from private label to pay the lawyers then it probably wasn’t a successful venture.
This is nothing new for Amazon, who may be the largest test marketer of products, concepts & services in the history of retailing. If something doesn’t work, it is modified, replaced or discontinued. This is the essence of these these discontinuances of Amazon private brands. In addition, it mutes the claims of the regulators.
Knowing when products aren’t appealing, and probably won’t ever appeal, to consumers is always a good merchandising strategy and a smart way to reduce internal and external costs. The antitrust question is moot. They aren’t going to be targeted for any regulation/legislation/litigation over fashion lines or furniture. If anything these conversations just once again illustrate how little federal lawmakers understand the digital world.
…or how little federal lawmakers understand any business.
Amazon went big on private-label products. They have the customer base and the money to try new things and learn what works and what doesn’t. When it works, keep doing it. And if it isn’t working, refine or move on. I like that Amazon is consolidating its product lines, for whatever the reason. It will make it easier and less confusing for customers.
Against the typhoon of “brands you’ve never heard of / brands made up of random characters” flooding the Amazon listings in apparel, housewares and furniture, office and teaching supplies, lawn & garden – even Amazon itself didn’t stand a chance. New brands from midsize companies and experienced, quality small brands without massive promotional budgets can no longer rise above the noise and confusion inherent in the platform.
Amazon’s streamlining of private brands reflects a strategic response to cost challenges and regulatory scrutiny. Discontinuing 27 out of 30 apparel brands signals Amazon’s focus on customer preferences and quality.
The decision is rooted in meeting customer demands for superior products at competitive prices. It is important to note that, Amazon’s private label consolidation coincides with an impending meeting with FTC, raising suspicion.
Amazon needs a revised strategy that should balance customer preference, innovation, and fair competition to address concerns.
With over 30 private label brands, increasing focus on core private label brands always makes sense. However, timing of it suggests it has more to do with risk mitigation than market strategy.
In 2020, I ran a search of trademarks registered by Amazon on the USPTO TESS database as part of a research project. The query returned more than 1,000 marks that were associated with private-label brands as either Amazon Private Label or Amazon Exclusive. (After excluding numerous brand names for tech services associated with AWS.)
At the time more than 100 of those brands could be discovered on Amazon.com through search. One source estimated that this covered 22,600 SKUs. Amazon was charging ahead with its own brand portfolio.
So why scale this activity back now? There were those criticisms that Amazon engaged in the questionable practice of offering private label versions of the most popular branded items (hence the anti-trust argument). But I suspect the primary reason is that the scale and complexity of its own-brand program was not bringing the hoped-for overall returns.
In the fashion and home goods categories it is especially difficult and costly to establish brand reputation. Perhaps Amazon has learned that it can earn greater returns as a seller of brands nurtured by others.
Across the retail community, not just here in the US but in a number of international markets, private brand strategy is consistently a “growth” strategy…not an area to be cut back.
With that as context, it would seem that either the anti-trust concerns or poor performance must be at the root of this action. If it is indeed a performance-related move, it runs in the face of how a number of retailers are performing.
Perhaps they expanded too quickly, did not focus on quality, or lacked the internal expertise on building a PB program effectively. It’s also possible that marketplace sellers, and their fees, are a greater focus than building a brand themselves.
While Amazon’s decision to eliminate many of its private brands can be seen as a sound merchandising move, it is equally plausible that this step was influenced by looming antitrust concerns. A good strategy moving forward would be a blend of transparency, stakeholder engagement, and focused brand-building.