Growth of Amazon’s private label business is a challenge for smaller brands
State-of-the-art design has been making camera bags and accessories for a dozen years, relying on Amazon for the bulk of its sales. Last year, founder and CEO Peter Dering discovered Amazon was selling a bag that looked surprisingly similar to Peak’s best-selling product, the Everyday Sling Bag.
“They copied the general shape, they copied the access points, they copied the charcoal color and they copied the trapezoidal logo badge,” Dering told CNBC. “But none of the little things that make it a Peak Design bag were things they could carry because those things take a lot more effort and cost.”
Amazon even took on the name, calling its own product the Everyday Sling.
What Amazon lacked in originality and quality, it made up for in price. While Peak’s bag currently retails for nearly $90 on Amazon, Amazon’s counterfeit version of local brand AmazonBasics was selling for about two-thirds less.
This motivated Dering’s team to respond with a sarcastic videomocking Amazon’s questionable methods.
“You don’t have to pay for all those useless bells and whistles, like years of research and development, recycled blue sign-approved materials, a lifetime warranty, fairly paid factory workers, and completely carbon neutral,” a male voice said in the video. “Instead, you just get a bag designed by the AmazonBasics department crack team.
The video went viral and in June was featured by HBO’s John Oliver in a segment on technology monopolies. amazon later stopped selling his version out of the bag, after Peak Design fans beat its ratings with a flurry of negative reviews.
Peak Design CEO Peter Dering compares his company’s Everyday Sling Bag to Amazon’s private label version at its San Francisco headquarters on September 6, 2022.
For Amazon, whose vast market is in the crosshairs of regulators cracking down on Big Tech, stories like these from its private label division have caused additional headaches. In 2020, the European Commission accused Amazon of using its size, power and data to push its own products and gain an unfair advantage over competing merchants who also use its platform. Earlier this year, Amazon said this would limit its use of market vendor data.
Meanwhile, the California Attorney General has filed an antitrust lawsuit against Amazon, and the US Online Choice and Innovation Act to be considered by Congress would reduce Big Tech’s ability to leverage dominant market power at the expense of smaller companies. The bill has not yet been put to a vote.
But while Amazon may be pushing the boundaries of what’s acceptable in private labeling, there’s nothing illegal about copying branded products. It is a business practice that to some extent is widely used by most major retailers.
A selection of some of Amazon’s 118+ private label brands as of October 2022.
“Low price” and “acceptable quality”
A private label is like a private label. A retailer finds a manufacturer to make an affordable “white label” version of a branded product. The manufacturer puts the retailer’s brand on the package, which then sells on average 25-40% less than the national brand product, according to Kusum Ailawadimarketing professor at Dartmouth College who has been researching private label brands for 25 years.
“The history of private label, in the United States anyway, is basically a perception of low price and, at best, acceptable quality,” Ailawadi said, adding that the model dates back to the 1950s.
More recently, retailers have attempted to change the vision of private label by focusing on something that captures the consumer’s interest. For example, Safeway has an O Organics brand and Kroger offers a line of baby products called Comforts.
Others sell most of their products under store brands, such as walmartthe Great Value and Sam’s Choice ranges or Costcoby Kirkland Signature. In other cases, store names also act as brand names, such as SVC and Trader Joe’s. Many of these products are imitators.
“They’re going to put it next to the national brand they’re trying to compete with, with me-too packaging, a similar look and then even have a big sign that says, ‘Buy basically the same product or better at 30% off. less ‘price,” Ailawadi said. “Some of the practices around private label that are currently being scrutinized by Congress and others have not only been around for a long time, they are perfectly acceptable practices.
But Amazon is doing something different, according to Stacy Mitchell, co-executive director of the Institute for Local Self-Government, an activist group that fights big business. She said Amazon brings a powerful data engine to the table.
“Amazon has grown a lot of these private labels by collecting data, essentially spying on companies that have to rely on its website to reach consumers,” Mitchell said. “They also know what search terms people are using, what they’re clicking on, how long their mouse is spending in a certain place. And so they’re able to analyze all of that data for a level of insight that’s not all simply not available at your typical retail chain.”
Amazon also has more power to direct shoppers to particular products than a typical brick-and-mortar retailer.
Amazon has the “ability to take a particular product and place it on page 10 of search results while giving another product, say, its own product, plenty of space on the first page of search results” , Mitchell said. “We know it’s really changing and driving buying behavior.”
In 2020, Congress questioned Amazon founder and then-CEO Jeff Bezos about whether his company used third-party seller data to make business decisions.
“We have a policy against using vendor-specific data to help our private label business,” Bezos said. “But I can’t guarantee you that the policy has never been violated.”
An Amazon spokesperson told CNBC in September: “We do not use data about individual sellers that is not public to determine which private label products to launch, and we have a data protection policy. sellers who go further than any other retailer we know of.”
How private labels are made is often shrouded in mystery, leading to speculation surrounding certain products. For example, Gray Goose had to dispel rumors that he makes Costco’s Kirkland Signature Vodka.
Ailawadi said some private labels are made by national brand manufacturers, who use their excess capacity to make products for others. Then there are specialty companies that only do private labels, and some store brands have their own dedicated manufacturing facilities. Although Amazon has released a list of over 100 suppliers in 2019, he did not answer questions about who manufactures his house brands today.
AmazonBasics batteries are introduced on September 29, 2022.
Amazon first entered the private label business around 2009, with its AmazonBasics brand of staples such as discount batteries. It now has at least 118 private labels, according to data from an e-commerce analytics firm DataWeave. Some of its brands carry the Amazon name or logo, such as Happy Belly snacks, Amazon Collection jewelry, and Amazon Essentials apparel. Others, such as Solimo home products and Lark & Ro and Goodthreads clothing lines, give little indication that they are Amazon brands.
According to a recent Numerator study. By comparison, private labels account for 77% of Aldi’s sales, followed by Trader Joe’s at 59% and Wegmans at 49%.
Amazon continues to invest in private labels
The numerator data also revealed that AmazonBasics came in third for the fastest growing private label. It comes after a Wall Street Journal report which revealed that Amazon had significantly reduced the number of private label items on its site in the first half of this year. The Journal reported that executives considered exiting the private label business entirely to facilitate antitrust scrutiny.
In a statement, Amazon challenged that notion.
“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,” the company said.
Private labels clearly represent a lucrative opportunity. Target told CNBC that 12 of its 48″own brands“are each worth at least $1 billion.
Although Amazon does not share sales data on individual brands, the Seller Consultant Avenue7Media’s Jason Boyce said his company’s internal data shows that Amazon sells tens of millions of dollars worth of AmazonBasics batteries every month.
“I don’t think there’s any credibility that Amazon’s end-of-life AmazonBasics products are doing well,” Boyce said. “Are they slaughtering the herd for products that aren’t doing so well? Absolutely. And any good company would do that.”
Ailawadi says private label products generate about 25% higher profit margins for retailers than national brands, due to cost savings on things like packaging, marketing and promotion.
A variety of private label products from Amazon are featured on September 29, 2022.
“There’s nothing anti-competitive about comparing one product to another and saying those products are very similar, and I’ll sell you one at a lower price,” Ailawadi said. “It’s as competitive as it gets.”
Internally, Amazon must draw a fine line between creating profitable products that consumers want and protecting third-party sellers, who have become a cornerstone of retail. Amazon says third-party merchants make up more than 60% of its e-commerce business, and these companies pay Amazon for services like fulfillment and shipping.
Boyce said “45% of every dollar goes to Amazon” when an outside merchant makes a sale on the platform. “Why would they bite the hand that feeds them like this?”
Not all of Amazon’s private label efforts are successful. The company no longer sells a pair of shoes called Galen which look suspiciously like AllBirds Wool Running Shoes. With the Everyday shoulder bagDering says Peak Design came into its own thanks to all the media attention.
Dering also learned a key lesson from the Amazon drama. He now obtains a design patent for each of Peak Design’s products, of which there are more than 200. Each patent costs about $1,000, he said.
“I definitely recommend it to anyone bringing in a product they don’t want to see go down,” Dering said.
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