Aug 21 2018

How Amazon Private Labels are Squeezing Out Household Brands

Lark & Ro, Wickedly Prime, Store & Beam, Coastal Blue, Rebel Canyon, The Fix, Happy Belly, Kid Nation, Paris Sunday, Mama Bear… How many of these brands have you heard of? We’d be surprised if you’ve heard of even half of these.

And, they are all Amazon private labels.

Retailers getting into the private label business is nothing new. Grocery stores have been doing it for years, cosmetic retailers Ulta and Sephora each have their own private labels, Target recently launched its private label “Cat & Jack”—the list goes on.

Retailer-owned private labels gained more traction once it came out that many of these products are made by the same manufacturers as national brands and usually at the same level of quality. Amazon launched its first private label in 2009, AmazonBasics, which sells everything from baby wipes to USB cables. The online retailer waited until 2014 to launch its next brand and has since released over 60 private labels.

Private labels are a significant part of Amazon’s growth strategy.

Amazon now has almost 7,000 private label products across 74 different brands in various markets: clothing, home and kitchen, electronics, health, food and beverage, office products, and pet care. The top five categories based on the number of products are Clothing, Footwear, and Accessories, Home and Kitchen, Tools and Home Improvement, Electronics, and Health and Household.

Only a handful of Amazon’s private labels have “Amazon” attached to the name—and not by accident. By keeping its private label brands separate from the “Amazon” brand, the online retailer eliminates the risk of damaging its name if a private label completely flops. Amazon also recognizes that some products won’t attract consumers if “Amazon” is in the name. For example, if you were wearing an Amazon brand dress, and someone asked you what the brand is, you’d likely be reluctant to answer with the truth. It just doesn’t have the same level of finesse as Nordstrom, J. Crew, or even Zara. If Amazon decides to delve into high-end products further down the road, it will become even more critical to separate those brands from the Amazon name.

If you think these little-known private labels won’t be able to compete with household name brands, you’re likely to be proven wrong. AmazonBasics batteries have already taken a third of the online market for this product—and it doesn’t stop there.

Cadet Consulting Group predicts Amazon private labels will steal as much as $64 billion from nationally advertised brands in the next ten years. Consumer-packaged goods (CPGs) are especially in trouble—Amazon’s private label market share of the CPG/food market is expected to rise from 17.7% to 25.7% by 2027. Within the same timeframe, experts believe that the retailer’s $2 billion private label grocery sales from 2017 will grow to $20 billion.

Amazon is clearly seeing success with its ecommerce strategy, but the giant retailer still has room to grow. Its private labels only made up 0.2% of its total revenue in 2017.

Brands are colluding with Amazon without even realizing it.

According to research firm Survata, 49% of consumers’ first product search starts on Amazon (36% starts with Google and other search engines). Based on this statistic, you can imagine the magnitude of consumer data Amazon has access to.

Amazon knows what consumers shop for, when they shop for it, and how much they’re willing to spend. And on top of all this, Amazon can mine customer reviews to determine what customers like or don’t like about specific products—it’s the ultimate data hub.

Think of all the time and money you put into testing products, pricing, copy, etc. and imagine handing over all of the data you gathered to a competitor. It’d be like giving someone a blueprint on how to beat out you and other competitors. Brands selling their items on Amazon are doing just that.

Kevin Eichelberger, CEO at Blue Acorn, says Amazon is “using brands’ data to help them determine what markets to get into.” You’ll notice most of Amazon’s private labels sell niche products, such as dog food, women’s clothing, or bio-based cleaning products. This strategy allows the retailer to easily put the right products in front of the right prospective customers that are most likely to buy these types of products (based on the data they retrieved from your products sold on Amazon).

Alexa is in on it.

Alexa, your favorite pod for playing music, providing a daily weather report, and telling the occasional joke, will likely play a large part in shutting out national CPG brands. If you ask Alexa to order paper towels, which brand do you think she will choose? The one with higher margins or the one where Amazon doesn’t make as much money? It doesn’t take a data analyst to figure out that one.

Eichelberger continues, “If you are a brand that sells primarily through retail channels, and you’ve shifted to Amazon to offset traditional brick-and-mortar retail—I couldn’t see a bigger warning flag.”

Amazon dazzled household brands with its robust resources. By selling products on Amazon, your company’s brand can extend its audience reach and deliver its products within days, or even hours in some locations. As more consumers become comfortable buying CPGs online, such as razors, cereal, and cosmetics, familiar household brands like Procter & Gamble, L’Oreal, and General Mills are the ones to likely suffer.

It’s not just household CPG companies that are in trouble; subscription box businesses may also see a decrease in their sales. Brands like Dollar Shave Club and Stitch Fix have rapidly grown in popularity in the few short years since their launch. However, Amazon released its own subscription program, “subscribe & save,” for items like razors, dog food, and makeup. The retailer is also reportedly coming out with its own clothing subscription box to compete with Stitch Fix.

Amazon’s private label strategy capitalizes on the fact that younger consumers, Millennials and Gen Z, typically value brand experience over a brand’s established name. Shopping on Amazon is as seamless as it gets online. Amazon operates first as a search engine, then retailer—allowing shoppers to quickly find what they’re looking for and compare products in a matter of seconds. Furthermore, Amazon offers one-click purchasing, free two-day shipping (for Prime members), and easy order tracking.

Unlike most nationally advertised brands, Amazon doesn’t have to spend millions of dollars on paid advertising.

Amazon’s private labels are starting to take over Sponsored products. For example, Goodthreads, Buttoned Down, and Amazon Essentials make up 16% of Sponsored products when using unbranded search terms related to woven (e.g., dress shirts).

It’s coffee pod brand, Solimo, only launched in June and already has been honored with the “Amazon Choice” badge. The badge is designated for products that have low returns, high customer ratings, and are more popular than other similar items—something Solimo wouldn’t be able to achieve in its short existence.

While this all sounds like doom and gloom for CPG brands, there are ways to compete with Amazon. If you’d like to discuss this further, feel free to reach out to the Blue Acorn team.

Shannon Kenneally

Content Writer

After graduating from Clemson, Shannon started her career in marketing, focusing on content creation and engagement. As Blue Acorn’s Content Writer, she keeps clients and customers up-to-date on the latest trends and news in the ecommerce world. In her free time, she enjoys running with her dog and checking out the local breweries in Charleston.

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