Amazon, the brand buster!

Venturing into private label business appears to be a deft move

It started with a simple battery. Around 2009, Amazon quietly entered the private label business by offering a handful of items under a new brand called AmazonBasics. Early offerings were the kinds of unglamorous products that consumers typically bought at their local hardware store: Power cords and cables for electronics and, in particular, batteries - with prices roughly 30 per cent lower than that of national brands like Energizer and Duracell.

The results were stunning. In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.

Inside Amazon's Seattle headquarters, that success raised a tantalising possibility. If, with very little effort, Amazon could become a huge player in the battery market, what else might be possible for the company?

Anyone who spends much time on the Amazon site can see the answer to that question. The company now has roughly 100 private label brands for sale on its huge online marketplace, of which more than five dozen have been introduced in the past year alone. But few of those are sold under the Amazon brand. 

On the surface, the move into the private label business appears to be a deft move by Amazon. Analysts predict that nearly half of all online shopping in the United States will be conducted on Amazon's platform in the next couple of years. 

Furthermore, in an effort to incentivise shoppers to sign up for the Amazon Prime program, certain of Amazon's private-label products can be purchased only by Prime customers.

“Amazon started very slowly in private label,” said Youssef Squali, a managing director of internet and digital media research at SunTrust. “Quite frankly, we think our estimate for the size of the private-label business is conservative,” he added.

Amazon declined to make any of its executives available for this article, but in a response to a list of questions, the company said its overarching goal is to provide customers a wide range of products and brands.

Amazon is hardly alone in its charge into private label. Big-box retailers like Walmart and Target have been offering store brands for years and are also racing to start more private labels, particularly in apparel.

But Amazon holds a unique position in the global marketplace. From its beginnings in 1994, Amazon’s platform was designed to democratise retail. 

A tilted playing field?

It's not just lower prices that are driving Amazon's customers to its private-label goods.

Amazon is utilising its knowledge of its powerful marketplace machine to steer shoppers toward its in-house brands and away from its competitors, say analysts. 

The emerging private label threat from Amazon presents a quandary for small vendors and big, national brands alike. Even as Amazon takes away market share and eats into their profit margins, they have little choice but to continue to sell on Amazon's platform in order to get themselves in front of millions of potential customers.

But as Amazon uses its powerful platform to bolster its private-label business, there is also debate in legal circles whether some of its activities could be viewed as monopolistic in nature. 

“I think there is a potential monopolisation case against Amazon,” said Chris Sagers, an antitrust professor at the Cleveland-Marshall College of Law in Ohio. 

In an emailed response, a spokeswoman for Amazon said the company is “a small fraction of a very large and vibrant global retail industry, and the competition and invention happening across retail is great for customers.”

A crowded marketplace

Are the big brands fighting a battle that may be impossible for them to win?

For more than two decades, shoppers perusing the aisles of Walmart have run into cans of Sam’s cola or coffee alongside national brands on the shelves. But now, Amazon and many of these big-box retailers are increasing their private-label efforts. 

For Amazon, the starting line for deciding what goods or products to replicate for an in-house brand is not that different than what happens at retailers like Target or Walmart. They look at what is selling online and figure out if they can manufacture it cheaper.

Amazon’s advantage over traditional retailers is its knowledge and access to data from its platform.

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