Sources: Amazon.com
Are Amazon’s private labels falling short or just getting started?
Despite Amazon.com’s success with products such as its Echo voice-activated speakers, not everything is quite as rosy when it comes to the e-tail giant’s private label products, according to a Marketplace Pulse study.
The research firm analyzed more than 23,142 products under 406 labels — some private and others exclusive to Amazon — and found that the top 10 brands generated 81 percent of sales. AmazonBasics, the company’s line of everyday tech products that includes a wide range of items such as batteries and bath towels, represents only 5 percent of products launched by the retailer yet generates 57 percent of its private and exclusive brand sales.
Marketplace points to a SunTrust Robinson Humphrey forecast that Amazon’s private label business will grow from $7.5 billion in 2018 to $25 billion by 2022. The vast majority of that growth, however, is expected to be from Echo devices and Whole Foods’ 365 Everyday Value private labels. Take those out and total sales generated by Amazon’s private labels falls to below $1 billion.
A study last year by Jungle Scout found that four out of five of Amazon’s private label women’s apparel lines sold fewer than 100 items on a monthly basis.
Amazon sees an opportunity to grow its private and exclusive brand business, in part, because of its current low level of penetration. Private labels represent fewer than one percent of Amazon’s total sales.
One of the issues with Amazon’s private label strategy is that it doesn’t engage in a significant way in brand building. The e-tailer may feature its own brands on the site or give them preference in search results, but does very little beyond offering price and a basic product description to sell shoppers.
As a Bloomberg article points out, other retailers and consumer-direct brands such as Target and Harvey’s use social media campaigns and in-store displays to engage with shoppers.
“Selling cheap batteries is very different than building brands,” Juozas Kaziukenas, founder of Marketplace Pulse, told Bloomberg. “Even when Amazon says, ‘check out our own brands,’ consumers don’t know what it means and wonder why should they buy this thing they never heard of before.”
Discussion Questions
DISCUSSION QUESTIONS: Should Amazon’s relatively low level of success with its private and exclusive labels be a matter of consolation or concern for other retailers and consumer brand manufacturers at this time? Do you think Amazon’s apparent branding deficiencies are limiting its private label sales?
Poll
BrainTrust
Liz Adamson
VP of Advertising | Buy Box Experts
Cynthia Holcomb
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
While it may be true that their private labels thus far have been underwhelming, I expect that to change as Amazon evolves its offerings and gets better at developing their private brands. With the amount of data Amazon has access to, and their ability to analyze this data, Amazon has the ability to understand consumer purchase behavior at a level that other brands or retailers simply cannot. Amazon will get better at this – a lot better.
I don’t see Amazon taking their private label business too seriously because as the article pointed out, they are not focusing on marketing their private label brands. When looking at the Amazon business model, they tend to make a splash and see what sticks concentrating on big wins quickly and that has worked for them in many ways. However, private label brands need to sell to the consumer not just by price but also quality and why they are a better choice than the name brand. That takes time, effort and investing in marketing, promotion, and advertising. Amazon may go in that direction in the future, but for now, they seem to be content with how things are, and they continue to focus heavily on other short-term win objectives. I don’t see that strategy changing until they see themselves faced with losing more market share to competitors.
Amazon has created a huge amount of trust with their brand. Now it needs to develop trust with their private-label merchandise. As long as the products live up to the Amazon reputation, I see big opportunities for the brand.
Amazon has the advantage of vast amounts of data to crunch through to optimize and perfect products to consumer desires/demand. As long as they are determined to get it right, tenacity and continually evolving their product to the customers’ tastes will ultimately win out. Amazon sticks to its long term goals well. It adapts, changes and evolves well. It is a key point that we are all well-advised to adopt.
Amazon is an experimenting and learning machine. And they’ve got the means to learn from all the products from all the brands currently selling on Amazon. It’s the perfect laboratory. Of course they will not bat 1,000, but they will get enough singles, doubles, triples and the occasional home run to create a big success with their proprietary labels. Think Kirkland at Costco. Kirkland worked because Costco just kept executing great quality product after great quality product — from pickles to dress shirts. I am not suggesting that Amazon emulate that breadth of product strategy under one label, but Kirkland does suggest that consistency and patience pay off in building a proprietary label.
Private label works in two distinct situations — categories where the company has authenticity (in which case it is properly called private brand) and categories where the consumer doesn’t care about branding. In Amazon’s case they have authenticity in tech/voice and so Echo works. The categories with the basic label are generally ones where most consumers don’t see any brand value. It all makes sense.
Fashion is a very difficult market to crack – crowded and competitive with a lot of fickle consumers. Amazon has simply not put enough effort into developing a coherent and compelling fashion offer that stands out. Given the sales volumes on fashion, this is a real barrier to own-label growth.
In other areas, own label development is stronger. Some of the food lines – such as meal kits and snacks – are very well rounded. However, more effort is required to market and push these to consumers.
I place myself in the “getting started” camp. Consider the Amazon evolution from a logistics-focused company to a customer-centric organization. Amazon has been the consummate innovator and experimenter in services, offerings and delivery options, not to mention the Whole Foods acquisition, Amazon Go and now perhaps another food retailer. I see the next phase for Amazon moving from sales and logistics to product marketing, including its own labels. I rarely bet against Amazon and will not do so here. Let’s see what happens in a year.
This was an interesting study and an interesting presentation at Prosper Show yesterday. While the majority of Amazon’s private label brands have not seen runaway success, the study does point out that they have been successful with brands in categories where the products are commodities and no brand “owns” the category. An example is charging cables under the Amazon Basics brand. This product line has done well as Amazon is able to provide products in a niche where branding is not important but low price is. Amazon may not be a runaway success in some categories like mattresses, but as they continue to find and fill holes in niches where there is not currently a strong brand presence, they will continue to grow their private label lines.
I do believe that the apparent lack of success with Amazon’s private labels has everything to do with branding/marketing. Keyword: apparent. Likely there’s a long-game there.
Shoppers that need something like a cable, batteries, or socks and don’t want to put effort into research/and or purchasing will go with an Amazon brand readily. Those that have specific needs or beliefs about marquee brand attributes are harder to convert. So until Amazon puts real effort into brand building and marketing for its own labels, it’s expected that it won’t be making a huge dent in the verticals its brands compete in.
They own the sandbox and make the rules to play in it, so whenever they do decide to turn up the volume about their brands, competitors will need to have concern.
Calling Amazon private-label brands a “low level of success” when sales are just shy of $1 billion? How many brands or retailers would happily trade places with them? As with most private-label brands, the play is to increase margin and offer shoppers alternatives. There’s no doubt that Amazon will get it right over time to create better brands in categories where having a brand will matter.
The Amazon private label “brand” currently means “convenience and efficiency” to mainstream consumers. For many traditionally branded products that opt to market on Amazon, that easy channel delivery is an important add on to the true brand values they’ve already baked into their products. This doesn’t mean that Amazon can’t build brands in categories outside of commodity categories like cheap batteries and electronics. If Amazon wants to succeed in the “softer” sectors such as men’s and women’s fashion, they will have to earn those stripes by emotionally connecting to more subjective attributes like style or quality or sustainability or even healthy living! Branding is about connecting and proving value in the marketplace. Fast and easy delivery is not a brand.
When will we learn that just because Amazon is doing it doesn’t mean it is the right thing to do nor that it can be a success?
A major part of the Amazon problem with private labels is that they don’t have a shopping medium — only a great place to buy things already known.
When a retailer introduces a private label, shoppers can look at it on the shelves, feel the fabric, hold it to their bodies to judge fit, try it on — or in other categories read and compare labels and buy a very minimal amount to try it out.
I know I keep saying it — but let me say again: Retailers can leverage innovative new products to beat Amazon because Amazon is a very poor place for innovation. Remember, when Amazon brought out Echo they advertised it on TV and put it in mainstream retailers — that’s why their devices dominate “private label” predictions.
A measly $1 billion in what, three or four years? Shame … Amazon takes the long road on building a business, and I can certainly see them doing well with the Basics private label products while they manage the balancing act of co-opetition with their public brands.
A few weeks ago I ordered two t-shirts from Amazon’s private label, Amazon Essentials. I wanted to try the clothing myself to form my own opinion about the line.
The result? The shirts were sheer and clingy, mildly unflattering and, although the price point was cheap,I don’t think that this fabric is going to last longer than a few wears.
Since Amazon didn’t advertise their private label, the products need to be of a quality that they advertise themselves through word-of-mouth. They haven’t gotten there yet.
Building a private label brand across multiple categories takes time. Costco and Trader Joe’s have done a phenomenal job building the reputation of their private label brands and now they can put their private label brand on almost anything and consumers will trust that it is good quality.
Amazon’s reputation is built on its marketplace to find the best products and prices across multiple brands and they are the best of the best at product search. That is why 50 percent of consumers start their product search on Amazon. While Amazon has done very well with its Echo voice-activated speaker product line and Kindle tablets, most people don’t have an affinity to any other product categories that carry the Amazon brand, as they don’t have experiences that have built the trust in the brand for those products (e.g. Amazon Fire Phone). Also, most every other category has established brands with often loyal followings (apparel, grocery, drug, cleaning supplies, etc.) and it is difficult to penetrate these categories with a new brand.
Amazon’s private label success will most likely come with the introduction of new product categories or the acquisition of successful existing brands. However, don’t understate the power of Amazon.
In the FMCG space, they are clearly just getting started. They have learned much in the past year from the WFM acquisition in this space, taking on the 365 label initially and have now had more time to study consumer purchase behavior (online and offline) in this retail segment. Recently announcing “basic” private label launches for broader consumer reach (beyond natural and organics) starting with dairy products such as milk, is akin to where traditional grocers started decades ago.
And yet another way for Amazon to not only grow share in grocery, but (and, perhaps more importantly) improve margins in a razor thin GM segment that they will also be expanding with new brick and mortar stores — a robust private label portfolio is a requirement really.
The key that Amazon has is that they’ve built into their culture the ability to learn, adjust and change. Even with limited success, I’m sure they’re not only capturing all the data, but understanding exactly what is happening and why for their next iteration. Instead of worrying, other retailers and brands can focus their efforts on developing their people and their cultures to continually learn how to deliver increased value to the shopper.
Private Label is not the same as a Private Brand. Amazon is keenly aware of this fact as demonstrated by the hodgepodge of looks, fabrications, fits, prints, and patterns, etc. executed in Amazon private label apparel. Lark and Ro, Ella Moon (women’s) Good Threads (men’s) for instance, are merchandised similarly to walking into an LA or NYC jobber of off-price goods. Poorly executed knockoffs. Loss leader pricing that disappears when a style is selected. No rhyme or reason to the products, simply SKU fillers.
Amazon has made some high profile fashion hires over the past decade, none of which have delivered branded successes. Taking a look at Amazon.com today, it appears that internally the conscious decision was made to just pump out stuff to fill SKU slots. Outside of Echo, Amazon has no brands. Rather Amazon is a digital warehouse of stuff. Stuff does not make a brand, no matter how it is promoted and marketed on Amazon.
Amazon is the brand, not the private labels they are clearly not building. Not only are they falling short, the actual sales they’ve driven has nothing to do with branding specific products and everything to do with branding their platform and underpricing competitors. Taking advantage of data and their captive audience of sellers, they can easily find the best opportunities.
They’ve had many years to work through and optimize their private brands — and not sure that more investment at this point would have significant impact in the market. More importantly, real branded retailers have been honing their response and engagement to counter any Amazon inroads. This market has plateaued or will have slow growth for Amazon and is probably not really where they want to go anyway.