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IT started with a single battery.
Around 2009, Amazon quietly entered the private label business by offering a handful of articles under a new brand called AmazonBasics. The first products were the somewhat glamorous products that consumers typically bought at their local hardware store: power cords and cables for the electronics and, in particular, the batteries – with prices around 30 % to national brands such as Energizer and Duracell.
The results were magnificent. In just a few years, AmazonBasics has seized nearly a third of the online battery market, surpassing Energizer and Duracell on its site.
At the Seattle headquarters of Amazon, this success has raised an enticing opportunity. If, with very little effort, Amazon could become a major player in the battery market, what else could be possible for the company?
Anyone who spends a lot of time on the Amazon site can see the answer to this question. The company today counts one hundred private brands sold on its huge online market, of which more than five dozen were launched last year.
But few of these are sold under the Amazon brand. Instead, they received a variety of anonymous, disposable names like Spotted Zebra (Children's Clothing), Good Brief (Men's Underwear), Wag (Dog Food) and Rivet (Furnishings). Want to buy a stylish and affordable short sleeve dress? A flared version of Lark & Ro (US $ 39), perhaps in millennial pink, could be exactly what you are looking for.
On the surface, the shift to private label activity (in which the goods are sold under the name of the retailer rather than that of an external supplier) seems to be a deft gesture on the part of Amazon .
Analysts predict that nearly half of all online shopping in the United States will be conducted on the Amazon platform in the next two years. This creates a huge opportunity for Amazon to more than double revenue from its $ 25 billion private label brands in the next four years, according to SunTrust analysts Robinson Humphrey. This is the equivalent of all Macy's earnings last year.
In addition, to encourage buyers to enroll in the Amazon Prime program (which today costs $ 119 a year, compared with $ 99 a year ago), some Amazon private label products , such as khakis or Wag's Goodthreads for salmon-and-lentil dog food, can be purchased only by Prime customers.
"Amazon started very slowly as a private label," said Youssef Squali, general manager of SunTrust's Internet and Digital Media Research. "Frankly, we think our estimate of the size of private label activity is conservative," he added.
In response to a list of questions, the company said its overall goal is to provide customers with a broad range of products and brands.
"We are taking the same approach for private brands as for Amazon: we start with the customer and work backwards," the company said in a statement.
It's not just the lower prices that drive Amazon's customers to its private label products.
Amazon uses its knowledge of its powerful market machine – from the optimization of word search algorithms to the analysis of competitors' sales data to the use of its customer networks – to guide its customers towards its internal brands and far from its competitors.
And as consumers buy more and more using voice technology, the playground becomes even more inclined. For example, consumers asking Alexa of Amazon "buy batteries" only get one option: AmazonBasics.
Amazon's emerging private label threat poses a dilemma for small sellers and major national brands. Even if Amazon takes away market shares and eats their profit margins, they have no choice but to continue selling on the Amazon platform to find themselves in front of millions of potential customers.
"I think that actually you have a company that has conspired with about a billion consumers and technology to destroy the brands," Scott Galloway, founder of a commercial research company now named Gartner L2 and professor Marketing at New York University Stern School. of Business, argued in a presentation last year.
But as Amazon uses its powerful platform to strengthen its private label business, the legal community is also questioning whether some of its activities could be considered monopolistic.
"I think there's a potential case of monopolization against Amazon," said Chris Sagers, an antitrust professor at the University of Cleveland-Marshall in Ohio. "Amazon marketing people are geniuses, they are brilliant," said Sagers.
"But if they have a massive market penetration and prevent customers from buying products from their competitors, it's like they're writing the complainant's complaint to them."
In an email, a spokeswoman for Amazon said that the company represented "a small fraction of a very large and dynamic global retail industry, and that competition and invention in retail are excellent for customers. "
The advantage of Amazon over traditional retailers is its knowledge and access to its platform data.
Take word searches. About 70% of word searches done on Amazon's search browser involve generic products. This means that consumers type "men's underwear" or "running shoes" rather than asking, specifically, for Hanes or Nike.
For Amazon, these word searches by consumers allow it to put its private label products in front of the consumer and to make sure they appear quickly. In addition, Amazon has emails from consumers who have searched on his site and can send them directly via email or use pop-up ads on other sites to redirect those consumers to the Amazon Marketplace .
Some of this data is also available for major brands or sellers who sell on the Amazon platform through a program called Amazon Retail Analytics Premium. But it's expensive, sellers paying one percent of their wholesale cost to Amazon or a minimum of $ 100,000 to gain access to a database that allows them to see some of the data compiled by Amazon.
"Amazon has access to data that no one else has," said James Thomson, a former executive of Amazon who now works at Buy Box Experts, a consulting firm that advises companies on how to build their brands and sell products on Amazon.
With this data, Amazon is able to perform regional or one-day price tests, lowering the cost of its products in some markets to find out at what price more customers are buying the products. ; article.
While traditional retailers can easily analyze their sales data and understand the size of shirts and colors, Amazon offers hundreds of competing product reviews on its website, providing feedback to customers on how the shirt has taken on. charge five washes or how it fits different body types.
"Amazon can analyze these criticisms and understand why customers were dissatisfied," said Cooper Smith, an analyst at Gartner L2's research firm. "Amazon can then turn around and create a private label for a similar product, but improve it based on what customers say."
When Amazon introduces a new private label product, it's not everything. It often uses a technique that analysts call "test-and-repeat", controlling a small batch of products from its manufacturers, testing the application and, if the product is successful, reordering a larger batch of product as well as By increasing its assortment.
Once again, here Amazon has a length ahead of traditional retailers. Most retailers rely on a consumer segment – the budget, mid-market or high-end shopper. According to Deborah Weinswig, founder and CEO of Coresight Research, Amazon can offer a variety of private label products, positioned relative to buyers in different categories.
Amazon Vine, or Vine Voices, are very active reviewers in the Amazon market who are then invited by the company to participate in its Vine program, which identifies them as influential critics. In exchange for free products, which they disclose the receipt, critics agree to write reviews on the Amazon site.
Amazon has actively used Vine Voices to help introduce its private brands. An analysis of more than 1,600 products on 10 of Amazon's private brands, including Amazon Basics, Amazon Essentials, Mama Bear, Pinzon, Goodthreads and others, showed that about half had Vine magazines. Of these 835 products, more than half of the top 30 journals came from the Vine program, according to ReviewMeta.com, an online tool that helps customers identify inauthentic reviews.
"What's happening on Amazon is different from what you see in traditional stores," said Kevin Grundy, an analyst at Jefferies Investment Bank. "There, private brands could take a slightly larger market share than 10 percent, with private brands in Amazon occupying more than 25 percent of the online market."
A few weeks earlier, The Capitol Forum, a Washington-based news service that examines business and regulation, has published an article arguing that Amazon risked antitrust enforcement by the US. Trump administration for using its algorithms and platform to promote its own products. the merchants who depend on the Amazon platform and with whom Amazon is competing. "
The articles fueled a growing debate among economists and lawyers on whether Amazon has monopolistic or anticompetitive behavior in its market.
Amazon has two strong defenses when these issues are raised.
At least since the 1970s, the courts have been very skeptical of antitrust plaintiffs who can not demonstrate that the impugned conduct would result in price increases or a decline in quality. In this case, Amazon can vehemently argue that through its platform, consumers are paying lower prices, say legal experts.
And while Amazon brands have quickly gained market share on its platform in some areas, in other segments, such as clothing, they account for less than 1% of inventories sold. And expanded to include physical stores, its online share of the battery market is less than 5 percent. Until Amazon's share of the total market starts to approach 40% or more, it is hard to argue that there is an attempt to monopolize, say legal experts.
"You have to show that the end of the game is some kind of harm to the consumer, either by higher prices or lower quality," said Herbert Hovenkamp, an antitrust professor at the University of Pennsylvania Law School and at the Wharton School. "And up to now, Amazon does not even appear on the radar screen with regard to consumer damage." NY TIMES
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