This may be a familiar scenario.
You're on Amazon eyeing this $90 camera bag from San
Francisco startup Peak Design.
Probably our best-selling bag of all time.
Before you hit Buy Now you notice a similar listing for
a third of the price.
You don't have to pay for all those needless bells and
whistles, like years of research and development,
recycled bluesign approved materials, a lifetime
warranty, fairly paid factory workers and total
carbon neutrality.
Instead, you just get a bag designed by the crack team
at the AmazonBasics Department.
Peek Design made this snarky video when it noticed Amazon
had made a private label copy of its bag.
And Amazon's gotten a lot of flak for this type of
practice, including a lawsuit from California and
proposed federal legislation that would limit
the power of tech monopolies, a topic so hot
John Oliver recently devoted a whole segment to
it.
Amazon has a huge advantage over its competitors because
it runs the marketplace and has access to all the
independent seller data, like hypothetically, what
bag is proving popular?
So what exactly is a private label?
How does it work?
And despite rumors that it considered shutting them
down to appease regulators, Amazon says it's continuing
to invest in its own brands.
There's no chance in hell that Amazon pulls back and
pulls down its Amazon batteries AmazonBasics
product. It's just doing too well.
This is the story of Amazon's 118-plus private
label brands, some that carry the Amazon name and
others cleverly disguised without it, and why, experts
say despite big antitrust allegations, the age-old
model is going
nowhere.
A private label is the same thing as a store brand.
Essentially, a retailer will find a manufacturer to
make an affordable version of a branded product.
The retailer has its own branding put on the blank
white label, then sells it for an average of 25% to 40%
less than the national brand name product and
sometimes way cheaper.
The history of private label, in the U.S.
anyway, is very much a perception of low price and
at best acceptable quality.
Retailers eager to break from that perception develop
lines with a particular focus like Safeway's O
Organics or Kroger's Comforts baby line.
Others put most of their products under store brands
like Walmart's Great Value, Equate and Sam's Choice, or
Costco's Kirkland Signature. In other cases,
store names double as brand names like CVS and Trader
Joe's. For Amazon, there's likely a reason some of its
100-plus brands carry its name and others don't.
Their first initiatives and private label did all have
the Amazon name on them, and they had some quality
control issues, as have other retailers.
And I am speculating here that they have decided,
no, we're not just going to go in and put the Amazon
name on stuff because we can't risk damaging that.
Amazon first entered the private label business
around 2009 with its AmazonBasics brand of staple
goods like power cords and its ever popular batteries,
with prices often way lower than Energizer or Duracell.
Amazon's private label business has grown
dramatically over recent years.
They now have over 200,000 private label products and a
whole bunch of house brands.
Who makes these cheaper generic versions is
purposely shrouded in mystery.
Neither the retailer nor the manufacturer who supplies
them want to boast about the fact that they're
supplying private labels, especially if you're a
national brand manufacturer.
Like with anything that's kept quiet, rumors abound.
Gray Goose says no, it doesn't make Costco's
Kirkland Signature vodka.
But are Oreos and the Wegmans version made by the
same factory? Does Duracell manufacture AmazonBasics
batteries?
Your guess is as good as mine.
Kusum Ailawadi has been researching private labels
for about 25 years.
Here's what she says we do know about who makes
private-label goods.
There are some national brand manufacturers who use
their excess capacity or even have a whole production
facility that does private label.
There are also some large private-label-only specialty
firms whose whole business is doing private label.
And some retailers have their own manufacturing
facilities. Amazon released a list of more than 100
suppliers in 2019, but declined to answer when we
asked who makes its private labels now.
Not much is spent on the packaging and the promotion
and the marketing of it.
It's simple, core, base product at a very, very good
price.
While store brands cost customers far less, Ailawadi
says they bring in around 25% higher profit margins
for retailers than national brands.
There is nothing anti-competitive about
comparing one product with another and saying that
these products are very similar and I'm selling you
one at a lower price.
Some would argue, and I would agree with that, that
that is as competitive as it gets.
Ailawadi says this business model dates back at least to
the 50s, but private labels had their first big moment
in the 70s. After a recession and a decade of
high inflation, consumers wanted cheaper products.
Retailers started offering generics with monochrome
labels like dog food and orange flavored drink.
Generics, the no-frills value choice from Eagle, the
food experts.
Private labels have come a long way in 40-plus years.
Although store brand popularity died down with
good economic times, private labels are back en
vogue amid soaring inflation and fears of a
recession. There's now a whole segment of shoppers
devoted to private labels like Aldi and Trader Joe's.
They're trying to differentiate much more,
create private label products that are more
innovative, that they can claim are special.
They've branded it AmazonBasics right on the
box. Like as if they want you to be proud that you
bought an AmazonBasics product.
But for Amazon's $30 Everyday Sling Bag it
appears the goal was imitation over
differentiation.
This trapezoidal logo badge: same positioning on the
right side of the bag.
Owning the brand lets Amazon, or any retailer, cut
corners compared to a pricier brand-name product.
They're just sloppy garbage, you know.
I don't know if they'll protect the camera.
Maybe they will. Just the difference between a quality
product and a knockoff quality product.
By making a private label for less retailers, then
pass those savings on to customers, which in turn can
lead to more sales.
Ailawadi says private labels typically make up 25%
to 30% of sales volume for major retailers.
Across grocery, household and health and beauty
items, a whopping 77% of Aldi's sales are from
private-label items, followed by Trader Joe's at
59% and Wegmans at 49%.
Costco is at 33% and Target 15%.
Amazon is significantly lower at just 3%, although
its AmazonBasics brand came in third for fastest-growing
private label. Overall, Amazon reportedly has said
its in-house brands only make up about 1% of retail
sales, although that number is still likely in the
billions with Amazon's revenue in 2021 nearing $470
billion.
On the flip side of big sales for an Amazon-owned
product is the potential for it to take sales away
from the product it resembles. Peak design was
well established by the time Amazon copied its bag,
but that's not the case for millions of its third-party
sellers, who often rely entirely on selling their
goods on Amazon.
If Amazon had done this to the original Peak Design
camera clip, I mean, it could have smoked the
business. That could have been it.
It's really hard on small companies and really they're
the ones who invested in all of that research and
development to develop that product.
And now they're being denied the gains from that.
And Amazon is essentially just stealing those gains.
If this had really dinged up our business like I know it
does to so many others, damn right I'd be pissed.
Peter Dering started Peak Design 12 years ago.
Today it's got more than 200 products on shelves at
Best Buy and REI and on Amazon, where he says it
makes 12% to 15% of its $100 million in annual
sales.
I suppose if it's a retailer, that's our biggest
retail partner.
Amazon says third-party sellers make up more than
60% of its e-commerce business, $390 billion in
sales, according to some estimates.
Today, at a minimum is $0.45.
45% of every dollar goes back to Amazon.
Why would Amazon, who makes so much money on every
dollar sold from a third-party seller, why
would they bite the hand that feeds them in that way?
Jason Boyce was a top seller on Amazon before he started
his business consulting for 100-plus other sellers.
Around 2008, he got a firsthand look into how
Amazon can make such close copies of some bestsellers.
I was invited to Amazon headquarters.
My brother and I went and we were asked to provide a
proposal to get products made for Amazon's private
labels. And they were pushing these product
specification sheets to us and said, 'Can you get this
made and how much can you get it made for?' And my
brothers and I looked at each other and we're like,
'Gosh, that's actually a third-party seller's product
on this page.
Where did you guys get this information?' We had sales
data information, and they looked at each other.
The gentleman in the room looked at each other and
they kind of wink, wink, 'Oh, we have our ways of
getting information.'
You know, Amazon has developed a lot of these
private labels by gathering data, essentially spying on
the companies that have to rely on its website in order
to reach consumers.
And so they're able to get a whole lot of insights
about a huge number of products and then sort of
systematically develop their own products to
successfully compete.
In September, the attorney general of California sued
Amazon for anti-competitive practices.
In 2020, Congress questioned Jeff Bezos about it.
So let me ask you, Mr.
Bezos, does Amazon ever access and use third-party
seller data when making business decisions?
And just a yes or no will suffice, sir.
I can't answer that question yes or no.
What I can tell you is we have a policy against using
seller-specific data to aid our private-label business,
but I can't guarantee you that that policy has never
been violated.
In a statement, Amazon told CNBC, 'We do not use data
about individual sellers that isn't public to
determine which private-brand products to
launch. And we have a policy to protect seller
data that goes further than any other retailer we know
of.'
It says that they only use aggregated data and not data
on a single seller.
Well, aggregated data, by their definition, can be as
few as two companies selling something.
Once Amazon has its own version of a popular
product, it can also give it preferential treatment on
its marketplace, although this is nothing new.
They will put it next to the national brand with whom
they are trying to compete with a me-too packaging, a
similar look, etc.
And they'll even have a big sign that says, 'Buy
basically the same product or better at 30% low price.'
So why is this decades-old practice getting antitrust
scrutiny now that Amazon's doing it?
One of the big differences is data.
Amazon has an extraordinary amount of data across
millions and millions of products.
They also know what search terms people are using, what
they're clicking on, how long their mouse is hovering
in a certain place. And so they are able to analyze all
of that data for a level of insights that simply are not
available to your typical chain retailer.
Amazon also has far more power to steer shoppers to
one product over another than a typical
brick-and-mortar retailer.
Their ability to take one particular product and shove
it on page ten of the search results while giving
another product, say, their own product, lots of space
right there on the first page of search results, we
know that really alters and steers buying behavior.
The American Innovation and Choice Online Act being
considered by Congress would crack down on Big
Tech's ability to leverage dominant market power at the
expense of small businesses, although it's
yet to make it to a vote.
In June, an Amazon executive encouraged
third-party sellers to oppose the bill.
One seller told CNBC, 'Any informed seller is going to
support massive action taken against Amazon in the
antitrust arena' and that 'We are not morons and know
how to read and think for ourselves.' Amazon claims
thousands of sellers have voiced concern about the
bill in communications with members of Congress and said
in a statement, 'We value the opinions of all of our
selling partners and use their feedback to make
Amazon an even better place for small businesses to
succeed. In Europe, antitrust regulations on Big
Tech have been far more successfully enforced.
The European Union has fined Amazon and its cousins,
other Big Tech companies, hundreds of millions of
dollars, and it's just a line item to them.
When you can push $600 billion in retail value of
goods through one website in one year, what's a $1
billion fine?
Still, in an effort to appease regulators, Amazon
drastically reduced the number of private-label
items on its site in the first half of this year,
according to a Wall Street Journal investigation.
Executives, it found, were discussing exiting the
private-label business entirely to ease antitrust
scrutiny. In a statement, Amazon told CNBC, '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.' For Amazon, like others, private
labels are a good opportunity with high
margins. Target, for instance, told CNBC that 12
of its 48 owned brands are each now worth $1 billion.
Although Amazon doesn't share sales data on
individual brands, Avenue7Media's internal data
shows Amazon sells tens of millions of dollars worth of
Basics batteries every month.
I don't think that there's any credence to the fact
that Amazon's sunsetting AmazonBasics products that
are doing well.
Now, are they culling the herd for products that are
doing not so well?
Absolutely. And any good business would do that.
In some categories like skin care and mobile accessories,
Amazon's private labels make up less than 1% of
sales on Amazon.com compared to name-brand
goods. The category with the highest share of
private-label sales is TV and Video at 38%.
Think Amazon's own devices like the Fire TV.
Next up is batteries at nearly 30%.
But while batteries and other Basics may be here to
stay, Amazon remains under antitrust scrutiny from the
Federal Trade Commission for its many recent
acquisitions, from MGM to One Medical to iRobot.
If you want to have a democracy, you need to be
able to prevent private entities from amassing a lot
of power and then using that power to push other
people around, which is essentially what a monopoly
is.
Still, Amazon's knockoffs don't all succeed or
overpower small businesses .
With the Everyday Sling Bag, Dering says Peak Design came
out on top thanks to all the bad press.
Once their product plummeted from like a three-and-a-half
star product down to a one star product, they just took
it off altogether.
So they stopped selling it really quite quickly.
Dering says he's changed one big thing since Amazon
copied his bestseller, and it's his top piece of advice
for other sellers wishing to keep Amazon from doing
the same to them.
We made it so that every single product that we make
gets a design patent.
They can't look like this because ours already looks
like this. So we get those, full stop, with every single
product that we release now.