Amazon’s private-label ambitions and what they mean for rivals
July 19, 2016 04:09 PM
With an endless digital shelf supported largely by marketplace sellers, a carefully managed price leadership perception, and the continued ability to be held to a different set of financial expectations than a traditional retailer, Amazon continues to reinvent the retail landscape.
And Amazon continues to evolve, now with a significant and broader investment in its own private-label products, further strengthening its competitive position. At the same time, Amazon appears to rely more and more on their marketplace sellers to carry sought-after and heavily price-compared national brands.
Amazon has already established itself as a major player in the private-label space; the AmazonBasics line is loaded with items such as batteries, paper shredders, backpacks and USB cords. But now, it is building aggressively on that foundation, expanding its electronics product line with the Fire, Kindle, Echo and more. To further emphasize their success in this venture, 360pi’s proprietary research from the holiday 2015 season revealed that a whopping 56% of Amazon’s self-reported top 25 best sellers in electronics were its own private-label items.
This presents a major challenge for brands and retailers in target verticals that have relied on Amazon to be a major sales and distribution channel. The good news is that watching and learning can be the best path to success, so let’s review why Amazon is making these moves and discuss what retailers can do to adapt.
It’s no secret – Amazon’s private-label boom
According to the Private Label Manufacturers Association, store brands reached $118.4 billion in U.S. sales in 2015, an all-time record. Moreover, store brands accounted for 17.7% of all sales, also the highest mark ever. For the consumer, choosing private label often makes sense: if you can spend less and get an equivalent product, it’s a no-brainer.
Amazon’s newest private-label venture, or more accurately, seven distinct apparel labels, helps show just how broad the appeal of private label really is to retailers and consumers alike. Jumping into a retail segment where name brands have kept mid-level department stores like Macy’s and Nordstrom’s towering over low-price retailers like Walmart seems like an uninformed move. But dive deeper, and we can find some great lessons for any retailer.
Why focus on private label?
Most importantly, private-label products help Amazon avoid direct price competition and downward margin pressure, while still maintaining the perception of price leadership.
Secondly, private-label products help Amazon fill gaps in its assortment. These are created by brands like Nike who won’t sell on Amazon for various reasons—usually tied to tight channel restrictions or a feeling of “cheapening” the brand.
Developing private-label lines proactively allows retailers to establish legitimate challenges on price, quality or identity to the brands using that retailer as a sales channel. Given the rise in consumer confidence in private-label brands, disrupting certain categories in your assortment with your own products allows you to amplify your overall assortment, wrestle away a bigger share of the market, and grow and protect revenues and margins.
Next stop – happy customers
Many retailers don’t seek to compete directly with Amazon on price or assortment. However, a lot of what Amazon is doing with private label and assortment can be successfully incorporated into most retailers’ strategies.
What the rise of private label reinforces is the need in modern retail to understand your customers. What do they want; what do they want to pay; and, are you meeting their needs? Data analytics and assortment management software has the power to identify those categorical gaps and give you the insights you need to optimize your offerings.
Pricing and product strategies aren’t one-size-fits-all for retailers or for categories. Once you know your customers, and yourself, you can aggressively pursue new customers, more market share, and greater control over your own inventory and brand. Amazon understands the value of moving beyond price and looking more comprehensively at assortment. Consumers are ready for private label, are you?
360pi provides data about online retail product pricing and selection.