‘You can’t disregard the fact that most of these platforms run a third-party marketplace, so, whether you like it or not, they’re probably going to have a third-party marketplace for your brand; your brand’s likely going to be on that site anyway.’
Chip Bergh, CEO of Levi Strauss, 201721
Cracking down on such third-party sales was Nike’s primary incentive for selling on Amazon – a decision that turned heads when it was announced in 2017. Nike had already been the number one clothing brand on Amazon, according to Morgan Stanley, even though it did not sell directly on the site. As part of the deal, Amazon agreed to monitor its site for counterfeits and no longer allow third-party vendors to sell Nike products.
Amazon’s other top-performing clothing brands, according to a 2017 Morgan Stanley report, include, Adidas, Hanes, Under Armour and Calvin Klein. Its Amazon Essentials brand is the best-performing private label line and the 12th-most purchased clothing brand overall. ‘The big challenge now is that Amazon is introducing their own private label apparel business and they’re going to be massive in apparel over time’, said Levi’s Bergh in 2017.22 It’s no longer just third-party vendors that big brands have to worry about – it’s Amazon itself.
But this won’t happen overnight. It takes a long time to build a brand, and many question whether Amazon’s utilitarian image will prevent it from being perceived as a fashion powerhouse. It needs both the big brands for credibility and own label for margins, but it also must find its USP in fashion. Near-infinite assortment is powerful, but also overwhelming – a search for a black dress will produce over 40,000 results.
Amazon may not be the go-to destination for browsing, but they are compensating for their weaknesses through innovations, as previously discussed, such as the launch of Prime Wardrobe and the Echo Look, as well as the Body Labs acquisition. Amazon has also been awarded a patent for an on-demand automated clothing factory designed to quickly produce clothing only after an order is placed – a move that would not only propel its own label fashion business but could reinvent the entire supply chain and shake up the entire apparel sector in the process. We’re certainly not writing Amazon Fashion off just yet.
In 2014, Amazon launched its first major own label brand for the FMCG category – Amazon Elements. Many in the FMCG sector feared Amazon’s premium range of nappies and wipes was the beginning of its long-awaited own label incursion. But within two months, the nappies were discontinued.
Feedback had been lukewarm, with Amazon citing the need for ‘design improvements’. It was a hugely risky category in which to debut its first ever own label FMCG product; quality can be subjective at times but a nappy either works or it doesn’t, and brands aren’t given many second chances in a category like babycare. Nonetheless, Amazon maintained the Elements brand, using it exclusively for wipes before eventually extending it, somewhat bizarrely, to vitamins and supplements. But remember Amazon sees failure as an opportunity to iterate and improve, so it wasn’t much of a surprise to see own label nappies resurface a few years later – this time under the Mama Bear brand.
The line, which also includes organic baby food, was one of several new FMCG ranges Amazon launched in 2016 prior to the Whole Foods acquisition. Others included: Happy Belly (trail mix, nuts, spices, eggs and coffee); Presto (paper towels, toilet paper, laundry detergent); and Wickedly Prime (gourmet snacks including potato chips, popcorn, soup, tea). Following the Elements fiasco, Amazon trod carefully and steered entirely clear of one big category – perishables.
That changed with the Whole Foods deal, when Amazon inherited its very well-regarded 365 Everyday Value and eponymous line of own label foods. Overnight, Amazon became a credible grocery operator with a compelling range of private label goods. Within four months, 365 took in $10 million in sales, according to One Click Retail, making it the second-largest private label available on Amazon.
In addition to all the benefits laid out earlier in the chapter, private label is particularly important for grocers because of the high-frequency/habitual nature of the category. Remember Amazon’s goal is to take the chore of out grocery shopping by automating replenishment of everyday goods. That in itself is very powerful, but even more so when it’s the retailer’s own item that’s being replenished. As of 2018, Amazon already has Dash buttons for a handful of private labels such as Amazon Basics, Amazon Elements and Happy Belly, and we expect to see additional expansion here once Whole Foods Market is fully integrated.
Since the Whole Foods deal, Amazon has quietly rolled out additional ranges including its own AmazonFresh brand (limited to coffee at the time of writing), Wag and Solimo in addition to exclusive brands like Basic Care and Mountain Falls. Amazon can be excused for being in experimentation mode but at some point they’ll need to create a more unified and coherent message across their private label portfolio.
This brings up an important point about brand elasticity. Amazon is the king of diversification, but stretching into new sectors and services risks diluting their brand – or even worse, customer backlash. Would shoppers want Amazon-branded groceries along with their Amazon-branded Echos, Kindles, video and music streaming and, potentially in the future, bank accounts and healthcare services? In grocery, we believe that Amazon is destined to be a jumble of own brands, but that doesn’t make them any less of a threat. Competitors should be prioritizing investment in private label while suppliers ensure they have strategies in place for defending market share. Deeper customer engagement will be essential and, where appropriate, own label production should also be considered.
Table 8.1 Amazon’s FMCG own label ranges
|
Year launched |
Brand |
Category |
||||||
|
Babycare |
Beauty & grooming |
Food & beverage |
Health & personal care |
Household supplies |
Petcare |
Vitamins & supplements |
||
2014 |
Amazon Elements |
x |
x |
|||||
2016 |
Happy Belly |
x |
||||||
2016 |
Mama Bear |
x |
||||||
2016 |
Presto |
x |
||||||
2016 |
Wickedly Prime |
x |
||||||
2017 |
AmazonFresh |
x |
||||||
2017 |
Whole Foods Market* |
x |
x |
x |
x |
|||
2017 |
365* |
x |
x |
x |
x |
x |
x |
|
2017 |
Engine 2 Plant-Strong* |
x |
||||||
2018 |
Basic Care** |
x |
||||||
2018 |
Wag |
x |
||||||
2018 |
Solimo |
x |
x |
x |
x |
x |
||
2018 |
Mountain Falls** |
x |
x |
x |
||||
*Acquired Whole Foods Market brands
**Exclusive to Amazon, but not Amazon-owned
1 Creswell, Julie (2018) How Amazon steers shoppers to its own products, New York Times, 23 June. Available from: https://mobile.nytimes.com/2018/06/23/business/amazon-the-brand-buster.html [Last accessed 29/6/2018].
2 Housel, Morgan (2013) The 20 smartest things Jeff Bezos has ever said, The Motley Fool, 9 September. Available from: https://www.fool.com/investing/general/2013/09/09/the-25-smartest-things-jeff-bezos-has-ever-said.aspx [Last accessed 29/6/2018].
3 Franck, Thomas (2018) Amazon’s flourishing private label business to help stock rally another 20%, analyst says, CNBC, 4 September. Available from: https://www.cnbc.com/2018/06/04/suntrust-amazons-private-label-business-to-help-stock-rally-20-percent.html [Last accessed 29/6/2018].
4 Lebow, Victor (1955) Price competition in 1955, Journal of Retailing, Spring. Available from: http://www.gcafh.org/edlab/Lebow.pdf [Last accessed 3/9/2018].
5 Creswell, Julie (2018) How Amazon steers shoppers to its own products, New York Times, 23 June. Available from: https://mobile.nytimes.com/2018/06/23/business/amazon-the-brand-buster.html [Last accessed 29/6/2018].
6 ibid.
7 Anderson, Keith (2016) Amazon’s move into private label consumables, Profitero (blog post) 28 July. Available from: https://www.profitero.com/2016/07/amazons-move-into-private-label-consumables/ [Last accessed 11/9/2018].
8 ibid.
9 ibid.
10 Anonymous (2018) Amazon worth a trillion? Advertising may hold the key to growth, Ad Age, 13 March. Available from: http://adage.com/article/digital/amazon-worth-a-trillion-advertising-hold-key-growth/312716/ [Last accessed 29/6/2018].
11 Spitz, David (2018) Wow, RBC’s @markmahaney out with report forecasting Amazon AMS to hit $26 billion in revenue by 2022 – most aggressive projection I’ve seen (and I tend to agree). $AMZN [Twitter] 22 June. Available from: https://twitter.com/davidspitz/status/1010278559213084673 [Last accessed 29/6/2018].
12 Sparks, Daniel (2018) Amazon.com, Inc. talks advertising, Prime’s price increase, and more, The Motley Fool, 29 April. Available from: https://www.fool.com/investing/2018/04/29/amazoncom-inc-talks-advertising-primes-price-incre.aspx [Last accessed 29/6/2018].
13 Creswell, Julie (2018) How Amazon steers shoppers to its own products, New York Times, 23 June. Available from: https://mobile.nytimes.com/2018/06/23/business/amazon-the-brand-buster.html [Last accessed 29/6/2018].
14 Franck, Thomas (2018) Amazon’s flourishing private label business to help stock rally another 20%, analyst says, CNBC, 4 June. Available from: https://www.cnbc.com/2018/06/04/suntrust-amazons-private-label-business-to-help-stock-rally-20-percent.html [Last accessed 29/6/2018].
15 Smith, Cooper (2018) We’ve been doing a lot of analyses on amazon’s private label marketing strategy and one of the starkest findings is the # of ads they run on other brands’ product listings … ex) 80% of product listing pages in the paper products (ie toilet paper) category have an ad for Presto! [Twitter] 25 June. Available from: https://twitter.com/CooperASmith/status/1011314597213634560 [Last accessed 29/6/2018].
16 Burdick, Melissa (2016) Should CPGs be worried about Amazon Private Label? LinkedIn, 27 June. Available from: https://www.linkedin.com/pulse/should-cpgs-worried-amazon-private-label-melissa-burdick/ [Last accessed 29/6/2018].
17 Chaudhuri, Saabira and Sharon Terlep (2018) The next big threat to consumer brands (yes, Amazon’s behind it), Wall Street Journal, 27 February. Available from: https://www.wsj.com/articles/big-consumer-brands-dont-have-an-answer-for-alexa-1519727401 [Last accessed 29/6/2018].
18 ibid.
19 Thomas, Lauren (2018) Amazon’s 100 million Prime members will help it become the No. 1 apparel retailer in the US, CNBC, 19 April. Available from: https://www.cnbc.com/2018/04/19/amazon-to-be-the-no-1-apparel-retailer-in-the-us-morgan-stanley.html [Last accessed 29/6/2018].
20 Chazan, Guy (2017) Zalando updates its look as it prepares for a new push by Amazon, Financial Times, 28 May. Available from: https://www.ft.com/content/2e9d7e80-3bc0-11e7-821a-6027b8a20f23 [Last accessed 29/6/2018].
21 Business of Fashion and McKinsey (2017) The State of Fashion 2018 report. Available from: https://cdn.businessoffashion.com/reports/The_State_of_Fashion_2018_v2.pdf [Last accessed 29/6/2018].
22 ibid.