Merchants fear Amazon's focus on private label brands

Dive Brief:

Amazon is increasing the number of its own private label products sold on its site—to the detriment of some of its merchants, according to a report from Bloomberg.
Using a report from Skubana.com, a website that helps merchants sell online, Bloomberg reports that Amazon has rapidly expanded the number of goods sold under its private labels in recent years to around 3,000 private label products, ranging from housewares to apparel.
While Amazon launched its private label line AmazonBasics in 2009, Skubana says that it only recently ramped up production, using data gleaned from merchants to make merchandising decisions. According to the report, AmazonBasics has 900 products on the site, 284 of which were added just last year. Amazon declined to comment to Bloomberg.

Dive Insight:

Anyone who has read Brad Stone's "The Everything Store" won't be surprised by the tactics Amazon is allegedly using to grow its private label business.

Since its founding as a book e-retailer, Amazon has engaged in legal battles and aggressive price wars with the publishing industry, most noticeably in 2014 with its standoff with publishing house Hachette. While the scuffles between Amazon and its suppliers revolved around pricing, Amazon now appears to want to cut out the supplier altogether—selling its own products directly to consumers.

Amazon's huge trove of consumer data has helped it in the past with personalization. Now, according to Bloomberg, Amazon is utilizing it to discern consumer demand for products and manufacture its own goods to cater to those needs. That should put merchants on edge, especially smaller merchants that lack Amazon's vast resources, which allow it to experiment with new products and drop them if they underperform (see: Amazon's Fire Phone). Skubana offers some advice to its clients selling on Amazon—an action they even suggest doing, given Amazon's wide reach—that includes dropping any products with ratings under 3.5 stars, as 96% of AmazonBasics products have 3.5 stars or more.

Going forward, the industry's eyes will be on Amazon's foray into private label fashion, which launched in February with seven new private label brands. The question is whether Amazon will adopt the same method it used with AmazonBasics with its clothing: seeing what performs well on its site, then emulating those designs in its private collections. While some say that consumers' penchant for brand names might help those selling on Amazon survive, others are less optimistic.

"Millennials don’t give a damn about brands anymore,” Robin Lewis, CEO of The Robin Report, a retail strategy publication, and co-author of "The New Rules of Retail: Competing in the World’s Toughest Marketplace," told Retail Dive in March. “Brands aren’t a destination for them, and they’re not loyal to brands. They’re looking for new, now, and that comes before the brand name.”

However, as Bloomberg points out, shoppers often start their e-commerce searches on Amazon, not a traditional search engine, and this will help it seek out "white space" in its inventory. According to research from BloomReach and Survata released last year, 44% of shoppers begin their journey online by searching on Amazon, compared to 34% that search on search engines and 21% that search on retailers' websites.

“Amazon has tracked all the transactions,” Lewis told Retail Dive. “They know what’s hot and what’s not, and they can quickly find and fill the white spaces. Amazon will serve the under-served segments. And for those segments that are already being served? They’ll just knock off.”