Private labeling is a business practice dating back to the 1950s that, in some capacity, is widely used by most major retailers. However, Amazon has been pushing the boundaries of what’s acceptable. 

“The history of private label, in the U.S. anyway, is very much a perception of low price and at best acceptable quality,” according to Kusum Ailawadi, a marketing professor at Dartmouth College who’s been researching private labels for 25 years. “They will put it next to the national brand with whom they are trying to compete, with a me-too packaging, a similar look and then even have a big sign that says, ‘Buy basically the same product or better at 30% lower price,’” Ailawadi said. “Some of the practices around private label that are now under scrutiny by Congress and other people have not only been around a long time, they are perfectly acceptable practices.”

But Amazon is doing something different, according to Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, an activist group that fights big corporations. She said Amazon brings a powerful data engine to the table. “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,” Mitchell said. “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 more power to steer shoppers to particular products than a typical brick-and-mortar retailer. Amazon has the “ability to take one particular product and shove it on page 10 of the search results while giving another product, say, their own product, lots of space right there on the first page of search results,” Mitchell said. “We know that really alters and steers buying behavior.”

In 2020, Congress questioned Amazon founder and then-CEO Jeff Bezos about whether his company uses third-party seller data in making business decisions. “We have a policy against using seller specific data to aid our private-label business,” Bezos said. “But I can’t guarantee you that policy has never been violated.”

An Amazon spokesperson told CNBC in September, “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.”

How private labels are made is often shrouded in mystery, leading to speculation around certain products. Although Amazon released a list of more than 100 suppliers in 2019, it didn’t respond to questions about who makes its private labels today.

Amazon first entered the private-label business around 2009, with its AmazonBasics brand of staple goods such as discount batteries. It now has at least 118 private-label brands, according to data from e-commerce analyst company DataWeave. Private labels make up just 3% of Amazon’s sales volume by dollar share in grocery, household and health and beauty categories, according to a recent study by Numerator. By comparison, private labels make up a whopping 77% of Aldi’s sales, followed by Trader Joe’s at 59% and Wegmans at 49%. 

Numerator data also found that AmazonBasics came in third for fastest-growing private label. That comes after a Wall Street Journal report that found Amazon drastically reduced the number of private-label items on its site in the first half of this year. The Journal reported that executives had discussed exiting the private-label business entirely to ease antitrust scrutiny. An article in VOX also looked at this possibility.  In a statement, Amazon disputed that notion. 

Private labels clearly represent a lucrative opportunity. Target told CNBC that 12 of its 48 “owned brands″ are each worth at least $1 billion. Ailawadi says private-label goods bring in around 25% higher profit margins for retailers than national brands, because of savings on things such as packaging, marketing and promotion.

Internally, Amazon has to skate a fine line between creating profitable products that consumers want and protecting third-party sellers, who have become the lifeblood of the retail business. Amazon says third-party merchants make up more than 60% of its ecommerce business, and those businesses pay Amazon for services such as fulfillment and shipping. Boyce said that “45% of every dollar goes back to Amazon” when an outside merchant makes a sale on the platform. “Why would they bite the hand that feeds them in that way?”

Source: CNBC
Source: VOX