Dig Deeper to Understand Amazon’s Private Brand Strategies

Amazon has big designs on Private Brand growth, but you need more than a general understanding of its strategies to gauge the real impact.

That is the view of Christopher Durham, President, My Private Brand, who delivered a forceful presentation on this topic recently.

In his keynote address at Velocity: The My Private Brand Conference, held in Charlotte, N.C., Durham said too many observers – from analysts to politicians – generalize and stereotype Amazon and its intentions. He urged Private Brand industry players to avoid the trap by drilling deep into the e-commerce giant’s plans within Private Brands and categories.

“You need to be very careful,” he said. “Analysts tend to only take a shallow look with broad assumptions.”

The Need to Get Specific
He pointed to a recent study that delivered sweeping conclusions that Amazon faces big challenges in Private Brand. The study, from e-commerce research firm Marketplace Pulse, sparked a series of media headlines that spread the message that Amazon is failing in Private Brands. Among those headlines:

  • “Amazon’s Getting Schooled in the Private-Label Game.”
  • “Study: Amazon Brands’ Sales Duds.”
  • “Amazon Private Labels a Flop?”

Durham said the clickbait headlines gave the false impression that Amazon is on the ropes in Private Brand. That may be a comforting message to competitors, but it doesn’t reflect the reality, he warned.

“That study mostly talked about Amazon Basics,” he said, a brand that sells everyday items, in categories from electronics to home necessities. “It’s the biggest brand, has been around the longest, and has the most SKUs. It’s really an old-school private label. Compare that to the men’s fashion brand Buttoned Down, selling 101 SKUs in men’s wear. It’s very different. It shouldn’t be judged in the same way as Amazon Basics.”

Amazon’s Private Brands are “a huge business, and not a failure,” he said. “Amazon is launching aggressively.”

Bullish Outlook for Efforts
In fact, he said, Amazon’s future is Private Brand. That is already underscored by more than 130 Private Brands across virtually every category; the Whole Foods portfolio of Private Brands, which includes Prime Pantry tie-ins; and Amazon’s full control over its ecosystem.

According to Amazon, Private Brand sales represented about 1% of its overall business, or about $2.77 billion in 2018, Durham said. However, Amazon is not very transparent about its strategies or its Private Brand penetration. There is no transparency into how the number is calculated, what sales are included, what brands or what categories. Additionally, it is unclear whether they include both First Party sales and Third Party sales. Further muddying the waters is Amazon’s  intentional confusion of the term Private Brand, given its more than 400 “exclusive labels.”

One thing that’s clear is the surge in interest in Amazon’s Private Brand. Durham said that audience traffic on the My Private Brand website underscores this point, with a ten-fold spike any time there’s an Amazon story.

Durham cautioned Velocity attendees to go beyond surface-level insights about Amazon’s Private Brands in order to look deeper.

“If you’re in a specific category and are concerned about Amazon, consider what their goals are in that category or with their brands,” he said. “Is it a margin play? Is it a bargaining chip? Are they trying to differentiate? Are they trying to win? Amazon does not believe every brand or product launch needs have the same goals or be disruptive. Sometimes they just want to steal some share.”

Even more important than the number of Amazon brands is the wide variety of missions, he said. There are “private label” brands, including Amazon Basics and Amazon Elements. There are immersive brands for interacting with Amazon’s ecosystem, such as Echo, Kindle, and Fire. There are brands specific to certain categories, including Wag, Presto and Happy Belly. Lifestyle brands include Good Threads, Stone & Beam, and Belei.

Learning from Failures
Durham said one of Amazon’s biggest strengths is its ability to learn from failures. “Some of Amazon’s Private Brands will fail,” he said. “All won’t. They will learn. They have learned from failures before.”

Amazon tried to jump into the phone market a few years ago with the Fire Phone, a Private Brand that was too expensive and didn’t have the right features, he said. It led to a $170 million write down. It was dubbed, ‘The Fire Phone Debacle’ in media headlines.

Another example was Amazon Elements diapers, which didn’t succeed in quality.

However, Amazon learns lessons from every failure, Durham said.

“Within a short time they pulled the diapers,” he said. “They later relaunched diapers under the mama bear brand, with good reviews. They learn what to do by learning what not to do.”

Durham said Amazon’s success is driven by the central operating principals of founder Jeff Bezos.

Bezos said, “The biggest needle movers will be things that customers don’t know to ask for. We must invent on their behalf,” Durham relayed. “Bezos also says, ‘Failure needs to scale too, and if we don’t take big enough risks, then it’s a problem.’”

Concluded Durham, “I believe Amazon still behaves like they are young. They are still joyously fearless. That means retailers and the private brand industry need to pay attention. Move faster than you ever have before.”

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