Why is Amazon doubling its private label sector?

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Amazon is known across the globe for selling everything from A to Z. [1] It is the largest online retailer in the US, and now it intends to produce everything too. The might of Amazon is well known. You can refer to our previous article “The Amazon Effect” for more information. Amazon is basically an “everything store”, that is a platform where almost half of all global online sales take place. [2]

Did You Know?
 India, Australia, and Singapore are becoming front lines for Amazon, while the US and China markets still dominate the sales figures on the website. [3]

All the known brands, across various sectors, sell on Amazon. From Samsung to Nike to Park Avenue to Microsoft, you can find every brand, you can think of on the site. But this is not where the company plans to stop or slow down any time soon. Amazon is working on its growing its private label business now.

Did You Know?
Amazon has around 310 million active customers, and it sells more than 353 million products. [4]

An Amazon exclusive product catalog, consisting of a much wider selection of merchandise at comparatively affordable prices, is the next step the company intends to take. The rationale behind the move is very obvious. Selling their own brands, or selling products from third-party brands exclusively on Amazon benefit the company in many ways.

Firstly, this grows their offered product selection for the customer, by many folds. Secondly, having their own products, it’s a boon for the company’s complex supply chain management. Not to forget, this forces the big brands to cut their margins further and offer better deals at the site, to stay in the race.

It all started in 2009 when Amazon launched its own commodity products in USB cables and batteries segments on its website. Then gradually it moved to diapers and wipes to toys to accessories to everything. A TJI report states that Amazon has 120 of its own brands currently. Amazon plans to generate around $25 billion by 2022 from its private labels.

Did You Know?
Amazon has generated around 23 billion US dollars through third party service revenues, and in 2016 alone, they doubled the items they delivered for other sellers. [4]

Moving forward in this direction, Amazon has launched an “accelerator” program for their third-party sellers, bringing them within the “Amazon family of brands’. The company has, in recent times, notably increased the number of their own brands, selling exclusively on their site.

Did you Know?
In 2017 alone, Amazon generated about US$ 32 billion in third party seller service revenue. Seller-service revenues are the second biggest revenue generating segment for Amazon. [5]

 

Quarter-wise Percentage of paid units sold by third-party sellers on Amazon

(Image Source: Statista.com)[5]

Why the fear?
  • Why is this move making sellers so apprehensive? Amazon’s size and market penetration has made brands adopt an Amazon first strategy, especially in their online retail segments. Now, these brands are butting their heads with the retail giant itself, that too in almost every product category.
  • Till now the brands were only concerned with fighting off counterfeits and competing with similar players on the site. Now, they are competing against a huge company with a deep pool of resources, which makes their survival on the site much more difficult.
  • Past has proven that Amazon has the capability to turn into market leaders in any category if they put their minds to it. A One Click Retail study has stated that Amazon’s own label in baby diaper segment, Mama Bear has outshone many small brands like Bambo Nature and Honest Company, recently. This year itself, Mama Bear’s sales have grown by almost 40%. This is a clear testament as to how fierce the competition is going to be.
  • But Amazon’s goal is much bigger than these small victories. Amazon’s private labels force these brands to buy more advertisements on the site, yet still fight for equivalent exposure as Amazon’s private brands. Its own labels are listed high on consumer search results and titled as “Top Rated from Our Brands”. This definitely makes it harder for other brands to level the playing field.
  • Moreover, Amazon is already the dominant force in most of the retail sales cycle, i.e. warehousing and fulfillment. It still is not yet there in the areas of product development and manufacturing. Amazon though has the resources to bring itself up to speed in these areas too.

 

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