If your e-commerce brand is highly dependent on Amazon, you’ll want to take this article very seriously. In fact, this may spell out you’re in serious danger to go out of business in the not-so-distant future.
The online retail giant is rapidly expanding its private label activity. To put it simply, the plan is to sell products at a lower price than third-party sellers can afford. This will drive businesses out of the marketplace while Amazon’s private labels thrive.
There isn’t an official record of how many private labels the company owns, but CNBC reports it’s more than 120. A report from SunTrust Robinson Humphrey shows that’s an increase of well over 100 since 2016. Revenue from private labels is flowing into Amazon with sales set to reach $7.5 billion this year and predicted to reach $25 billion by the end of 2022.
This appears to be just the beginning, too. Amazon is inviting outside companies to join its family of brands. The company is also promoting an “accelerator program” aimed at capturing manufacturers willing to create made-for-Amazon products. The Private Brands team also has a job listing in search of someone to “help build a new program to rapidly expand our selection.” While there hasn’t been any official announcements or declarations, it’s very obvious the direction things are heading.
The emphasis on private labels may be in its infant stages, but Amazon has already proven it can quickly carve out a significant presence with this strategy. According to Coresight Research, Amazon’s private labels were already the No. 4 most-purchased clothing or footwear brand on the site as of last June. These are the only brands ranking higher: Nike, Under Armour, and Hanes.
As of March 2018, L2 estimated 86 percent of Amazon’s private labels were in the apparel, shoes and jewelry category. Clearly, in clothing and footwear, the company has proven throwing a strong emphasis behind private labels in a certain niche can push out all but the heavyweights in short order.
“Private label is one of the highly underappreciated trends within Amazon, in our view, which over time should give the company a strong ‘unfair’ competitive advantage,” SunTrust analyst Youssef Squali said. “‘Unfair’ because it’ll be very difficult to dislodge the company once it attains it; fair because it’s earned, not bestowed.”
This dominance through private labels may be earned, but there is no doubt it comes at the cost of an unfair advantage to brands selling within its marketplace. They will expand product selection while gaining better profit margins for themselves. Even the bigger brands will be forced to cut prices to stay competitive, all while still paying a commision. There’s simply no competing against this strategy.
“Amazon’s dominance of the e-commerce sphere has forced brands to adopt an Amazon-first strategy in order to remain relevant,” said Pete Andrews, director of insights at One Click Retail. “But now, those same brands are facing off against the retailer’s own products in the fight for the digital shelf.”
“2019 is going to be the year that Amazon crushes almost every small e-commerce that they can.” — John Max Bolling, Engine Marketing Manager
Sellers can prevent the private label surge from collapsing their business by owning the relationship with their consumers. In turn, this separates stores from the all-too-common reliance on Amazon.
Remember, the consumer belongs to the marketplace. You must be interacting, conversating, and creating a personalized experience to build a one-to-one relationship directly with your consumers. Otherwise, you’re likely to watch Amazon engulf the market you’re trying to live in.