The Rise of Amazon’s Private Labels
Beginning at the end of 2017, Amazon has been launching many new private label products and by some accounts, this surge in private labels is setting 2018 up to be a banner year for Amazon’s private label business. And consumers are buying them up at increasing rates. The retailer is uniquely situated to get a sense of what consumers search for and seek out, and where they have room to win market share with private-label alternatives.
Amazon Dominance Extends into Private Labels
According to Jumpshot data, two-thirds of all retail purchases online occur on Amazon. That dominance is nothing new to brand marketers. What may surprise them however is how much Amazon is also dominating the private label business. Our data shows that Amazon earned more than 25 million private label conversions in 2017.
Amazon’s growth of private labels is not new. Many retailers have their own private label business since it allows them to control their margins better and they can lock-in customers since they can’t purchase that brand anywhere else. Retailers like Target, Macy’s and Walmart all have grown their private label business as a means to compete for consumer dollars.
Amazon Private Labels Growing
While Amazon has dozens private labels in a variety of cagtegories, AmazonBasics is the largest. In the first half of 2017 alone, AmazonBasics delivered more than $200 million in sales. According to our data, this one label accounts for 88 percent of all Amazon private label conversions.
Jumpshot data shows that more than half of these conversions were in the electronics category alone, showing that customers are OK substituting major electronics brands with lesser-known brands. With the high purchasing frequency of electronics and rapid changes in technology, this behavior should not be a surprise to brand marketers in the electronics industry where Amazon represents just one more brand in a crowded, commoditized market.
While customers are OK with substituting a well-known electronic brand for a private label, it remains to be seen if this behavior extends into other categories where Amazon’s private labels have starting showing up, like apparel and furniture. Unlike AmazonBasics, these private labels do not make it obvious that they are indeed Amazon, with names like Arabella, Strathwood, and Goodsport. Our data shows that, unlike other retailers with successful private labels, Amazon’s private labels only accounted for just over one half of one percent of all purchases on the site.
Amazon’s move into the apparel market seems to be focused on filling a gap in its marketplace, since many fashion brands have been hesitant to merchandise on its site. This absence of available products coupled with Amazon’s conversion seems like a smart move. Amazon Essentials, for example, accounts for 3% of all clothing Best Sellers, performing better than Adidas and Calvin Klein. And this has brand marketers worried.
“Big brands are getting frustrated … they think [Amazon] is encroaching on their brands,” L2 analyst, Cooper Smith, told CNBC. That’s because customers coming to Amazon to purchase their brand are being tempted with lower-cost options. And while Amazon will never be a Calvin Klein, having access to customers and their data will continue to generate revenue for the eCommerce giant.
While we expect to continue to see Amazon’s private label business growing, for now it only accounts for just over one half of one percent of all purchases on their site. And for marketers of major brands, the extent of this threat really depends on category or niche in which you operate. In a highly competitive and commoditized market where customers repurchase frequently, the Amazon private label threat is significant. Yet where you can differentiate your product, such as in fashion, you may find that the Amazon private label bark is worse than its bite.