Amazon has been flexing its private label muscles with launches in apparel, shoes, electronics and personal care. The online giant’s forays into private label, along with the news that it’s experimenting with several store formats, is sending shivers through national brands. If Amazon continues to develop private label and open stores, it could leverage its wealth of consumer data and merchandising opportunities at the expense of national brands.
During a RetailWire webinar on Thursday, “How Big Is the Amazon Private Label Threat,” Ken Cassar, principal analyst at Slice Intelligence, said the web giant’s disruption of the fashion ecosystem will continue.
Private label’s share of sales across all products in the U.S. is in the mid-teens, while in Europe it’s more than 40 percent, Cassar said, adding that the dynamic between retailers and national brands has shifted from a decade ago, when many retailers worked to build their national brand offerings to today, when private label’s fatter margins are attractive to retailers.
The online environment for house brands hasn’t been so hospitable. “Many searches that occur on Amazon and research sites are branded,” Cassar said. “If you’re buying something you’ve never bought before, you want to physically evaluate it. Positive reviews in the consumer’s eyes can compensate for perceived risk.”
Cassar sees a flurry of online activity ahead as sites leverage their consumer data. This is particularly true for Amazon. “It’s possible for Amazon to lead every category in private label,” Cassar said. “Given the powers and levers it has, Amazon is the chief threat to national brands. You should assume that Amazon will make a play in your category. It’s probably going to happen.”
Amazon’s private label penetration in beauty is 13 percent, Cassar said. In men’s wear, Goodthreads and Amazon Essentials were launched last month. Prior to the introductions, Amazon’s private label men’s wear sales were negligible. “Amazon didn’t aggressively get into the men’s wear private label business until February,” Cassar said, noting that since the introductions, private label men’s brands account for 9 percent of sales. The web site’s male apparel buyers skew toward the Millennial demographic and are affluent, with annual incomes of $150,000 annually and above.
The question for national brands is whether Amazon will play fair and give them exposure on par with its own labels. “When people purchase through Alexa [voice-activated assistant], there seems to be some favoritism toward Amazon private label brands,” he said. “Echo [hands-free voice-activated device] is the top Amazon’s Choice offering and second bestseller in the category.”
Cassar’s advice to national brands is to create world-class content; be laser-focused on consumer reviews; innovate around packaging and formulations; balance distribution across several e-commerce channels; speak to your consumer directly, and become a student of Amazon, learning how to work its levers, including paid search and display advertising.
“Understand the extent to which Amazon’s Choice is important.”
Amazon often makes recommendations to brands, suggesting ways they can make their products more attractive to the platform, such as improving packaging to make shipping more economical and easier.
“If you don’t, it’s more likely that Amazon will make a concerted effort to enter a category with private label,” Cassar said. “It used to be that everybody wanted to offer the lowest prices online. When you look at the positioning of private label brands, it’s not, ‘Buy us because we’re dirt cheap. It’s buy us, we’re the same price or a little lower.'”