ALEXANDRIA, Va.—Amazon reportedly could close down its private-label business, reports the Wall Street Journal, as the brands have seen lackluster sales, and the company has faced scrutiny from legislators and others who claim that Amazon gives advantages to its own brands at the expense of products sold by other vendors on its site.
As of 2020, Amazon had 243,000 products across 45 different house brands, and the company has been reducing the number of items it sells under its own brand labels. Company executives have directed the private-label team to cut down on the list of items and not order many of them. Amazon leaders have also discussed cutting its own-brand assortment by half, reports the Journal.
Amazon rejects claims that it is considering exiting its private-label business. “We never seriously considered closing our private label business and we continue to invest in this area, just as our many retail competitors have done for decades and continue to do today,” Amazon said in a statement to the Journal.
Former Amazon CEO Jeff Bezos was a proponent of private label, and a few years ago, gave the private-label team a goal to reach 10% of Amazon sales by 2022. The private-label team added thousands of items to increase sales; however, many items did not sell and sat in warehouses or needed to be discounted.
Dave Clark, a former Amazon executive, directed the private-label team to complete a profitability review of each private-label item. If an item didn’t sell enough to hit the profit threshold, that item was to be phased out. The Journal reports that Amazon’s private-label strategy now is to make fast-selling private-brand items, such as Amazon’s phone-charging cables, and have them at warehouses across the U.S. so they can be delivered quickly as opposed to tens of thousands of items that sell in low quantities.
The Journal reports that Clark pushed the private-label team to stop focusing on offering an extensive range of private-label items and instead focus on bestselling commodity goods, much like Target’s “Up & Up” brand or Walmart’s “Great Value.”
Amazon’s private-label business put the company in competition with other sellers on the platform, which resulted in antitrust review. The Journal previously reported that Amazon used third-party seller data from its platform to develop its private-label lines. Some major brands were angered by the products, as some closely resembled their items, and they claimed Amazon copied their designs.
“I can’t guarantee you that policy has never been violated,” then-CEO Jeff Bezos said in a testimony to Congress.
The Federal Trade Commission has been investigating Amazon’s competitive practices, and there is a congressional committee investigating big tech companies, which is looking at how Amazon handled such competition issues. The Securities and Exchange Commission is also reviewing Amazon.
In the convenience channel, private-label sales climbed 17.8% in 2021 year over year, outpacing national brands, which only saw 4% sales growth, according to NACS State of the Industry data. (Read more about private label performance in c-stores in NACS Magazine’s June SOI Summit issue.)
The opportunity for improved profits is one motivator for retailers considering offering private-label products.
“In some cases, margins could be 25% versus 18% for a national brand,” said Roy Strasburger, president of StrasGlobal, a Temple, Texas-based convenience-store operations and consulting company. Marketing and promotional control over the brands is another benefit, allowing c-stores to become destinations for products not available anywhere else. “If done successfully, it’s not the store pushing the product, but the product pushing the store,” Strasburger told NACS Magazine.
Don’t miss the NACS Magazine August cover story “An Exclusive Offer,” which explores how private labels increase brand loyalty among consumers.