Why is Amazon hiding its ownership of private labels?
Brands have power and Amazon desperately want to harness it. Here’s how they’re going about it.
Earlier this year Lark & Ro, a women’s wear brand that has been described as a label with a Brooklyn friendly name but ‘mumsy-ish cuts’ and an ‘overgrowth of florals’ was announced to have hit nearly $10 million in sales.
Kid’s labels Scout + Ro and athleisure brands like Rebel Canyon and Peak Velocity have also proved very popular.
The secret sauce that guarantees success for these brands? Their very influential parent — Amazon.
A question that is so last year
In 2016, just as Amazon was poised to become the unquestioned king of retail there were many that doubted its ability to success in fashion. Many commentators felt that fashion will be the one fort that Amazon cannot conquer due to the inextricable nature of fashion and brand image.
“That print is so cute! Where did you get it from?!”
As we wrap up 2017 though the conversation has turned from whether Amazon can conquer fashion to how much of the market it will eat up.
Unlike the Chinese ecommerce giant Alibaba which operates purely as a marketplace, Amazon has actively strived to capture the complete retail ecosystem. They have been increasing their own in-house labels and can hugely profit from the insights derived via Amazon marketplace.
How did they do it?
As a retailer with decades of knowledge about people’s shopping habits it was maybe only a matter of time before Amazon private labels were to be expected. AmazonBasics, their oldest private label brand was launched in 2009.
And now Amazon has quietly started selling a host of in-house labels, most recently entering the athleisure category with Peak Velocity and Rebel Canyon. Earlier this year a Quartz investigation had found that Rebel Canyon was among the brands that were registered for an incorporation company in Delaware that had no presence other than the address given for its patent filing.
A later statement to Quartz by an Amazon spokesperson confirmed that some of these brands are house brands though they do not clarify which brands are house brands on their website. Neither do they have a list of all their registered trademarks, held by shadow companies or directly.
So why are they doing this and what does it mean for brands?
This is really really bad news for brands.
Amazon’s strategy of incorporating private label brands that are not visibly affiliated with it is going to be problematic (and dangerous) for brands. It incorporates all the advantages brands have while facing none of the risks.
1. Loss of control.
Companies like Nike and luxury fashion brands have long held back from retailing on Amazon due to the fear of their brand getting diluted. However, many might be capitulating — earlier this year Nike started retailing via Amazon. Along with the risk of brand dilution they are also handing over sales data, shopping trends and their customer data to the world’s biggest online retailer.
Amazon has in the past used this data to great effect, most famously in their AmazonBasics range to sell batteries and baby wipes.
A brand needs control to be successful but by retailing on Amazon brands will be handing over a significant portion of control. And Amazon hasn’t been shy about leveraging its advantages in the past.
They can mine data collected from external brands across hundreds of categories to figure out what is selling, when it is popular and who it is popular with.
This treasure trove of global aggregated data can give it unparalleled advantages in predicting and using trends. A huge loss for brands and a long-term win for Amazon.
2. Retail version of a trust fund kid
Amazon’s private label brands are the business world version of a trust fund kid. Most brands have to start from ground up to build a brand identity, gain followers and convert followers into loyal customers.
Amazon controls nearly 50% of online shopping in America. Given that position of power it is alarming that this year’s Amazon Fashion landing page on Prime Day exclusively featured their own private label products.
Driven by this preferential treatment these private labels have landed on Amazon’s Best Sellers Rankings in their categories and have continued to maintain their momentum.
Regular brands that missed out on this invaluable real estate would have been hugely impacted.
3. Circumventing brand dilution
Can you imagine an exclusive eau de parfum retailed by Amazon?
Neither can we. Or Amazon. Which is why if they do decide to retail an eau de parfum it would probably be under a label named appropriately (Lavender + Ro?). Which means that retailocalypse of 2017 might turn into brandocalypse of 2019. Granted Amazon is not likely to eliminate all brands but it definitely is going to eat into a big part of the pie. And it has cornered entire categories very successfully in the past.
For example, does anyone own a Nook anymore?
4. The resilience of brands without any of the risk
The last point has to do with the innate strength that brands have. A brand is (generally) small, flexible and can quickly keep iterating till it finds a good customer fit. That is exactly what Amazon is after. By introducing many different private labels Amazon is able to quickly test theories and see what is popular with different demographics. If it doesn’t fit, it is just as easy to discard the label and move on.
And these advantages come without any of the risks usually faced by brands. With a treasure trove of data across different demographics, categories and price ranges Amazon can predict what is working much earlier than anyone else. Every in-house brand is also supported by the whole Amazon ecosystem — from preferential listings on category landing pages to Amazon devices that are embedded in people’s lives.
So what now?
Amazon’s strategy is working. The retailer has increased its in-house label sales by 600% in the past year itself going from just 2% to 12% according to a report by TechCrunch. If brands want to survive they have to think of increasing their footprint beyond Amazon while incorporating the same resilience into their brands DNA.
There is no easy blueprint yet on how brands can go about it but many brands are leading the way by leveraging a mix of innovation, technology and yes, rapid iteration (think Adidas), to not only survive but thrive in the brave new world. More on that in the next posts.
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Published at: December 18, 2017