This may be a familiar
scenario. You're on Amazon eyeing
this $90 camera bag from San Francisco startup Peak
Design. Probably our best-selling
bag of all time. Before you hit Buy Now you
notice a similar listing for a third of the price. You don't have to pay for
all those needless bells and whistles, like years of
research and development, recycled bluesign approved
materials, a lifetime warranty, fairly paid
factory workers and total carbon neutrality. Instead, you just get a bag
designed by the crack team at the AmazonBasics
Department. Peek Design made this snarky
video when it noticed Amazon had made a private label
copy of its bag. And Amazon's gotten a lot of
flak for this type of practice, including a
lawsuit from California and proposed federal
legislation that would limit the power of tech
monopolies, a topic so hot John Oliver recently
devoted a whole segment to it. Amazon has a huge advantage
over its competitors because it runs the marketplace and
has access to all the independent seller data,
like hypothetically, what bag is proving popular? So what exactly is a private
label? How does it work? And despite rumors that it
considered shutting them down to appease regulators,
Amazon says it's continuing to invest in its own
brands. There's no chance in hell
that Amazon pulls back and pulls down its Amazon
batteries AmazonBasics product. It's just doing
too well. This is the story of
Amazon's 118-plus private label brands, some that
carry the Amazon name and others cleverly disguised
without it, and why, experts say despite big antitrust
allegations, the age-old model is going nowhere. A private label is the same
thing as a store brand. Essentially, a retailer
will find a manufacturer to make an affordable version
of a branded product. The retailer has its own
branding put on the blank white label, then sells it
for an average of 25% to 40% less than the national
brand name product and sometimes way cheaper. The history of private
label, in the U.S. anyway, is very much a
perception of low price and at best acceptable quality. Retailers eager to break
from that perception develop lines with a particular
focus like Safeway's O Organics or Kroger's
Comforts baby line. Others put most of their
products under store brands like Walmart's Great Value,
Equate and Sam's Choice, or Costco's Kirkland
Signature. In other cases, store names double as brand
names like CVS and Trader Joe's. For Amazon, there's
likely a reason some of its 100-plus brands carry its
name and others don't. Their first initiatives and
private label did all have the Amazon name on them,
and they had some quality control issues, as have
other retailers. And I am speculating here
that they have decided, no, we're not just going to
go in and put the Amazon name on stuff because we
can't risk damaging that. Amazon first entered the
private label business around 2009 with its
AmazonBasics brand of staple goods like power cords and
its ever popular batteries, with prices often way lower
than Energizer or Duracell. Amazon's private label
business has grown dramatically over recent
years. They now have over 200,000
private label products and a whole bunch of house
brands. Who makes these cheaper
generic versions is purposely shrouded in
mystery. Neither the retailer nor the
manufacturer who supplies them want to boast about
the fact that they're supplying private labels,
especially if you're a national brand
manufacturer. Like with anything that's
kept quiet, rumors abound. Gray Goose says no, it
doesn't make Costco's Kirkland Signature vodka. But are Oreos and the
Wegmans version made by the same factory? Does Duracell
manufacture AmazonBasics batteries? Your guess is as good as
mine. Kusum Ailawadi has been
researching private labels for about 25 years. Here's what she says we do
know about who makes private-label goods. There are some national
brand manufacturers who use their excess capacity or
even have a whole production facility that does private
label. There are also some large
private-label-only specialty firms whose whole business
is doing private label. And some retailers have
their own manufacturing facilities. Amazon released
a list of more than 100 suppliers in 2019, but
declined to answer when we asked who makes its private
labels now. Not much is spent on the
packaging and the promotion and the marketing of it. It's simple, core, base
product at a very, very good price. While store brands cost
customers far less, Ailawadi says they bring in around
25% higher profit margins for retailers than national
brands. There is nothing
anti-competitive about comparing one product with
another and saying that these products are very
similar and I'm selling you one at a lower price. Some would argue, and I
would agree with that, that that is as competitive as
it gets. Ailawadi says this business
model dates back at least to the 50s, but private labels
had their first big moment in the 70s. After a
recession and a decade of high inflation, consumers
wanted cheaper products. Retailers started offering
generics with monochrome labels like dog food and
orange flavored drink. Generics, the no-frills
value choice from Eagle, the food experts. Private labels have come a
long way in 40-plus years. Although store brand
popularity died down with good economic times,
private labels are back en vogue amid soaring
inflation and fears of a recession. There's now a
whole segment of shoppers devoted to private labels
like Aldi and Trader Joe's. They're trying to
differentiate much more, create private label
products that are more innovative, that they can
claim are special. They've branded it
AmazonBasics right on the box. Like as if they want
you to be proud that you bought an AmazonBasics
product. But for Amazon's $30
Everyday Sling Bag it appears the goal was
imitation over differentiation. This trapezoidal logo badge:
same positioning on the right side of the bag. Owning the brand lets
Amazon, or any retailer, cut corners compared to a
pricier brand-name product. They're just sloppy garbage,
you know. I don't know if they'll
protect the camera. Maybe they will. Just the
difference between a quality product and a knockoff
quality product. By making a private label
for less retailers, then pass those savings on to
customers, which in turn can lead to more sales. Ailawadi says private
labels typically make up 25% to 30% of sales volume for
major retailers. Across grocery, household
and health and beauty items, a whopping 77% of
Aldi's sales are from private-label items,
followed by Trader Joe's at 59% and Wegmans at 49%. Costco is at 33% and Target
15%. Amazon is significantly
lower at just 3%, although its AmazonBasics brand came
in third for fastest-growing private label. Overall,
Amazon reportedly has said its in-house brands only
make up about 1% of retail sales, although that number
is still likely in the billions with Amazon's
revenue in 2021 nearing $470 billion. On the flip side of big
sales for an Amazon-owned product is the potential
for it to take sales away from the product it
resembles. Peak design was well established by the
time Amazon copied its bag, but that's not the case for
millions of its third-party sellers, who often rely
entirely on selling their goods on Amazon. If Amazon had done this to
the original Peak Design camera clip, I mean, it
could have smoked the business. That could have
been it. It's really hard on small
companies and really they're the ones who invested in
all of that research and development to develop that
product. And now they're being
denied the gains from that. And Amazon is essentially
just stealing those gains. If this had really dinged up
our business like I know it does to so many others,
damn right I'd be pissed. Peter Dering started Peak
Design 12 years ago. Today it's got more than
200 products on shelves at Best Buy and REI and on
Amazon, where he says it makes 12% to 15% of its
$100 million in annual sales. I suppose if it's a
retailer, that's our biggest retail partner. Amazon says third-party
sellers make up more than 60% of its e-commerce
business, $390 billion in sales, according to some
estimates. Today, at a minimum is
$0.45. 45% of every dollar goes
back to Amazon. Why would Amazon, who makes
so much money on every dollar sold from a
third-party seller, why would they bite the hand
that feeds them in that way? Jason Boyce was a top seller
on Amazon before he started his business consulting for
100-plus other sellers. Around 2008, he got a
firsthand look into how Amazon can make such close
copies of some bestsellers. I was invited to Amazon
headquarters. My brother and I went and
we were asked to provide a proposal to get products
made for Amazon's private labels. And they were
pushing these product specification sheets to us
and said, 'Can you get this made and how much can you
get it made for?' And my brothers and I looked at
each other and we're like, 'Gosh, that's actually a
third-party seller's product on this page. Where did you guys get this
information?' We had sales data information, and they
looked at each other. The gentleman in the room
looked at each other and they kind of wink, wink,
'Oh, we have our ways of getting information.' You know, Amazon has
developed a lot of these private labels by gathering
data, essentially spying on the companies that have to
rely on its website in order to reach consumers. And so they're able to get
a whole lot of insights about a huge number of
products and then sort of systematically develop
their own products to successfully compete. In September, the attorney
general of California sued Amazon for anti-competitive
practices. In 2020, Congress questioned
Jeff Bezos about it. So let me ask you, Mr. Bezos, does Amazon ever
access and use third-party seller data when making
business decisions? And just a yes or no will
suffice, sir. I can't answer that
question yes or no. What I can tell you is we
have a policy against using seller-specific data to aid
our private-label business, but I can't guarantee you
that that policy has never been violated. In a statement, Amazon told
CNBC, 'We do not use data about individual sellers
that isn't public to determine which
private-brand products to launch. And we have a
policy to protect seller data that goes further than
any other retailer we know of.' It says that they only use
aggregated data and not data on a single seller. Well, aggregated data, by
their definition, can be as few as two companies
selling something. Once Amazon has its own
version of a popular product, it can also give
it preferential treatment on its marketplace, although
this is nothing new. They will put it next to the
national brand with whom they are trying to compete
with a me-too packaging, a similar look, etc. And they'll even have a big
sign that says, 'Buy basically the same product
or better at 30% low price.' So why is this decades-old
practice getting antitrust scrutiny now that Amazon's
doing it? One of the big differences
is data. Amazon has an extraordinary
amount of data across millions and millions of
products. They also know what search
terms people are using, what they're clicking on, how
long their mouse is hovering in a certain place. And so
they are able to analyze all of that data for a level of
insights that simply are not available to your typical
chain retailer. Amazon also has far more
power to steer shoppers to one product over another
than a typical brick-and-mortar retailer. Their ability to take one
particular product and shove it on page ten of the
search results while giving another product, say, their
own product, lots of space right there on the first
page of search results, we know that really alters and
steers buying behavior. The American Innovation and
Choice Online Act being considered by Congress
would crack down on Big Tech's ability to leverage
dominant market power at the expense of small
businesses, although it's yet to make it to a vote. In June, an Amazon
executive encouraged third-party sellers to
oppose the bill. One seller told CNBC, 'Any
informed seller is going to support massive action
taken against Amazon in the antitrust arena' and that
'We are not morons and know how to read and think for
ourselves.' Amazon claims thousands of sellers have
voiced concern about the bill in communications with
members of Congress and said in a statement, 'We value
the opinions of all of our selling partners and use
their feedback to make Amazon an even better place
for small businesses to succeed. In Europe,
antitrust regulations on Big Tech have been far more
successfully enforced. The European Union has fined
Amazon and its cousins, other Big Tech companies,
hundreds of millions of dollars, and it's just a
line item to them. When you can push $600
billion in retail value of goods through one website
in one year, what's a $1 billion fine? Still, in an effort to
appease regulators, Amazon drastically reduced the
number of private-label items on its site in the
first half of this year, according to a Wall Street
Journal investigation. Executives, it found, were
discussing exiting the private-label business
entirely to ease antitrust scrutiny. In a statement,
Amazon told CNBC, '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.' For
Amazon, like others, private labels are a good
opportunity with high margins. Target, for
instance, told CNBC that 12 of its 48 owned brands are
each now worth $1 billion. Although Amazon doesn't
share sales data on individual brands,
Avenue7Media's internal data shows Amazon sells tens of
millions of dollars worth of Basics batteries every
month. I don't think that there's
any credence to the fact that Amazon's sunsetting
AmazonBasics products that are doing well. Now, are they culling the
herd for products that are doing not so well? Absolutely. And any good
business would do that. In some categories like skin
care and mobile accessories, Amazon's private labels
make up less than 1% of sales on Amazon.com
compared to name-brand goods. The category with
the highest share of private-label sales is TV
and Video at 38%. Think Amazon's own devices
like the Fire TV. Next up is batteries at
nearly 30%. But while batteries and
other Basics may be here to stay, Amazon remains under
antitrust scrutiny from the Federal Trade Commission
for its many recent acquisitions, from MGM to
One Medical to iRobot. If you want to have a
democracy, you need to be able to prevent private
entities from amassing a lot of power and then using
that power to push other people around, which is
essentially what a monopoly is. Still, Amazon's knockoffs
don't all succeed or overpower small businesses
. With the Everyday Sling Bag,
Dering says Peak Design came out on top thanks to all
the bad press. Once their product plummeted
from like a three-and-a-half star product down to a one
star product, they just took it off altogether. So they stopped selling it
really quite quickly. Dering says he's changed one
big thing since Amazon copied his bestseller, and
it's his top piece of advice for other sellers wishing
to keep Amazon from doing the same to them. We made it so that every
single product that we make gets a design patent. They can't look like this
because ours already looks like this. So we get those,
full stop, with every single product that we release
now.
