Amazon Grows Exclusive Product Lines From Outside Brands

Amazon wants to get more exclusive — and it wants other companies to help with that effort by developing product lines meant to be sold only via the eCommerce operator. That move comes as Amazon has had trouble wooing some direct-to-consumer brands.

Amazon wants “consumer goods companies to create brands exclusively for Amazon after finding that developing them on its own is too costly and time-consuming, according to people familiar with the strategy,” stated a report in The Wall Street Journal. Already, Amazon has found cooperation for its aims from GNC, Equal sweeteners and Tuft & Needle, which has launched the Amazon-only brand Nod.

Amazon gets to potentially take market share from manufacturers via these exclusive brands. As the newspaper tells it, the companies that create those brands earn, besides revenue, “faster customer feedback when testing new products, marketing support and, of course, revenue from the sales. They also can appear at the top of search results — a big draw given that Amazon’s platform lists an estimated 550 million items.”

Private-label products provide a big opportunity, whether with Amazon or without. The market surged in the wake of the 2008 financial crash, according to observers and estimates, and the overall market could reach at least $220 billion by next year. According to Nielsen, “the market for private-label products has grown more than top-performing brands, driven by customer perceptions that private-label products are higher quality, less expensive and smart choices.”

Much of that growth will come from younger consumers, and will involve groceries, according to Supermarket News. “Younger consumers are more inclined to reject packaged foods with a long list of ingredients and to seek out “clean-label” products that don’t benefit from branding. This trend is especially evident in the growth of fresh-to-go foods at the store perimeter.” Beyond that, “private label is no longer relegated to commodities for the financially strapped – it has branched out into salsa, granola and even prepared foods, and become the intelligent choice for savvy shoppers.”

But not all companies — and that includes food companies — are in a good position to compete with Amazon.

“While we expect private-label shelf space to normalize over time as Amazon separates winners from losers, we continue to believe that Amazon’s private label could pose a meaningful threat to branded food manufacturers, especially as its 365 Everyday Value brand is already highly credible with consumers,” Bernstein Analyst Alexia Howard wrote in a research note.

Brand Resistance

Even as some companies do launch Amazon-exclusive product lines, not all businesses are eager to make such deals with the Seattle-based eCommerce operator. Earlier this month, for instance, new evidence emerged that some DTC brands don’t want anything to do with Amazon, because they feel that teaming up with the retail giant won’t be good for them.

When DSTLD Denim was invited to talk with Amazon’s DTC Business Development Leads Jason Yoong and Chadd Ciccarelli, the company declined to work with the eCommerce giant. Among the reasons were Amazon’s hard refusal to share customer data that could aid the company, a lack of easy ways to find brands on Amazon’s search platform and the absence of any way to track attribution from places like Facebook. Brands also seem to dislike the general Amazon experience online, specifically how it is faceless and lacks customer service.

In fact, for many brands, taking an anti-Amazon stance has become a pride point, as they focus on different tactics to build brand awareness and loyalty.

Indeed, the urge to compete with Amazon — and the failure to do so — also applies to big-box retailers. Take The Home Depot. Some investors contend that consumers will want to head to brick-and-mortar stores to purchase supplies for projects around the house. Home Depot is also popular with contractors.

Of course, brands competing with Amazon need to up their own eCommerce game, which includes a better experience on direct-to-consumer websites. According to one analysis, “a direct-to-consumer website allows a brand to completely control its image from the moment it first engages with a consumer until the customer has the brand’s product in their house. Competitors are essentially removed from the equation, allowing the customer to see the product perfectly.”

Amazon Spending Share

Yet Amazon continues to command a larger share of consumer and retail spending, according to PYMNTS research. The Amazon Paycheck Index found that the eCommerce giant now accounts for 2.1 percent of all consumer spend — some $1,320 of the total paycheck for a household that earns roughly $63,000 a year ($62,941, to be precise). That’s up from 1.6 percent in 2017 and 1.3 percent in 2016.

When it comes to overall retail spend, the figures are even more in favor of Amazon. Its share of overall retail spend has tripled over the last four years — growing from 2.2 percent in 2014 to the 6.4 percent estimated today — a 30.7 percent CAGR over that four-year period.

When it comes to the exclusives meant for Amazon, those products may end up helping Amazon capture more consumer spending — but it doesn’t mean consumers or the brands behind those products will always enjoy a price advantage. According to The WSJ, “both Equal and GNC said they have faced higher costs selling through Amazon, which can entail having to ship items in a short timeframe.”

That said, those exclusive-to-Amazon products join a growing collection of similar items. That’s because Amazon already sells an estimated 100 house merchandise brands — brands that generated an estimated $7.5 billion last year.

“But developing a new brand and formulating products takes time. Amazon spent several years crafting and launching brands like Happy Belly and Mama Bear,” the report said. “By getting other brand manufacturers to do that work, Amazon can ramp up its private-brand offerings faster and at a lower cost, people familiar with the program said.”

Launching more in-house, exclusive products is hardly Amazon’s main focus for the new year, of course.

Its push into healthcare continues, and now includes the sale of premade hospital rooms, according to recent PYMNTS coverage. The eCommerce operator also is developing a video game streaming service that wouldn’t involve a peripheral, and would solely exist on the internet. It’s unclear at this point how its success with persuading brands to offer exclusive items for sale via Amazon might influence other companies, but the coming months could bring more answers and more clarity about the success of this ongoing program.