Private
Amazon, you might have heard yesterday, is cutting back on its private label business.
It comes at a time when regulatory pressure is high, and criticism around Amazon using sales data to find their next private label initiative is, perhaps, at its highest. We find this line of criticism confusing at best, though, because it’s rarely levied against other retailers with successful private label businesses. (Costco and Target come to mind in particular.)
And also: we’re not sure it’s the unfair advantage that many make it out to be.
If you read the Wall Street Journal article that broke this news, you’d read that Dave Clark, who recently left Amazon to become Flexport’s CEO, asked for a review on the private label business and to cut the under-performing SKUs. (It has 243,000 SKUs. Target, by comparison, has 13,220.)
This, we’d argue, suggests that unlimited access to sales data isn’t the incredible advantage that many think it is. If it was, wouldn’t Amazon’s private label business be expanding?
And since all retailers share generally the same sales data advantage with Amazon, wouldn’t they, too, be succeeding more with private label?
Target is often held as the standard here, with 10 private label brands worth more than $1B each. But you don’t much hear about the success of many others in terms of driving retailer growth.
So, we think the advantage might be elsewhere. Perhaps the advantage might be in the brand itself.
In other words, execution matters. A lot.
An example: At Costco, you can buy Kirkland Signature sweatshirts, not because Costco is all-in on apparel (though they do sell some), but because so many people who shop at Costco are all-in on Kirkland Signature.
Amazon, to bring it back to the main subject, dominates market share of batteries online. This doesn’t appear to be because of any sort of data advantage, though. It’s a performance advantage: Amazon’s batteries are better than Energizer’s.
In a category like batteries, where it is basically two dominant brands and a slew of private labels, the opportunity for a private label brand to win share is significant. You don’t need proprietary sales data to tell you that.
Is Energizer better than Duracell or vice versa? Hard to tell. They’re also nearly identical in price. But a private label that costs half as much and performs better?
That may initially win on value, yes, but it will eventually win on brand.