Welcome to the Amazonification of the global economy! Or, if you’re competitor—World War A.
At this point, retailers are on Amazon overload, having wrung their hands raw over the acquisition of Whole Foods and speculation about what Amazon might do next as part of its plan for global domination via vertical mergers — including the worst kept secret in business, Amazon’s interest in the prescription drug and healthcare business.
For now, the company’s adventures in retailing are reaching mythical proportions—the stuff of legend. Maybe troubadours will start writing songs and epic poems about its exploits with Jeff Bezos pictured astride a white stallion with a big ‘A’ emblazoned across his shining armor. But Amazon’s real power has yet to be felt. What keeps everyone awake nights, is that the Seattle-based company, which has been so successful selling other people’s goods, is becoming self-sufficient.
The company has developed about 30 of its own brands ranging from clothing to lingerie and is reportedly in the process of filing for patents on many more. In fact, some sources believe that Amazon has been awarded over 800 trademarks by the U.S. Patent and Trademark Office. Furthermore, about 19 Amazon-owned brands are sold or have their own pages on the company’s website. Few of these brands overtly tell you that they are Amazon products nor are they listed as private labels on the company’s website.
Everyone knows the survival rate of new products is relatively low and Amazon will have its share of failures. However, those that succeed could give the company unprecedented control over a global supply chain from manufacturing to shelf. This is not going to kill off retail as we know it. But it could result in some very strange bedfellows, with major brands merging in order to survive Amazon’s private label onslaught. At the very least it sends an urgent message that the status quo simply won’t cut it.
Even some supermarket chains understand that they can’t afford to leave money on the table in any category. For example, Cincinnati-based Kroger Co., plans to expand its private label apparel selection with a yet to be named “modern lifestyle” line for men, women and children in 300 stores next fall. It already has a dozen or so private label clothing brands in its Restock Kroger Plan. But given the competitive scenario another one wouldn’t hurt. However, we have to be careful that Amazon’s headline grabbing acquisitions like Whole Foods doesn’t drown out discussions about the depth of its in-house creations.
Let’s talk about what the industry is facing.
At its simplest, AmazonBasics—bringing in an estimated $250 million so far this year—offers such innocuous items as batteries, phone chargers, foam hair curlers, washcloths, USB and HDMI cables, puppy training pads and a set of bocce balls. Some odd choices under this umbrella, but if there wasn’t a market, they wouldn’t be there—even the double door folding metal dog crate. These are just the kind of items for which there is little brand loyalty but a whole lot of profit. If I were Duracell, I’d be worried.
Amazon Elements still sells baby wipes but is expanding into vitamins and supplements, one of the highest profit categories in health and beauty care.
In cosmetics, the BeautyBar.com sites carry makeup and fragrance as well as professional skin care products under various labels, making Amazon a one-stop shop for the category. Happy Belly has nuts, trail mix, organic and fairtrade coffees and a variety of fresh foods.
James & Erin offers mostly moderately priced women’s apparel. Lark & Ro includes slightly higher priced women’s clothing including outerwear, while North Eleven sells clothing, shoes and jewelry.
Clothing seems to be of particular interest to Amazon, which is in the process of rolling out several activewear brands including Goodsport, Rebel Canyon and Peak Velocity. Apparel lines alone have reportedly brought $21 million in sales to Amazon’s coffers so far this year. As such, it’s no surprise that apparel lines are taking center stage in the company’s holiday gift guide.
Other Amazon brands include: Mama Bear, baby products; Pike Street and Pinzon for bed and bath linens; Scout + Ro for children’s clothing; and Strathwood outdoor furniture and accessories. It is also adding to its furniture line-up with Rivet & Stone and Beam.
Additionally brands are awaiting trademark status. Among them: Bloom Street household products; Concrete New York leather goods; Familyhood baby products; Find handbags; GT Prime automotive products (a name which, all you car buffs out there would agree, could be problematic); Instant Pretty makeup; RV Me motor homes; Sweatermen men’s clothing; and Skate Creek music streaming service.
There are also an additional nine or ten brands, mostly clothing like Ella Moon, on Amazon’s website which may or may not be in the process of being trademarked.
Since it only costs between $200 and $400 to file a trademark application, Amazon could attempt to trademark the world without reaching too deeply into its digital wallet.
Eliminating the Middleman
Clearly, no category, business, industry or service is Amazon-proof. The company is even poised to start selling cars in Europe and a pilot program is scheduled for a launch in the UK with the company being run out of Luxembourg. In this case they’re not selling cars under the Amazon brand, although you have to wonder what that might look like. They are simply cutting out the middleman—in this case those beloved, honest-as-the-day-is-long purveyors of “Detroit Iron” car dealers.
The question is whether the company is overreaching—even though its name is not attached to many products or tin trademark documents. In a recent interview with Quartz, a digital news outlet, Mark DiMassimo, CEO of the New York-based ad agency DiMassimo Goldstein, noted that Amazon’s “clandestine” approach to brands is a logical one. “There are limits to the Amazon brand that they would be wise not to cross,” he said.
However, Amazon, like every innovator and disruptor, is not going to stop pushing the envelope. The problem is when ego drives the innovation bus. You can tell yourself you’re only giving your customers more choices. But are you really offering options when everything you sell is really an Amazon brand? And by touting your own brands are you undercutting other small brands that led to Amazon’s success in the first place?
The last thing you need in business these days is to make more enemies and the reality is that Amazon is not invulnerable.
Based on findings from U.S. consulting firm Bain & Co., BCA Research said that the disruption by Amazon is “minimal” compared with the invasion of the big box stores like Walmart in the 1990s. What’s more, the digital giant’s market share is growing more slowly than Walmart’s did back in the day.
One of the most interesting and thoughtful analyses of Amazon’s real position was published in the Financial Times which underscored some potential cash flow and productivity issues that could make expansion into new areas more difficult than previously thought.It’s not exactly a smoking gun, but the analysis indicates that Amazon’s growth is largely dependent on share price growth. Additionally, its long-term debt and other liabilities is over $20 billion, and the latter—whatever that includes—grew 30 percent in 2016 alone. I won’t go into this any further since you really need a forensic accountant to explain it. But I do know that debt can be your friend or end up killing you.
Additionally, the FT article noted that profitability is deteriorating at Amazon’s international divisions and sales per employee is shrinking. For example, between 2010 and 2016, the number of employees has increased tenfold while sales have only increased fourfold.
Nonetheless, Amazon will continue to transform every industry it touches and private labels could be the company’s “cash cow.” And with companies like Walmart, Target and others are revamping their own house labels and we may be on the cusp of yet another house brand renaissance in retail.