Are Amazon’s Private-Label Brands Worth Keeping?

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Amazon.com Inc. (NASDAQ: AMZN), by its own admission, had a record-breaking 2017 holiday season. To cap it all, the company’s own Echo Dot and Fire TV Stick were the best-selling products.

In addition to these home-grown and well-known product brands, Amazon has also been steadily building up its business in private-label brands on everything from baby wipes to sportswear.

The company’s revenue from its 45 or so private-label brands is likely not to exceed $500 million in 2017, but sales of its top brand have risen at an annual rate of 10% according to industry analysts at OneClickRetail.

After completing its acquisition of Whole Foods in August, Amazon introduced its 365 Everyday Value brand. In just a few months 365 has become the second-best selling of the company’s private brands and is expected to generate more than $10 million in revenues for 2017.

Amazon’s advantage — and the advantage of any company’s private-label brand — is being able to lower the price point for the items customers want to buy. Retail industry analyst Sucharita Mulpuru-Kodali at Forrest commented on Amazon’s private-label stuff:

Private-label brands win because of price. Look at a Target brand or a Walmart private-label brand. They’re great value for [the] money. … Amazon private label is tiny, maybe a few billion, but because it’s small, it has huge opportunity for growth. They get it right and execute it, and it represents potentially high margins.

The key point is that Amazon does not need its private-label business to be the size of Nike’s or Lululemon’s to profit from those high margins. Amazon just needs to offer its private-label goods to the right customer. With all the data the company collects on its visitors, it’s not hard to see how Amazon could do this.