Store Branded Retail Products Aren’t New, So Can We Stop Pretending They Are?

By Patrick Moorhead - June 25, 2020

I rarely enter the bowels of the retail world in my writings, but I do when it involves technology companies like Amazon, Apple, and Microsoft. I like to wade into controversial stories where I think there is more smoke than fire or, conversely, more fire than smoke. This combination is what makes the latest outrage story perfect for what I cover.

Amazon appears to be under congressional and, to a certain extent, press scrutiny, for doing what retailers have been doing for at least a hundred years, which is to offer store brand products to its consumers and use branded data to determine what to sell. We’ve all likely bought these staple products like Amazon Basics batteries, HDMI cables, and even diapers. I know my family and I have.

The “issue” is that Amazon uses its trove of data it collects from selling branded products to help it determine what store branded products it will develop and offer. Some pundits are claiming Amazon is using its data from third-party businesses selling on their marketplace – sellers - to help create its store brands strategy, which undercuts these independent sellers. Their store brands business is supposedly “huge” and hurting the sales of small businesses selling on Amazon.

Amazon has said publicly that store branded products are a common retail practice and offering store brand products is not new in their business. Amazon previously released that store branded products are only about 1% of their total sales, despite the fact they have sold store brands for over a decade. This unit sales percentage is far less than other retailers, many of whom have store branded products that represent 25% or more of their unit sales.

“Huge business”

It appears Amazon’s store brands sales are not huge comparatively as a percent of its total business. According to data compiled by Morgan Stanley, it is downright microscopic compared to other competitive retailers as a percent:

  • Amazon 1%
  • Walmart 15%
  • Costco 20%
  • Target 33%
  • JC Penney 33%

For me, that takes the wind out of that sail. And sure, 1% of a significant number still equals a large number, but the percentage is more meaningful as it relates to this argument. 99% of what Amazon sells is branded, and 1% is store brands. This becomes important for me later on as it establishes motive.

“High R&D products”

Critics who cry foul about Amazon’s store brands say it has an unfair advantage because it can simply copy a product versus investing in R&D. So what are the most popular store-branded products sold at Amazon as well as other large retailers? Turns out they are common staples like batteries, paper towels and diapers.

I did not need to do an extensive market research study to determine this as Amazon publicly publishes the top selling products by subcategory. Anecdotally, I also took look at what my friends, family and I buy from Amazon related to store brands. I buy Amazon store brands products that I get soaked on by the big brands. Wait, you did not like to pay $50 for that HDMI cable when a comparable product was offered for $7?

“Use data to determine store branded products and pricing”

The premise here is that it is “bad” that Amazon uses data it collects from branded sales to determine what store branded products it sells.

The fact is that Amazon does use data but so does every big retailer. This has been a practice for a hundred years. I started my career with NCR in 1990, who was very highly indexed in retail markets. Remember, “NCR” used to stand for “National Cash Register.” In 1991, NCR acquired a company called Teradata, which Walmart used to sort through its data in real-time.

I remember how amazed everybody was when Walmart used the first “terabyte” system to monitor, in real-time, what was selling at every store. To create and price its store branded products, Walmart, Target, Costco, Kroger, and any every large retailer uses its branded data.

My retailer “big data” experience may have begun in 1990, but how far back does this practice go? Well, according to this article, it at least goes back to 1927 when Sears created its own tools and appliances under the Craftsman and Kenmore brands. While I hate giving Benedict Evans credit for anything (joke), I have to give him credit for snagging this awesome old photo from a Sears catalog.

So, if all retailers do it, have been doing it since the 1800s, is the issue that Amazon is doing it? It’s a real head-scratcher to me.

“Use seller data to determine store branded products”

The claim here was that Amazon uses third party data from its “sellers” to determine store branded products. This claim is different from above in that sellers are using Amazon as a distribution vehicle. In response to a House Judiciary Committee letter, Amazon responded on May 15, and I think best if I quote the company. It said, “We determined years ago to take additional steps to give sellers comfort regarding their individual data, which go beyond the protections in place at any other store we are aware of. We take any allegations that this employee policy was breached seriously and continue to investigate.”  

We will have to see what comes out of the internal investigation from Amazon. An interesting data point though not often mentioned amid the controversy is that unit sales from sellers has continuously outpacing the Amazon Retail business. Per Amazon’s 2020 Q1 earning, third-party sellers still represented more than half of everything sold and sales grew faster than its Retail business - even despite the logistical challenges of COVID-19 where Amazon throttled down non-essential products in their delivery network. Love or hate them, Amazon’s frequently referenced “Fly Wheel” somehow keeps turning and appears to be good for most businesses.

Investigate Walmart?  

While Walmart sells nearly three times more products than Amazon, it is an easy target to go after because of its $1.23T valuation, and CEO Jeff Bezos is the world’s richest person. I believe this is where all this “outrage” emanates from. In this case, Amazon is doing what every retailer does today and has done for at least 100 years, which is sell store branded products. If the Amazon store branded business is 1% of sales and Walmart is 15% sales on a 3x larger base, this means that Walmart’s store brands business is 45X the size of Amazon’s. If it is bad to have a store brands, shouldn’t policymakers in Washington and others be taking a look under the hood at Walmart?

Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.