Setting The Record Straight: Wall Street Journal Story Misunderstands Common Retail Practices
Today’s Wall Street Journal article regarding Amazon missed several important points, most importantly that Amazon’s consumer-centric approach to innovation reflects common retail industry practices, including:
— Manufacturers make the same product for different brands.
— Similar versions of popular products are common among competing brands.
— Dynamic and fierce competition is brewing in the retail industry.
— Technology companies provide consumers with more choices and enable small businesses and retailers to grow.
1. Manufacturers make the same product for different brands.
Across the retail industry, it is a common practice for the same manufacturer to make similar products for competing brands:
— The Weifeng Group, the manufacturer of the tripod referenced in the Wall Street Journal story, contracts with more than 400 brands outside China that all sell similar tripods under their own brand names.
— Menu Foods Inc. of Ontario makes pet food for “dozens of competing brands, from discount to premium,” including more than 100 brand names, such as “Procter & Gamble Co.’s Iams and Eukanuba brands; Hill’s Pet Nutrition Science Diet, owned by Colgate-Palmolive Co.; and Ol’ Roy pet food by Wal-Mart Stores Inc.”
— C.L. Gupta Exports, Ltd. (India) supplies products for Pier 1, Target, Ikea, Ashley Furniture, Restoration Hardware, and Crate & Barrel.
— Eclat Textile Co Ltd. in Taiwan supplies Lululemon, Under Armour, Athleta, Land’s End, Duluth Trading Co., and Walmart with yoga pants, sports bras, and other exercise clothing.
2. Similar versions of popular products are common among competing brands.
Monitoring consumer trends and creating popular products are key for all retailers to remain competitive. Retailers who can best capture popular consumer demands in the marketplace continue to drive competition forward.
— Walmart, Le Mouton, Baabuk, Skechers, Giesswein, and Apex all sell wool sneakers similar to Allbirds. Consumers can switch between brands when making a final decision based on price, colors, and brand loyalty.
For decades, many big retailers have tried to differentiate themselves from competitors by offering private-label brands in the same product category. Walmart, Target, Trader Joe’s, Costco, Publix, Wegman’s, Walgreens, CVS, Rite Aid, Family Dollar, Dollar General, Giant Eagle and Raley’s all sell private label brands in similar product categories.
— Trader Joe’s orders most of its products from third-party manufacturers (including giants like PepsiCo. and Snyder’s-Lance), which agree to sell some of their items under the Trader Joe’s label. Many of these brands sell the same or similar products under their own names for a higher price.
An increased emphasis on consumer data analytics and sharing ensures retailers of all sizes can create products based on consumer demands. “Because Amazon, Kroger, Target, and Walmart (and others) have strong omni-channel offerings, they’re able to make compelling advertising services from the data they receive from their operations. These retailers are not only using their data internally but they are creating services which utilize that data and share it with external brands to ensure greater success for all parties. These companies are competing amongst each other not just for consumers to purchase retail products, but to utilize their digital advertising services as well.”
3. Dynamic and fierce competition is brewing in the retail industry.
Amazon is not close to being dominant in retail, as evidenced by 2018 US retail sales figures compiled by Alec Stapp.
- Walmart: $388 billion
- Amazon: $121 billion
- Kroger: $120 billion
- Costco: $101 billion
- Walgreens: $98 billion
- Home Depot: $97 billion
- CVS: $84 billion
- Target: $74 billion
Costco saw a surge in online retail sales in 2020, on the back of heavy investments in online retail in multiple product categories. “Its net sales rose 16.9% from the year-earlier quarter to $42.35 billion, while its e-commerce sales soared 86.4%. In a conference call with analysts, Chief Financial Officer Richard Galanti said that while strong categories for e-commerce ranged from housewares and pharmacy to TVs and other electronics, ‘total online grocery grew at a very strong rate in Q1, nearly 300%.'”
Grocery chain Kroger is establishing an online marketplace that includes third-party sellers. “The owner of the Fry’s and King Soopers chains is working with online commerce specialist Mirakl to offer tens of thousands of additional goods, including housewares and toys, the companies said Tuesday in a statement. The partnership will let Kroger offer ‘more-relevant products’ by broadening its e-commerce operations to include third-party sellers, according to Jody Kalmbach, the company’s vice president of product experience.”
Ignoring the fact that online retail and brick-and-mortar retail are often substitutes results in an unrealistically narrow market definition, writes University of Pennsylvania law professor Jonathan Klick. “[R]elegating Amazon’s market to e-commerce rather than retail more generally might be a little like treating Sonic as controlling the market for hamburgers delivered to your car while you sit in a parking lot stall because McDonald’s won’t do that. That is, there is little a priori reason to carve out something known as e-commerce from retail more generally. In fact, data from a 2018 survey suggest that most consumers still prefer shopping offline.”
4. Technology companies provide consumers with more choices and enable small businesses and retailers to grow.
The innovations that Amazon has brought to the retail market come at the benefit of consumers, leading to lower prices and more choices, writes Competitive Enterprise Institute’s Jessica Melugin. “Amazon has brought lower prices, increased convenience, broader selection of items, and ever-faster service to millions of customers. It’s naïve to expect that none of that involved hardball negotiations, disappointed competitors, or any other bumps along the way. But all of that seems to have been not only perfectly legal, but also in service to enormous consumer benefit.”
Small businesses and Amazon benefit from one another’s success, writes the Wall Street Journal Editorial Board. “Amazon has prospered in part by becoming a marketplace for small business, not by excluding it. Some 1.7 million small and medium-sized businesses sell via Amazon, and the company says more than 200,000 had more than $100,000 in sales in 2019. Amazon eclipsed eBay as a leading small-business web venue because entrepreneurs thought it served them better. Amazon was also a lifeline for many businesses that were forced to shut their storefronts in the pandemic.”
Retailers are inspired by growing online sales to invest in multichannel retail, leading to key success and differentiation from Amazon, writes Glenn Manishin, Managing Partner at ParadigmShift Law. “Part of this retail revival is a result of what is termed ‘omnichannel marketing’: providing a seamless shopping experience at physical locations and through an array of consistent digital channels that differentiates retailers from peers and offers a competitive edge over online-only competitors by leveraging store assets… These are all illustrations of how the push by Amazon into new markets, and its core focus on consumer satisfaction and data-driven logistical efficiencies, has been a good thing. Those traditional brick-and-mortar chains that ‘get it’ and apply the lessons of Amazon’s success — indeed, go beyond replicating to surpass and differentiate from Amazon — are prospering and growing, not dying.”