Setting The Record Straight: Recent Reports Misrepresent Common Retail Practices
Recent articles mislead readers on Amazon’s consumer-centric approach to product development and placement in its marketplace. Let’s correct the record:
— Store brands are a long-time staple of the retail industry.
— Promoting products, including store brands, through merchandising is a common retail strategy.
— Using data to improve sales and customer experience is an established retail practice.
Store brands are a long-time staple of the retail industry.
Selling private label goods has been a common retail practice for generations. About 80% of stores in America sell private label brands, and private label brands only make up about 1% of Amazon’s sales, highlights Independent Tech Analyst Benedict Evans. “Amazon looks at data on what sells on its site, both the first party operation and, perhaps, the third party marketplace (which is 60% of volume), and uses that to commission its own products, which it sells in competition with its suppliers and without necessarily any obvious indication that they come from Amazon. There are hundreds of these ‘Amazon’ brands and thousands of products, competing with the products from Amazon’s suppliers. Some people feel very strongly that this is bad. The trouble is, this model has been part of retail for generations. It’s 1-2%* of Amazon ecommerce sales, but most big retailers have a double-digit percentage of revenue from private label.”
— “80% of stores in America sold private label brands, and that was about a quarter of revenue.”
Far from being unique to online channels, many major retailers, from grocery to apparel, supplement their inventory with private labels, reminds Carl Szabo of NetChoice. “Today, we expect every store we walk into to have both their own branded products. Costco has Kirkland. Safeway has O Organics. Even CVS has its own line of Band-Aids. And most consumers like having these generic brands as options because they’re cheaper, force prices down of name brands, and can even push companies to improve their quality.”
Legacy retailer Bed Bath & Beyond will launch at least eight private label brands by the end of the fiscal year, reports Caroline Jansen of Retail Dive. “The retailer kicked off its private label spree in March with Nestwell, followed by Simply Essential, Our Table, Wild Sage and Squared Away. Bed Bath & Beyond also relaunched Haven earlier this year. The retailer’s eighth private label is set to roll out in November, CEO Mark Tritton said on the retailer’s most recent earnings call.”
Consumers prefer to purchase retailers’ store brand and private label products, according to Morgan Stanley.
Promoting products, including store brands, through merchandising is a common retail strategy.
Brands have been paying for prime product placement via slotting fees in retail long before online commerce came along, highlights the Progressive Policy Institute. “First, it’s important to know that ad fees on Amazon are analogous to slotting fees in brick and mortar stores. Brands have been paying for promotion in retail long before the e-commerce revolution. Prime shelf space and prime search rankings are both scarce resources that are auctioned off to the highest bidder.”
CVS uses “internal data and industry figures” to design product placement and promotional deals, writes Stephanie Clifford of The New York Times. “The entire industry is mining information to understand what people want and how to get them to want more.”
— “CVS, the nation’s second-largest drugstore chain, is crunching internal data and industry figures to come up with new approaches to such things as what products it should stock where, and what special offers customers should get.”
— “Data is also informing how the stores are arranged. Oral care was one puzzling area. CVS could never figure out where, exactly, to put toothpaste and floss (with grooming products, first aid or cosmetics?). Purchase data indicated that customers were most often buying those items alongside beauty products, so CVS reshuffled the stores to put dental products close to the beauty aisles.”
Like all other retailers, Amazon uses product placement and data to steer purchases, explains Benedict Evans. “Amazon uses placement to steer purchasing, yes, and so do all retailers. Amazon uses data, yes, and so do all retailers—Walmart bought its first computers in the 1960s, and Tesco owns the leading loyalty card business. Retailers do, in fact, know what they sell. And no, Amazon does not have a different kind of scale. It has 8-10% of US retail – it’s roughly the same size as Walmart…The real challenge in all these conversations is that it’s always been perfectly clear that Amazon is very tough on its suppliers (and its employees), but often rather less clear where that’s any different from the rest of the retail or logistics industry. You can certainly object to private label, believe it’s unethical, and even think it should be illegal. The fact that the FTC wrote that report tells us that people have asked these questions for a long time. But in doing that, you do have to recognise that your objection is not to something that Amazon does, but to something that retail does. This is a third of Costco sales.”
Walmart created the Data Café, a state-of-the-art analytics hub, to leverage data insights for smarter stocking, pricing, merchandising, and marketing solutions in “real-time,” writes Bernard Marr of Forbes. “In another example, during Halloween, sales analysts were able to see in real-time that although a particular novelty cookie was very popular in most stores, there were two stores where it wasn’t selling at all. The alert allowed the situation to be quickly investigated, and it was found that a simple stocking oversight had led to the cookies not being put on the shelves. The company was able to then rectify the situation immediately, avoiding further lost sales.”
Every retailer uses data and incentivizes customers to purchase their private labeled products, reminds Patrick Hedger of Taxpayer Protection Alliance. “CVS literally has a program that gives you special discounts if you buy their brand versus name brand products… and they throw in a $10 monthly coupon for all purchases. EVERY retailer has these ‘internal documents.'”
Using data to improve sales and customer experience is an established retail practice.
Data helps retailers understand and serve consumers better, especially in the midst of global uncertainty, writes Daniel Newman, Principal Analyst of Futurum Research and CEO of Broadsuite Media Group. “Data from the supply chain, online interactions, sales transactions, and brick and mortar locations when tapped for insights can take a retail organization to the next level. By using CDPs, AI, and machine learning tools from leaders like Microsoft, Oracle, Salesforce, Treasure Data, Twilio and others, organizations are learning more about their consumers than ever before which means targeting has become more specific.”
Data is not unique to Amazon, every store, big and small, collects information about its customers to provide a better customer experience, reminds Carl Szabo of NetChoice. “The partisan House Judiciary antitrust report also complains that Amazon has a monopoly on data because it collects data from customers to better tailor the user experience. But, this practice is not unique to Amazon. In fact, Walmart, the largest global retailer, prides itself on collecting ‘[b]illions of data signals from hundreds of millions of Walmart customers’ to do the exact same thing. And Walmart is not alone. Every store, big and small, collects information about its customers to help understand how to make the customer experience that much better.”
A&P, a leading grocery chain of the 20th century, provides an historic example of using consumer insights to target specific preferences, as Timothy J. Muris and Jonathan E. Nuechterlein write in a paper. “A&P also succeeded because it did what many tech companies do today, albeit amid much controversy: use data to create greater consumer value. For example, A&P used such data to meet previously unrecognized regional preferences: ‘Philadelphians, it found, liked their butter lightly salted, with a light straw color, whereas New Englanders preferred more salt and a deeper yellow coloration.’ And the company’s ‘mass of sales data allowed A&P’s bakeries to forecast demand with a high degree of accuracy, minimizing returns of stale bread and doughnuts’ and thus reducing costs and ultimately retail prices.”
The breadth of Walmart’s offerings—groceries, pharmacy, financial services—enable the legacy retailer to collect data to better serve customers, making it a “data company,” explains Walmart CCO Janey Whiteside. “During the 2021 NRF’s Retail’s Big Show conference, Janey Whiteside, first chief customer officer at Walmart, was asked if Walmart was a data company. “There’s no question, Whiteside responded, that the breadth of Walmart’s offerings—groceries, pharmacy, financial services—enable it to collect a great deal of data about its customers. ‘We can use all that data,’ she said, ‘to understand our customers better, and to serve them better. To do that, we need to have all the right permissions. It’s a matter of trust. There has to be trust, and we have to earn that trust.'”