Is Amazon Turning Into A Threat For Its Sellers?

Solimo, Symbol, Myx, Vedaka and Presto.You may have bought products from these brands on Amazon India. But what you may have missed is that these, and many other labels, are owned by Amazon Inc. itself.The world’s largest online retailer brought its AmazonBasics label to India in 2015. It launched another brand Solimo, offering home appliances and household items, the same year. The company now sells 10,000 products, including clothing, grocery, cosmetics, computer accessories, luggage and electronics, from 16 private labels. And this summer, the e-commerce firm started selling AmazonBasics split air conditioners..That’s likely to make sellers dependent on the platform sweat. Amazon now accounts for nearly 40 percent of online sales in India, according to Arvind Singhal, managing director at retail consultant Technopak Advisors. By launching its own products at lower prices, it threatens to crowd out the merchants.“This is quintessential Amazon, and not just unique to India,” Devangshu Dutta, chief executive officer at retail consultancy Third Eyesight, said. Based on consumer insights, Amazon is launching products where the retailer thinks it can have a significant margin and can sell better, he said.While new e-commerce norms bar online retailers controlled by overseas investors from holding inventory, Amazon’s private label model doesn’t violate the changed policy, Atul Pandey, partner at law firm Khaitan & Co., said over the phone. “If an e-commerce platform is engaged in manufacturing either on its own or through contract manufacturing and is making a sale through a third-party seller on its platform, it will not be considered a violation of FDI norms.”. Amazon’s private label model doesn’t violate India’s e-commerce policy, says Atul Pandey of Khaitan & Co..It’s not just lower prices that will drive customers to the technology-to-retail behemoth’s private labels. “Amazon is basically utilising its knowledge of what people shop on the platform, what he or she is really looking for,” Singhal said. “It wants to slowly steer shoppers toward its in-house brands and away from competitors.”Having failed to outsmart Alibaba Group Holding Ltd. in China, India is the biggest market outside the U.S. that Jeff Bezos is targeting. The nation’s growing internet use and a younger population is expected to drive demand. The country’s e-commerce market, according to Deloitte and Retail Association of India, is expected to jump more than eightfold to hit $200 billion in the decade through 2026. And Amazon is vying with Walmart Inc.-owned Flipkart and local supermarket chains, including Mukesh Ambani’s Reliance Retail Ltd., that are banking on a hybrid online-offline model..Amazon is vying with Walmart-Flipkart and Mukesh Ambani’s Reliance Retail that are banking on a hybrid online-offline model.Amazon partners with manufacturers as part of its accelerator programme to help launch brands directly on its platform, a company spokesperson in India said in an emailed statement to BloombergQuint. The goal, the spokesperson said, is to provide the widest selection to maximum number of customers.It launched Skrubble dish-wash liquid, Syclone detergent, Zinq Technologies power banks, Instaplay, Rhythm & Blues speakers and headphones, Brewvin apple cider vinegar, Tuff Up whey protein and Wilderness pet foods.Betting BigAmazon last month said private labels account for less than 1 percent of its overall retail sales globally.While it didn’t disclose the contribution from its private labels in India, an industry analyst who tracks the company said they contribute 6-7 percent to the retailer’s overall sales in the country—the person didn't want to be identified as he isn't authorised to share the data. That’s still tiny as India, according to a Bain & Co. report, contributes less than 5 percent to Amazon’s global revenue.But that share is expected to rise as Amazon globally focuses on its own brands. Atlanta-based investment bank SunTrust Robinson Humphrey estimates that Amazon’s overall private label business to generate $25 billion in sales by 2022 compared with $7.5 billion in 2018..Amazon private label business is said to contribute 6-7 percent to the retailer’s overall sales in India, compared to 1 percent globally.B Thiagarajan, managing director at air-conditioner maker Blue Star, doesn’t see private labels as a threat to makers of appliances. “The concept isn't new to India, nor is Amazon’s strategy to get into private labels,” he said, adding that Amazon is anyway not making products but is simply sourcing from a third-party seller. “If a new player comes in, there will be some movement in the market, but there will be no material impact unless there is aggressive marketing and a innovation.”To be sure, a study by Marketplace Pulse found that Amazon-branded products in the U.S.—its largest market—are duds and don’t really threaten other businesses, Bloomberg reported. The New York e-commerce research firm, which examined 23,000 products, found that shopper are not that inclined to buy Amazon private labels even if they are elevated in search results.Win-Win For AmazonStill, representatives of multiple sellers and brands on Amazon told BloombergQuint that they are concerned about the retailer’s move into the private label space. They didn’t want to be identified out of business concerns.Amazon, in its statement, said: “Wherever we see gaps in terms of selection or pricing, we augment the selection with private brand products which offer better value to customers.”“This is a big threat,” said, Singhal, adding that Amazon knows what exactly the customer is looking for, something which even the brands don’t. “This is a big competitive advantage Amazon has as compared to the other sellers on the platform as it can position itself better.” This could start to eat into the business of smaller, lesser-known players to begin with, due to its aggressive pricing, he said..This (customer knowledge) is a big competitive advantage Amazon has as compared to the other sellers on the platform as it can position itself better.Arvind Singhal, MD at Technopak Advisors.Competition from Amazon private labels may force competitors to purchase more sponsored posts to attract buyers, according to Satish Meena, an analyst at Forrester Research. “Sellers will slowly warm up to pay for getting better exposure across the site.”Amazon’s rival Flipkart, too, has also expanded its private label business. It sells large appliances under MarQ brand, furniture under its Perfect Homes brand, electronics and clothing under its Billion private label.But Flipkart’s private label foray has been lukewarm. “It is not easy to build private labels, and quality and correct product offering play a role, and not just pricing,” Singhal said. “What works in Amazon’s favour is that they have been doing this in the U.S. for more than 10 years, and also enjoy the advantage of a global supply chain.”But he expects Flipkart’s private labels to “get a better grooming” as they are under retail giant Walmart.Meanwhile, Amazon said it has emerged as the largest-selling brand in non-inverter air conditioners on its platform, and features among the top five air-conditioner brands.That would make sellers even more nervous.

Is Amazon Turning Into A Threat For Its Sellers?

Amazon knows what exactly the customer is looking for, something which even the brands don’t.

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