RAIN Design has been selling an aluminum laptop stand on Amazon.com Inc for more than a decade. A best-seller in its category, the US$43 product has a five-star rating and 2,460 customer reviews.
In July, a similar stand appeared at about half the price. The brand: AmazonBasics. Since then, sales of the Rain Design original have slipped. “We don’t feel good about it,” says Harvey Tai, the company’s general manager. “But there’s nothing we can do because they didn’t violate the patent.”
Rain Design’s experience shows how Amazon is using insights gleaned from its vast Web store to build a private-label juggernaut that now includes more than 3,000 products – from women’s blouses and men’s khakis to fire pits and camera tripods. The strategy is a digital twist on one used for years by department stores and big-box chains to edge out middlemen and go direct to consumers – boosting loyalty and profits.
“They’re data scientists,” said Chad Rubin, who runs Skubana.com, which helps merchants manage their online sales. “They know what people want and they’re going to mop it up.”
Rubin encourages Skubana clients to sell their merchandise on the world’s largest online marketplace but tells them that they should also see Amazon as a potential competitor. In a new report, provided exclusively to Bloomberg News, Skubana traces Amazon’s private-label ambitions and provides tips on how its clients can survive the onslaught.
At first, AmazonBasics – launched in 2009 – focused on batteries, recordable DVDs and such. Then for several years, the house brand “slept quietly as it retained data about other sellers’ successes,” according to the report. But in the past couple of years, AmazonBasics has stepped up the pace, rolling out a range of products that seem perfectly tailored to customer demand.
“When we saw AmazonBasics products as bestsellers in several categories, our stomachs dropped and (we) started thinking, ‘we need to learn from them,”’ the report’s authors said. AmazonBasics now has more than 900 products, including 284 launched last year alone, according to Skubana.
Amazon declined to comment.
In his annual shareholder letter earlier this month, chief executive officer Jeff Bezos said Amazon is the “best place in the world to fail.”
That philosophy applies to private-label products, which quickly disappear if they receive poor customer ratings. About 96% of AmazonBasics products had a rating of 3.5 stars or more, according to the Skubana report.
The authors’ advice to merchants: “If you have a product that is lower than 3.5 stars, that product is dead to you and your customers. Liquidate and move on.”
Amazon’s size gives it an advantage over so-called direct-to-consumer startups such as mattress seller Casper and eyewear merchant Warby Parker because Amazon can experiment with one product rather than having to build out an entire line. If an item flops, it’s no big deal.
Amazon isn’t only copying products made by small, little- known merchants like Rain Design. Its private-label lines are increasingly competing with name brands, and nowhere is that happening more than in apparel. – Bloomberg