Amazon is sometimes criticized for its private labels. The way this generally works is that Amazon uses the data that it collects from its platform to see what customers are buying. It then goes out and makes its own version of these products and sells them in competition with the other products in its marketplace. The reason why Amazon (and others) do this is because the margins are generally better on private labels, even though they are often positioned to the end customer as being a value-oriented alternative. That is, they’re cheaper.
Some people think that Amazon shouldn’t be doing this, particularly as its third party marketplace continues to grow. This side of its marketplace deals with inventory that Amazon doesn’t own. It is the stuff of third party sellers who come to the platform to access Amazon’s customer base and reach, and to possibly use its fulfillment services. This marketplace now makes up about 60% of Amazon’s sales volume and so it has become a dominant part of its business. It’s a way to grow without having to spend money on additional inventory.
Is it, then, acceptable for Amazon to mine this data, replicate products, and compete with its own customers? The truth is that this isn’t all that new. As Benedict Evans points out in this recent post, retailers have been doing this for more than a century. The above table taken from a 1932 report on “chain store private brands” shows that about 80% of stores in the US at this time were selling private label brands. Furthermore, it represented about a quarter of their overall sales. Is this time any different?
Table via Benedict Evans