360-degree competition from private-label products

TakeAway: Whether it’s due to the economy or consumers’ general frustration with price inflation, private label products are booming.

Accordingly, more and more companies are offering private label products in an attempt to steal sales from their branded counterparts.

Now, this battle has moved from the stores to the Internet. Consumers’ appetite for value is spurring Amazon’s move into the private label business.

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Excerpted from WSJ,”Amazon Is Selling Designs Of Its Own,” By Geoffrey Fowler, September 21, 2009

Amazon.com is quietly expanding its private-label business in a bid to diversify away from its online bookstore roots and become more like a general retailer.

After starting with private-label patio furniture in 2004, Amazon has since added its own housewares, including a steamer, frying pan and chopping block … the latest: a wooden chopping block …

Amazon doesn’t say what percentage of its $19 billion in annual sales are from its private-label business, but it already sells more than 1,000 products that are manufactured at its request … this underscores how far the company has moved beyond books, CDs and DVDs …

The company has developed private-label products when it felt customers’ needs weren’t being met by the rest of its catalog … developing private-label products has required new skills for the company, such as managing quality control and meeting product safety regulations. But online feedback from customers who leave product reviews helps the company make improvements…

The company won’t disclose profit margins for its private-label merchandise but it is clear that the effort wouldn’t be feasible if it weren’t for Amazon’s economies of scale …

Private labels are popular with many traditional retailers because they can provide higher profit margins by cutting out the middleman in the supply chain … online-only retailers have been slower to adopt private-label brands because they lack the expertise to design products, and lack a physical store presence to introduce a new brand …

The private-label strategy isn’t without its problems. In particular, Amazon’s own products may conflict with the products and merchants that the company already hosts on its site …

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