Amazon Private Label Plan Is Backfiring — What it Could Mean for Small Businesses

HAGERSTOWN, MD, USA - MAY 5, 2017: Image of an Amazon packages.
Julie Clopper / Getty Images

Amazon has decreased the number of items it sells under its private label business, and might kill it entirely due to regulatory pressure and slower sales, according to The Wall Street Journal.

The WSJ reports that Amazon’s private label business — which included 243,000 products across 45 different house brands as of 2020 — has been mired in controversy as it is seen as competing directly with other retailers on the platform.

The decision to reduce the number of product offerings was also driven by slower sales, the WSJ adds.

Amazon Rejects Idea of Closing Private Label Businesses

An Amazon spokesperson told the WSJ, however, that, “We never seriously considered closing our private label business and we continue to invest in this area, just as our many retail competitors have done for decades and continue to do today.”

Amazon executives discussed reducing its private label assortment in the U.S. by over half in the past six months — following a review by former head of global consumer business Dave Clark — the WSJ reported, citing people familiar with the matter.

In addition, Vox suggests that Amazon leaders have also internally discussed taking a more brutal path to avoid regulatory issues by axing the private label business.

“At least as recently as last year, several top Amazon executives, including its current worldwide retail CEO Doug Herrington and its general counsel David Zapolsky, expressed a willingness to make this different but significant change if it meant avoiding potentially harsh remedies resulting from government investigations in the US or abroad, according to a source with knowledge of the discussions,” Vox writer Jason Del Rey reported.

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Amazon faces intense scrutiny both in the U.S and in the EU. On July 14, the European Commission issued a statement seeking feedback on commitments offered by Amazon concerning marketplace seller data. In July 2019, the commission opened an antitrust investigation to assess whether Amazon’s use of non-public data from independent retailers selling in its marketplace breached EU competition rules.

Amazon Facing International Antitrust Scrutiny

“Amazon is a data-driven company whose retail decisions are for most driven by automated systems, fueled by the relevant data. Amazon has a dual role as a platform. It runs a marketplace where independent sellers can sell products directly to consumers and at the same time, it sells products on its platform as a retailer, in competition with independent sellers. As a result of this dual position, Amazon has access to large sets of data about the independent sellers’ activities on its platform, including non-public business data,” the July 14 European Commission report read.

And in April, the WSJ reported that U.S. regulators were investigating how Amazon disclosed some details of its business practices, “including how it uses third-party-seller data for its private label business, according to people familiar with the matter.”

In March, bipartisan members of the House Judiciary Committee sent a letter to Attorney General Merrick Garland to alert the Department of Justice to potentially criminal conduct by Amazon and its senior executives.

“In testimony before the Committee, a senior Amazon official represented that Amazon does not use the data it collects on its third-party sellers to compete with them and does not list its products before third-party products in customer search results. Credible investigative reporting demonstrated the opposite,” a March 9 House Judiciary Committee press release read.

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Amazon had fired back at related investigations in 2020, saying in a blog post on its website that: “These flawed regulatory ideas rely on the false narrative that Amazon’s interests are not aligned with those of the thousands of small and medium-sized businesses thriving as sellers in our store. The opposite is true: Amazon and sellers complement each other, and together we create a better customer experience than either could create alone.”

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