Amazon’s Private Labels Should Not Scare Anyone

Amazon

Retailers rely significantly on private brands. A tiny bit of Amazon’s business is from this, but not everyone thinks that we are entitled to benefit from the value this offers.

Some Democrats just don’t like big companies it seems, especially ones that make their money from the internet. This is especially true for those who believe that being small is a virtue, and are more than happy to stand up for the little guys, even looking to use the law to benefit them, even though if the justification simply relies on their bias of small over large.

It’s not even clear what this bias is grounded in, other than the fact that little guys are perhaps easier to like, and bigger guys less so. We cannot solely rely on our level of personal affection though, and let it stand ahead of everything, including the most basic principles of a free market, and even reason itself.

A company the size of Amazon ends up being classified as devil size, and if you are this big an on the internet as well, that’s doubly bad for some reason. Big is bad, and being big on the internet is far worse, the worst actually.

Some might just call this success, and by just about every measure Amazon is on the far end of success, but only if you actually like such things. Amazon is good for America, it’s good for shareholders, and it’s great for consumers, and it is consumers who have taken this company upon their shoulders and happily spent over $232 billion on their site last year.

If such big numbers scare you, you’re going to be even more afraid going forward. Amazon may dominate other online retailers, but this $232 billion only represents about 5% of the overall retail market, so there is still a lot of potential to get much bigger.

In the last 4 years alone, Amazon’s revenues have almost tripled, and are growing at a phenomenal pace each year, in a retail industry where most players struggle to not get smaller. Online shopping itself isn’t that big yet with only 10% of the overall retail market, with Amazon getting half of that. More and more people are getting turned on to online shopping though, and as they do, you can bet Amazon will get their share of this.

Walmart is the Real King, But Amazon May Be on Their Heels Soon

In comparison, Walmart, the reigning champion of the world in retail, finally broke the $500 billion mark with their 2018 revenue, making them over twice as big as Amazon right now. Walmart is still growing, but only grew by $15 billion more last year, while Amazon added $55 billion more. At the pace that they are on, Amazon may very well pass Walmart one day, and that day may not be all that far off.

Walmart has its detractors of course, especially those who either have seen their business drop off by Walmart’s offering more value than they can, but more value is something that should always be seen as a plus overall. When someone offers a better deal than you do, we need people to take advantage of that to not only save them money, but to make the economy more efficient.

Amazon does stand out even more in the online retail world than Walmart does in the offline one. The other half of the online pie is spread among a great many market participants, and a lot of this comes from traditional retail operations that have expanded to online selling, including Walmart.

Amazon has been born and bred online though, even though they have now bought Whole Foods and have a brick and mortar presence as well now. Even though Amazon is hated because they are a big online company, they are somehow hated even more by some because they are in the food business as well, and if they expand their offline holdings even more, they will be thought even less of.

It is not even clear why Amazon buying Whole Foods would be seen as a problem by anyone, but this bothers presidential candidate Elizabeth Warren enough that if she becomes president, one of her first tasks will be to break this arrangement apart.

Why Amazon owning this property would be a problem at all and anything but a good thing isn’t made clear by her. What is even more off though is her being so upset by Amazon offering their private brands on their site alongside everything else they sell, and it may even be that this particular situation has her seeing so much red that it anything that Amazon does, including getting into the brick and mortar grocery business, is met with clenched fists.

As part of the operation of a retail business, you get to choose what you carry, and this is not something that is within the purview of regulation whatsoever. You own the store, you get to decide this, without exception, at least if exceptions are supposed to make any sense.

It is actually common practice in the retail industry for operations to sell their own private brands. The percentage of overall sales from private brands does vary a lot by company, but 20% isn’t uncommon and some get half of their sales from private brands, which means a brand that is sold in their stores and nowhere else.

These stores don’t actually make these things, as private brands mean branding, where they enter into agreements with various suppliers and instead of these suppliers selling the goods under their own brand, they all become organized into one or more of the store’s brands.

Ironically, this allows many littler guys to get in on the action, as they can market their goods more efficiently by having them included and promoted within these private brands, not that such a thing should ever matter.

Amazon’s Private Brands Are a Tiny Percentage of Amazon

Amazon has over 100 private brands, but the sales of these brands only amount to 1% of their revenue. That’s a ridiculously small amount to be afraid of, not that it makes sense to be afraid of any amount of this.

These devils are accused by Warren of “copying” the goods of others and selling the goods themselves. Someone might sell an HDMI cable for instance and Amazon will “copy” it and sell it under its Amazon Basics brand for cheaper than anyone else, which many people who buy cables appreciate.

Maybe you own a company that sells a more expensive cable and you are jealous that Amazon’s cost less. If these lower priced cables did not exist, you could sell more of yours. How dare Amazon do this to you? This isn’t completely unlike how Walmart dares to give people better deals, with those offering worse ones lamenting over it, but while Walmart has had a big impact with this, Amazon’s private brand sales are of a scale that isn’t even meaningful even if you do believe such things are acts of evil.

We’re not talking violating patents here, actual copying, and just because you sell a particular ware doesn’t mean other companies won’t try to sell similar items. There are considerations of quality involved, and your cable might be a high quality one, but people will be presented with a selection of cables made by different companies and will decide for themselves, as they must be allowed to if we are going to retain any concept of a free market or free enterprise.

Sure, your company will not stay in business if it cannot compete, or if it can, it will make less money as other products beat theirs, but that’s the nature of free enterprise. If someone offers people more value, even Amazon, and they prefer this, this is what we call business.

If we, instead, want to quash competition, in the name of somehow looking to make things more competitive, that’s simply beyond comprehension. We cannot restrain trade in the name of limiting the restraint of trade, unless we have taken leave of our senses.

Americans pride themselves on the virtues of free enterprise, and while we have laws against things like price fixing, this means fixing prices artificially high, not fixing them lower by offering goods of greater value. Greater value is the goal here from an economic standpoint, and not something that should ever be restrained.

Amazon’s retail business is projected to grow by 65% or more in the next 5 years. This may take them into Walmart territory by then, at least in terms of Walmart’s current size.

As distasteful as some might find this, those who hate big and especially online big, this will just represent a change in consumer preference as more get better acquainted with the virtues of online shopping and choose to do more of their shopping this way.

Amazon isn’t the king of this for nothing, and ideas of looking to knock them down to size involves removing value out of the economy and forcing people to have to settle for less value. This would not be an act of any sensible government, but if it was, the chances of such a feud holding up in court in the context of antitrust law are nonexistent.

While we might even sensibly point fingers at companies like Google, somewhat sensibly anyway, due to taking a dim view of their acquisitions lowering the amount of competitors, and might be something that someone may challenge someday like they did with Microsoft, it does not make any sense at all to point our fingers at Amazon.

A retailer selling private brands that only represent a tiny portion of their overall sales, or their buying a retail business that is as distinct from their primary business as you could probably get, cannot possibly be construed as restraint of trade, provided we actually think about this.

Buying a bunch of competitors is one thing, but if your crime is just giving people better deals and selling more as a result, that is quite another. Amazon clearly scares Sen. Warren, but she should scare us even more.