Amazon Could Ramp Up Private-Label And Ad Business To Offset Slowing Growth, Studies Show

Online retailers covet brand loyalty, especially when it comes to private labels. This is the one area where Amazon still has room to grow. 

On Thursday, before Amazon plans to announce first-quarter 2019 earnings, market intelligence firm Numerator released data that provides in-depth insight into Amazon private-label brands.

Americans spent more than $146 billion on private-label products in 2018, with the average household spending nearly $1,200, according to Numerator. But it has been noted that Amazon's private-label business represents less than 1% of its total sales.

Numerator's analysis, conducted from March to April 2019 on 2018 data analyzed 135 private-label product lines and 330 exclusive brands.

Some 58% of Amazon’s private-label brand sales analyzed were related to electronics such as Alexa-enabled products. While sales of Amazon-branded electronics fell about 10% in 2018, sales of Amazon private-label items skyrocketed in core consumer product group (CPG) categories such as household, pet, baby, grocery and health and beauty.

Overall, Amazon private labels from 2017 to 2018 experienced a mere 2% growth in dollar sales. But for Amazon brands selling in the core CPG categories, growth came in closer to 81%.

AmazonBasics, the company’s most well-established and profitable brand, dominated growth with 39% of Amazon’s private-label CPG sales, but up-and-comers Presto and Solimo established themselves as key players, driving 47% of Amazon private-label CPG growth.

Amazon’s Presto also experienced growth in 2018, when it expanded beyond laundry detergent and began offering a variety of household products like paper towels, bath tissue and garbage bags. Data shows that 78% of Presto buyers already purchased paper and plastic items at Amazon prior to the launch of the line. For the remainder, it was their first purchase on Amazon within the paper and plastic category.

Amazon, which is expected to release first-quarter 2019 revenue numbers after the bell today, will likely show slowing growth, according to analysts -- in fact, the weakest since 2015. “Analysts surveyed by Refinitiv expect Amazon to report revenue of $59.7 billion, up 16.9% from a year earlier,” according to CNBC.

A Marketplace Plus study released in March also analyzed Amazon private labels for more than 23,000 products launched by Amazon under more than 400 different brands. Some of those brands are private-label brands built by Amazon, and some are exclusive brands from third parties, but all fall under the “Our Brands” umbrella, a collection of Amazon private brands and brands sold exclusively on Amazon.

As with Numerator’s analysis, AmazonBasics and Pinzon were also found to be among the bestselling products, bringing the company an estimated 81% of total sales. Still, AmazonBasics represents less than 5% of products launched, but more than 57% of sales.

The study also cites data from investment firm SunTrust Robinson Humphrey that estimates Amazon’s private-label product business generated $7.5 billion in 2018, and will reach $25 billion by 2022.

The company has experienced slow growth in some areas, but not in advertising. Looking at Amazon’s advertising business, Sponsored Products accounted for 85% of first-quarter advertising spend on Amazon. This ad unit continues to account for the majority of Amazon advertising spend, garnering ad clicks at the top of the search results as well as on product details pages and other locations, according to the Merkle First-Quarter 2019 report.

Sponsored Brands (formerly known as Headline Search Ads) grew 77%. More importantly, Amazon conversion rates continue to outpace those of Google, with rapid shipping, Prime subscribers, and easy purchasing onsite all in the marketplace’s favor.

The conversion rate for Amazon Sponsored Products has increased more than 219%, and Amazon Sponsored Brands rose more than 123% compared with Google Shopping, Merkle wrote in its Digital Marketing Report for first-quarter 2019.

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