Amazon’s growing private label business is challenging for smaller brands.

Peak Design has been making camera bags and accessories for over a decade, relying on Amazon for the majority of its sales. Last year, founder and CEO Peter Dering found Amazon He was selling a bag that looked surprisingly similar to Peak’s best-selling product, the Everyday Sling Bag.

“They copied the overall shape, they copied the access points, they copied the charcoal paint and they copied the trapezoid logo badge,” Deering told CNBC. But none of the finer details that make a peak design bag are portable because those things require a lot of effort and expense.

Amazon knocks its name by calling its own product a slingshot every day.

What Amazon lacks in price and quality. While the Peek bag currently costs about $90 on Amazon, a knockoff version from Amazon’s in-house AmazonBasics brand was selling for two-thirds less.

That prompted the daring team to respond with a hilarious video mocking Amazon’s dubious tactics.

“You don’t have to pay for all the unnecessary bells and whistles, like years of research and development, recycled Blushing-approved materials, lifetime warranties, fairly paid factory workers, and overall carbon neutrality,” a man’s voice says in the video. . “Instead, you get a bag designed by a crack team in Amazon’s basics department.”

The video went viral and was featured in an episode of HBO’s John Oliver on tech monopolies in June. Amazon has stopped selling its version of the bag, after fans of Peak Design were shocked by negative reviews.

For Amazon, whose broader marketplace is at loggerheads with regulators cracking down on Big Tech, stories like these from its private label division have become an added headache. In the year In 2020, the European Commission accused Amazon of pushing its own products and gaining an unfair advantage over rival merchants who use the platform. Earlier this year, Amazon said it would limit its use of marketplace seller data.

Meanwhile, California’s attorney general has filed an antitrust lawsuit against Amazon, and the American Innovation and Choice Online Act being considered by Congress would limit Big Tech’s ability to exercise dominant market power at the expense of small businesses. The bill has yet to be voted on.

But while Amazon may be pushing the boundaries of what’s acceptable on a personal account, there’s nothing illegal about copying brand-name products. It is a business that is widely used in some capacity by most major retailers.

A private label is like a store brand. A retailer finds a manufacturer to make a well-known “white label” brand at an affordable price. According to Kusum Ailawadi, a marketing professor at Dartmouth College, the manufacturer puts the retailer’s name on the packaging and sells on average 25%-40%. 25 years.

“The history of private label, even in the U.S., is a perception of very low prices and acceptable quality,” says Ailawadi, who says the model dates back to the 1950s.

Recently, retailers have tried to change the perception of store brands by focusing on what appeals to consumers. For example, Safeway has the O Organics brand and Hooks It offers a line of baby products called Comfort.

Others place most of their products under store brands, e.g Walmart‘s great value and Sam’s choice of lines or CostcoKirkland’s signature In other cases, store names double as brand names, e.g CVS and Trader Joe’s. Many of these products are copies.

“Next to the national brand that they’re trying to compete with, they do the same packaging, the same look, and then buy the same product, or better yet, they have a big markup with a 30% lower price,'” Ailawadi said. “Some of the personal accounts that are now being investigated by Congress and others are not only long-standing, but perfectly acceptable practices.”

But Amazon is doing something different, said Stacey Mitchell, associate director of the Environmental Self-Reliance Institute, an activist group that fights big corporations. Amazon brings a powerful data engine to the table, she said.

“Amazon has done a lot of spying on companies by collecting personal account information, primarily to reach consumers based on their website,” Mitchell said. “They also know what search terms people are using, what they’re clicking on, how long the mouse is hovering over a certain location. And so they can analyze all that data for a level of insight that’s not easily available at your typical chain retailer.”

Amazon has more power to direct consumers to specific products than a typical brick-and-mortar retailer.

“Amazon has the ability to take a certain product and put another product on page 10 of the search results, while giving their product more space on the first page of the search results,” Mitchell said. “We know this really changes and drives purchasing behavior.”

In the year In 2020, Congress asked Amazon founder and then-CEO Jeff Bezos whether his company used third-party vendor data to make business decisions.

“We have a policy against using vendor-specific information to help our private label business,” Bezos said, “but I can’t guarantee that policy has never been violated.”

An Amazon spokesperson told CNBC in September that “we do not use non-public information about individual sellers to determine which private brand products will be launched, and we have a policy of protecting more seller information than any other retailer we know of.” .”

How private labels work is often shrouded in mystery, leading to speculation on some products. For example, Gray Goose had to squash rumors that Costco would make Kirkland’s Signature Vodka.

Ailawadi says some private labels are made by national brand manufacturers that use their excess capacity to produce other products. Then there are specialized companies that only do private labels, and some store brands have their own production equipment. Although Amazon released a list of more than 100 suppliers in 2019, it did not respond to questions about who will be making its private labels today.

Amazon started its private label business around 2009 with the AmazonBasics brand of staples such as discount batteries. It now has at least 118 private label brands, according to data from e-commerce analyst firm DataWave. Some of its brands, such as Happy Belly snacks, Amazon Collection jewelry and Amazon Essentials apparel, carry the Amazon name or logo. Others, such as Solimo’s home products and clothing lines, Lark & ​​Ro and Goodthreads, don’t give signs that they’re Amazon brands.

Private labels account for just 3 percent of Amazon’s sales dollars in the grocery, family, and health and beauty categories, according to a recent study by Number Maker. By comparison, private labels account for a whopping 77 percent of Aldi’s sales, followed by Trader Joe’s at 59 percent and Wegmans at 49 percent.

Quantitative data also confirmed that AmazonBasics came in third for the fastest growing private label. That comes after a Wall Street Journal report that Amazon significantly reduced the number of personal accounts on its site in the first half of this year. The Journal reported that executives have discussed exiting the private label business entirely to ease antitrust scrutiny.

Amazon disputed that idea in a statement.

“We have never seriously considered closing our private label business, and we will continue to invest in this area, as many of our retail competitors have done for decades and continue to do today,” the company said.

Personal accounts clearly represent a profitable opportunity. Target told CNBC that 12 of its 48 “proprietary brands” are worth at least $1 billion each.

Although Amazon doesn’t share sales data on individual brands, Amazon sells tens of millions of dollars of Amazon Basics batteries every month, according to internal data obtained from the company by sales consultant Jason Boyce of Avenue 7 Media.

“I don’t think there’s any confidence that Amazon’s sunset AmazonBasics products are going to do well,” Boyce said. “Are they breaking the pack with bad products? Absolutely. And any good business does that.”

Ailawadi says private label products bring 25% higher profit margins to retailers than national brands because they save on things like packaging, marketing and promotion.

“There’s no anti-competitiveness in comparing one product to another and saying these products are very similar, and I’m going to sell you one at a lower price,” Ailawadi said. “It’s like a competitor.”

Internally, Amazon has to juggle the retail business between creating profitable products that consumers want and protecting third-party sellers. Amazon says third-party merchants account for more than 60% of its ecommerce business, and those businesses pay Amazon for services such as fulfillment and shipping.

“45% of every dollar that a foreign merchant sells on the platform goes back to Amazon,” Boyce said. “Why do they bite the hand that feeds them that way?”

All of Amazon’s personal identification efforts have failed. The company no longer sells a pair of shoes called the Galen, which is similar to Albird’s wool running shoes. An everyday sling bag, Dering says, thanks to all the media attention, Peak Design came out on top.

Deering took one key lesson from the Amazon drama. He has now obtained design patents for each of Pec Design’s products, the number of which is more than 200. Each patent costs about $1,000, he said.

“I really recommend it to anyone who’s bringing in a product they don’t want to lose,” Deering said.