The Supply Side: Walmart and Amazon go head to head in private-label push

Part of Walmart’s success over the years has been the vast array of products sold in its stores and online. The same could be said for Amazon with its 480 million items sold online.

Each retailer has a robust offering of branded products, and while they may be seen as a house of brands, they also continue to expand and invest in their private label, on everything from aspirin and apparel to window fashion.

Walmart Chief Financial Officer Brett Biggs said Walmart continues to make strides in its private-label offerings. He recently said during the Raymond James Institutional Investor Conference in Orlando he’s seen Walmart’s private brand agenda undergo massive changes the past couple of years focusing on “really good products, good feedback from customers, better packaging and sharper pricing.”

“We’re going to continue to be a house of brands; we always have been, always will,” Biggs said. “But private label in the future is going to play a really important part of what we’re doing, so I’m excited to see the growth.”

Private brands are not new to Walmart, who has some of the most highly visible items in customer’s shopping baskets, according to a recent report by Fayetteville-based Field Agent. The report found 84% of customers shopping at Walmart purchase private brands from the retailer. That was higher than 83% of Kroger shoppers who did the same and 78% of Costco members who favor the Kirkland brand. The report showed Target and Sam’s Club also did well with private brand loyalty, while Amazon only showed 27% of customers buying that retailer’s own brands.

The top three reasons consumers said they buy and will continue shopping for private brands is the improving quality of the products, affordability over branded comparisons and more variety among private label offerings, according to Field Agent.

When it comes to consumer packaged goods, private label is an often go-to for consumers. Field Agent found 70% of respondents purchase private-label milk, 67% buy paper towels, and 48% buy private-label sandwich bread. Toothpaste (13%), shampoo (18%) pet food (19%) and tuna fish (26%) were the least purchased private-label items, according to the report.

APPAREL APPEAL
Walmart and Amazon have invested more into private brands of apparel, home goods and beauty, which are higher margin categories and considered “long tail” in that retailers typically sell a large number of unique items with relatively small quantities sold of each.

Marc Lore, CEO of the Walmart’s U.S. e-commerce division, said more than 200 specialists hired in the past year help the retailer drill down into the long tail categories like apparel and home and specialty. Walmart named Nathan Adrian, a 2012 Olympic gold-medal winner, to oversee the retailer’s swimming category, offering advice and expertise on everything from swim caps to goggles.

“We want to be that place where the shopper can find anything they need,” said Scott Hilton, chief revenue officer for Walmart U.S. e-commerce. “That means we need to have specialty experience in every single shopping category.”

Walmart recently announced the launch of four private-label apparel brands as it tries to make up ground against Amazon, who has gained in popularity in footwear and apparel. The acquisitions of ShoeBuy, Moosejaw, ModCloth and Bonobos have given Walmart some headway in the apparel and footwear space, but Amazon had a head start, having acquired Zappos in 2009 for $850 million.

CoreSight Research recently reported two-thirds of Amazon Prime members (37.4%) bought apparel on Amazon last year, closing the gap with Walmart. Last year 41.8% of those surveyed said they purchased apparel from Walmart, compared to 37.3% of Target shoppers. The report found Amazon customers often chose private brand apparel, with only Nike, Amour Vert and Hanes selling more than the private brands.

NEW OPPORTUNITY
Keith Anderson, vice president of market insights at Boston-based Profitero, said apparel was one of a few untapped markets for Amazon, which is why the retailer has focused so heavily on it in recent years. He said private label is higher margin, and apparel also helps to carry greater brand equity than other categories.

Anderson explained that apparel also is appealing to Amazon because it represents white space in terms of applying technology to help overcome some of the barriers to buying clothes online. Anderson suspects Amazon could be the first to debut a more flexible model for apparel shopping online. He also said Amazon is adept at seeing what is missing in the market, then jumping in to fill unmet needs. He also expects to see Echo Look — which includes a camera — being able to interface with smartphones to help give consumers fashion advice on clothing they already own as well as items they may purchase.

“I don’t know that Amazon is working on this, but I wouldn’t be surprised to see it in the future,” Anderson said during a phone interview. “At that point Echo could recommend Amazon’s private brands at will.”

Carol Spieckerman, CEO of Spieckerman Retail in Bentonville, said private brands can offer a powerful combination of differentiation and higher margin.

“Amazon has taken advantage of this opportunity at an unprecedented level by launching piles of private brands in a very short amount of time,” she said. “Target and Walmart have followed suit, though on a smaller scale, by revamping their apparel portfolios and launching new private brands. It will be interesting to see if the shift back to private brands move the needle for these retailers, and if they create additional pressure for national brands that must compete against them.”

Kenji Gjovig, executive with Content Analytics in San Francisco, told Talk Business & Politics/Northwest Arkansas Business Journal that Amazon and Walmart are focusing on private-label brands in apparel because it gives them control of the products in terms of quality, design and pricing, but without giving up margin.

“Often times long tail categories are stronger for e-commerce, and it is less expensive to do a new brand launch in e-commerce than brick-and-mortar because the opportunity cost/risk is lower than if you take out a section of the physical shelf with private label,” Gjovig said. “This can give retailers the ability to gain learnings and momentum with a private brand in long tail categories where it is less risky and then start to move into the core once they have the business in a good place.”
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Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.