One of the newest online shopping programs from Amazon.com Inc. demonstrates how the undisputed North American e-retail king is building on its strengths as it seeks to win the loyalty of more consumers—in this case, parents in need of diapers and baby wipes.
As the January issue of Internet Retailer magazine explains, Amazon Elements, a new line of private label products, is available only to the 40 million U.S. households that Bernstein Research estimates are part of the $99-a-year Prime two-day shipping program. Elements, the first product line Amazon has made exclusive to Prime, joins such Prime sweeteners as free streamed music, TV shows and films, along with photo storage and to the ability to rent Kindle e-books. Product pages for Elements products feature what seems like a novella’s worth of information on each item, such as a map that shows the forest from which the pulp came for certain diapers and details about sodium polyacrylate and other tongue-twister ingredients. Customer reviews are highlighted and are likely to increase significantly, as Experian Marketing Services says that “moms of young children are eight times more likely to write and read online reviews than the average consumer.”
That’s a trend Amazon is no doubt familiar with based on the data and shopping insights it gained from the Amazon Mom program it launched in 2010 to sell baby products. Amazon Mom members received steeper discounts than non-Mom members on products they had ongoing subscriptions for, although in November, about two weeks before it launched Elements, Amazon cut the Mom discount to match the discount it offers all subscribers.
The Elements launch represents not only yet another private-label push from Amazon—it sells AmazonBasic electronics accessories, for instance, along with Pinzon home furnishings—but signals Amazon’s determination to make use of the considerable consumer data at its disposal, and its willingness to step on the toes of powerful erstwhile allies. That includes brand manufacturers like Procter & Gamble Co., which irked Amazon rivals when it allowed Amazon in 2013 to set up shop in a P&G warehouse in Pennsylvania and directly fulfill orders for some P&G products sold on Amazon.com.
The Elements launch also suggests the e-retailer has bigger plans for Prime, says Scott Jacobson, managing director of venture capital firm Madrona and, from 2003 to 2007, senior manager, product management, at Amazon.com. Elements “has interesting implications, like they are creating a Costco-like membership around Prime where you get access to a bunch of products you can’t get elsewhere,” he says. “It may also be a margin play by directly sourcing versus buying from a brand, but I have a feeling it may be as much about offering exclusive, high-quality product to Prime members as it is about better margins.”
There will be plenty of other new initiatives from Amazon in 2015, observers agree in the January issue of Internet Retailer magazine. Here are three examples that illustrate the breadth of Amazon’s aspirations:
Fulfillment: Amazon, which in 2012 paid $775 million for warehouse robot provider Kiva Systems Inc., began using those robots in large numbers in 2014. In May, Bezos said Amazon had deployed 1,300 robots in its warehouses, toward a goal of 10,000 by the start of 2015. It turns out Bezos under-promised: By December, Amazon had deployed at least 15,000 robots in 10 U.S. fulfillment centers in California, Florida, New Jersey, Texas and Washington state, according to the retailer’s own figures and an Amazon spokeswoman. According to a December estimate from Janney Capital Markets, Kiva robots enable Amazon warehouse workers to pick items two or three times faster, and the Kiva system, when more broadly implemented, could result in the retailer reducing Amazon’s fulfillment costs by $450 million to $900 million in North America.
Private label: Amazon is likely to keep expanding its private label offers because of the profit and traffic they can bring, says James Thomson, managing direct of online consulting firm Marketplace Accelerator and who from late 2007 until spring 2013 worked at Amazon, including as a fulfillment and business development senior manager. “Given that so many sellers on Amazon have been very successful building their own private label brands exclusively through Amazon channels, why wouldn’t Amazon want to get in on this itself?” he says.
Still, he envisions challenges for the e-retailer. “Amazon doesn’t really have many China-sourcing experts in-house, and that’s part of the secret sauce needed to make such a model work,” he says.
Going local: Also in late 2014, Amazon debuted in Seattle a service through its Amazon Local deals program that—like with GrubHub and Seamless—enables online consumers to order food for takeout and delivery. “I think this is part of Amazon’s long-anticipated extension of services into local markets,” says Colin Sebastian, a longtime Amazon observer and e-commerce investment analyst at Robert W. Baird and Co. “Obviously they had grocery delivery for a while, and then added local delivery of other products. Amazon has been very successful in building out its retail services and web services, so I think of local services as another leg to the stool.”
Playing a role in connecting consumers with local services could be lucrative. “Local online advertising and Yellow pages together are a $35 billion market, so this is one way to think about Amazon’s market opportunity overall for local,” Sebastian adds.
For much more on this story, including in-depth looks at Amazon’s international moves and what its failures could mean for future success, read the story in the January issue of Internet Retailer magazine.
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