Amazon Private Label Pullback May Not Be What It Seems

As inflation ebbs, shoppers continue to trade down while cautiously increasing their spending.

Many consumers have had to drastically change their shopping behavior to stretch their household budget further since inflation took hold of the economy in 2021. One strategy is to cut down on the quantity of goods purchased, while another, trading down, may involve leveraging discount merchants as well as private label goods. The accompanying chart from PYMNTS’ May “Consumer Inflation Sentiment” report notes that 58% are willing to “downgrade” for at least one retail product, and details which products consumers are targeting.

The same “Inflation Sentiment” report reflected similar findings when it came to grocery products, although to a slightly lesser extent, with 47% of consumers willing to trade down on these items.

Indeed, as the stigma around dollar stores and discounts fades, consumers have been increasingly willing to look past their former brand name loyalties for certain items and entertain private-label goods, also known as generics. In a November PYMNTS interview, Barbara Connors, vice president of commercial insights at 84.51°, the marketing insights subsidiary of grocery giant Kroger, detailed the drivers behind consumers making the private label switch. “Historically, the reasons why someone may continue to be brand loyal just may not hold anymore because people are being forced due to financial constraints to make tradeoffs that they wouldn’t want to make,” Connors said.

Retailers with the capacity to do so have been quick to offer private-label items in order to retain their customer base. Given this shopper enthusiasm for private-label goods, it at first seemed strange that Amazon recently made headlines about scaling back dozens of the company’s private label brands. Over the past year, Amazon has eliminated all but three of what had been 30 clothing brands, and will phase out two of its three furniture brands.

In a move partially attributed to a Federal Trade Commission (FTC) investigation and expected lawsuit, Amazon is also pulling back in order to streamline its offerings to consumers. As private-label sales only account for 1% of its business, Amazon seems to be doing double duty in trimming the unprofitable while shoring up its FTC defense. Fueling this notion was the news shortly after the pullback announcement that Amazon would be adding its private-label 365 by Whole Foods Market, currently offered only in its subsidiary Whole Foods’ brick-and-mortar locations, to its online marketplace.

Ultimately, it seems that Amazon is following other retailers in offering consumers what they want — in this case, private-label goods. However, by cutting clutter, the eCommerce giant may be ahead of the profitability curve in being choosy in its offerings.