Amazon is diving head first into the private label business with brands for home furnishings, tools, kitchenware and linens. The strategy, which rhymes with private label moves by brick-and-mortar retailers, is likely to boost profit margins.
In a research note, Piper Jaffray analyst Gene Munster writes:
Amazon's recent entry (as blogged by Scot Wingo from ChannelAdvisor) into the private label home furnishings kitchenware, bedding, tools, and patio furniture product categories are an incremental growth lever for Amazon and demonstrates the company's dedication to innovation beyond peers.
We believe gross margins on private label retail goods are generally 400 to 500 bps higher than branded products and thus could modestly improve gross margins over the long-term. Amazon's gross margins were 22.4% LTM. We believe the private label business, as it currently stands, will be a minor contributor to revenues in the near term, but will be another meaningful component, along with Prime, Kindle, Product Ads, etc. to continue driving retail market share gains over the next few years.
Wingo has chronicled Amazon's private label moves for weeks. Amazon appears to be registering trademarks for various brands such as Strathwood for patio furniture. Simply put, Amazon is competing with a lot more than eBay and increasingly deploying the strategies followed by Target, Kohls and others.