Amazon.com, Inc (AMZN) Stock Could Have Found Another Growth Driver

Amazon.com, Inc.'s (NASDAQ:AMZN) expanding private label business could be a key profit driver.

Amazon.com, Inc (AMZN) Stock Could Have Found Another Growth Driver
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The latest initiatives and venture announcements by online retail giant Amazon.com Inc (NASDAQ:AMZN) have sent the competitors' stocks into a downward spiral. The latest company to be hit by the Amazon wave was Ticketmaster parent LiveNation whose shares tumbled after reports of the tech behemoth's plans to expand its ticketing efforts in the U.S came out. Various new expansion plans in different areas of the Jeff Bezos led company have come to light recently, but the company is also expanding its private label business aggressively which offer higher margins and lower branding costs. The private label business of Amazon is thriving and could only get bigger from here. The private label business could very well turn out to be another growth driver for Amazon. Here's why.

Amazon Basics driving Private label business.

A recent report from 1010data suggests several Amazon brands, most of which are not known to users, are picking up strong momentum. Amazon is also heavily increasing its private label business footprint. Some of the brands which are seeing a rapid growth are Amazon Basics, kids’ clothing brand Scout + Ro, Amazon Elements, and popular Amazon-made devices like Echo, Kindle, and Fire TV. The interesting information in the 1010data report is that Amazon’s private labels accounted for only 2% of total units sold, excluding marketplace and subscriptions in the first half of 2017, but they got a huge boost in Prime day sales. They formed 12% of the total units sold on Prime day.

amazon-private-label-growth-yoy

Amazon Basics, the private label line which constitutes of nearly 2,000 different products from electronic accessories to pet supplies and home goods was the star performer in 2017. According to 1010data report, it brought in more than $200 million in sales in H1 2017. The number might not be that big, but it's a good number to build on and the growth rate is impressive. The expansion of the existing private labels of Amazon to new areas is also aiding the strong growth of the private label business. For example, Amazon Elements' entry into health supplements. However, not all labels are doing well, as Amazon’s Pinzon bedding and bath products underperformed compared to last year sales. Still, there are a lot of positive for Amazon from its private label business.

Amazon's Fashion labels could leave behind other Amazon Private labels.

Amazon is aggressively moving into the fashion business. Its collection of own-label clothing lines is rapidly expanding. Women’s clothing brand Lark + Ro, menwear brand Buttoned Down, and clothing items from Amazon Essentials are gaining a lot of traction. Amazon's Scout + Ro line delivered the most vigorous growth, a 542% YoY increase. The online retail giant's fashion business could reach the next level when it finally launches its Amazon Prime Wardrobe which lets users to try and return clothes for free. This could be a game changer and could be a great way to promote its own private labels. This feature could significantly boost the sales of these fashion labels and prime exclusive offers might see these gaining more traction than before.

Amazon has the ammunition to make it big here.

Amazon has some key advantages over its competitors to build some successful private labels. Firstly, the e-commerce giant is armed with data collected from its 80 million strong Prime customers, which it could use to build products consumers actually want today. It can use consumers’ product and price preferences and other information to reengineer any brand or product it sells to offer a much better, lower cost private label alternatives. In the digital age, customer information is like gold. Secondly, Amazon has created a reputation for itself. The trust factor and the store loyalty which Amazon brings to the table increases the chances of the private labels associated with it to be successful. A Forbes post quotes Elle Mejia of PrettyGirlsWork about the success of private labels. She states that "The success we are seeing with private label and store-branded products is really the after effect of consumers displaying retail loyalty as opposed to brand loyalty". This is where Amazon as a brand has a major role to play. Lastly, Amazon has largely been successful in copying new business models which are emerging. This track record gives you more confidence that Amazon could also deliver here.

Summary.

The list of Amazon private labels is only going to increase. Latest reports suggest many more are in the pipeline, and Amazon's private label push could be worth it since they have far better margins which will give a big boost to the company's bottom line. The expansion of private labels to new categories also allows the company to keep growing into new areas. Also, the company would be having almost nill branding costs as it can use its own platform to promote its products. For now, AmazonBasics and the fashion labels are the most likely to make it big. As the company discovers new categories to enter successfully, private label business could be the company's next Prime growth driver growing ahead.

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Sreekanth Anasa Sreekanth Anasa   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

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