Friday, September 22, 2023

Amazon executives have talked about ditching Amazon Basics to appease antitrust regulators

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Amazon celebrated the biggest Prime Day in the sales event’s eight-year history early this week. But the event was followed just hours later by the news of a series of major proposed changes to the way Amazon does business in Europe aimed at dispelling allegations from regulators that Amazon is engaged in anti-competitive behavior.

Amazon’s proposed concessions include giving more visibility to multiple-seller listings for a particular product, giving customers more choice, and prohibiting the company from using Amazon seller’s non-public data to boost Amazon’s own retail business. , including its private-label brands.

But Recode has learned that top Amazon leaders have also spoken internally about a more drastic move to fend off regulators: abolishing its private label business entirely. At least as recently as last year, several Amazon executives, including current global retail CEO Doug Herrington and his general counsel David Zapolsky, have expressed a willingness to make this other but important change if it meant potentially harsh measures like as a result of government investigations in the US or abroad, according to a source with knowledge of the discussions.

Amazon’s private label business includes homegrown brands such as Amazon Basics, which sells everything from trash bags to batteries to office chairs, as well as the Amazon Essentials clothing line. The business line also includes brands that do not carry the Amazon name, such as the stationery label Presto, the food brand Happy Belly and the fashion line Goodthreads. Such a concession would not apply to the company’s own gadget lines, which include Kindle, Echo and Fire TV devices. Amazon’s use of private label brands has come under fire from politicians and regulators, not only because they exist, but also because of the data Amazon uses to create them and the tactics it uses to favor them in search results on its store website and app.

“There was a strong consensus that this could be a viable option if the company were ever in a position to negotiate a settlement,” the source told Recode. This person requested anonymity as he was not authorized to make internal discussions public.

Amazon spokesperson Betsy Harden said the company has not “seriously considered” closing its private label business and continues to “invest in this area, just as our many retail competitors have done for decades and continue to do.”

Early Friday, the Wall Street Journal reported that Amazon cut back on private label selection.

Talks at Amazon about ditching its private labels have been going on and off for several years as business line oversight has been increased, the source said, with executives expressing a desire to keep this potential remedy a secret so it could could come across as a major concession to regulators. Leaders in favor of such a decision believed that Amazon had the right to sell private label brands, as many retailers do, but that the company was strategically not critical enough to defend against tougher potential remedies sought by antitrust enforcers. When a company like Amazon offers such a concession, it does so in hopes of closing pending investigations.

“One goal of the negotiations is to fully get out of the plethora of investigations,” Bill Kovacic, a former FTC chairman, told Recode. “It means this is all going away.”

Amazon has said its private label brands account for a low-single digit percentage of total product sales in its online stores. But they are undoubtedly still a major source of profit for Amazon’s retail business, in part because the company doesn’t have to spend a lot on advertising like an outside brand does. At competing retailers such as Walmart, Costco and Target, own brands represent a larger percentage of total sales. As of 2019, the greatest impact of Amazon’s private label business was felt in the so-called “softlines” category, which includes merchandise such as clothing and bedding. In that space, Amazon’s own brands accounted for 9 percent of the company’s first-party sales in that category, Amazon announced to Congress in 2020.

Amazon consistently downplayed the importance of its private-label activities in testimony and communications with Congress during its 2019 and 2020 Big Tech investigations. The Federal Trade Commission, one of the two major U.S. antitrust enforcement agencies, has been investigating Amazon since 2019, but has to investigation or file a lawsuit against the company. The agency is now headed by chairman Lina Khan, who in 2017 wrote a legal paper called The Amazon Antitrust Paradox. In it, Khan argues that the antitrust enforcement framework of the past 40 years — which generally gives a pass to companies that offer low prices or popular services to consumers — failed to take into account the damage to competition that digital gatekeepers do. like Amazon shapes. Khan also played a vital role as legal adviser to the House Antitrust Subcommittee’s 16-month investigation into the Big Tech giants and in producing the 400-page House Democrat reports, which claimed that all four top US tech giants are engaged in anticompetitive practices and must be contained.

Amazon is also one of the main targets of the US Innovation and Choice Online Act, which is being defended by Sen. Amy Klobuchar and Rep. David Cicilline. The “self-preference” legislation would give regulators the power to sue the tech giants for business practices that favor their own products and services over those of third parties doing business on their platforms, or that use non-public data from their own users. own services. Amazon’s use of non-public data, including sales figures, has led to allegations that Amazon uses this kind of information to copy best-selling products.

Amazon has aggressively fought the law and funded ad campaigns that make the dubious argument that, if passed, the US Innovation and Choice Online Act would break Amazon Prime. Supporters of the bill are still waiting for Senate Majority Leader Chuck Schumer to schedule it for a full Senate vote ahead of the November midterm elections.

While it’s unclear what US lawmakers and regulators will do next, some of Amazon’s proposed concessions to antitrust officials at the European Commission appear to be consistent with some of the goals of the US self-preference law.

For example, Amazon told the European Antitrust Commission that it would prohibit its employees and computer systems from using “non-public” data from Amazon sellers — whether it’s an individual seller or a group of sellers — to track the first-party retail business of Amazon sellers. Amazon to help. This first-party business consists of goods that Amazon buys at wholesale prices from other brands and resells to shoppers, as well as private label brands such as Amazon Basics that Amazon makes and sells itself.

That’s the first of five major concessions, including three related to Amazon Prime. The first of the Prime related changes would be: allows sellers to qualify for the Prime badge even if they don’t use Amazon’s storage and shipping service known as Fulfillment by Amazon or FBA. (Amazon has allowed a small percentage of merchants to do this in recent years, but has made it increasingly difficult to do so, meaning the vast majority of merchants have to use FBA to get the Prime badge for their products. Prohibit Amazon from using information collected through Prime about the performance or rates of third-party logistics providers for the benefit of Amazon’s own logistics and delivery operations. The latest Prime-related proposal would see Amazon no longer factoring the Prime badge into the algorithm that determines which company — be it Amazon or one of the third-party sellers selling through Amazon — wins a particular sale when a customer searches for a multi-party product.

Finally, Amazon has proposed displaying two different “Buy Boxes” to give more visibility to product listings from different sellers when they sell the same item at different prices or delivery speeds. Today, Amazon customers around the world have to click on a small tab to see different buying options than the one Amazon’s algorithm picks as the Buy Box winner.

With Amazon’s European proposal now public, companies affected by Amazon’s way of doing business have until September 9 to provide feedback on the concessions. The European Commission will then decide whether to accept Amazon’s make concessions or insist on changes or additions to the proposal.

There is currently no indication that European regulators want Amazon to stop all sales of its private label products. Still, we now know that some top Amazon executives have considered the benefits of such a move, and it remains to be seen how they would respond to increased pressure from US regulators. Regardless, there is mounting evidence that Amazon takes antitrust threats seriously.

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