Amazon executives have discussed dropping Amazon Basics to appease antitrust regulators

Amazon celebrated the biggest Prime Day in the eight-year history of the sales event earlier this week. But the event was followed just hours later by news of a series of major proposed changes to how Amazon does business in Europe, with the aim of settling accusations from regulators that Amazon engages in anti-competitive behavior.

Amazon’s proposed concessions include providing more visibility to listings from multiple sellers for a given product, giving customers more choice. They also prohibit the company from using non-public data from Amazon sellers to boost Amazon’s own retail business, including its private label brands.

But Recode has learned that Amazon’s top executives have also internally discussed taking a more drastic step to ward off regulators: completely abandoning its private label business. At least as recently as last year, several top executives from Amazon, including its current worldwide retail manager Doug Herrington and its attorney general David Zapolsky, expressed willingness to make this different but significant change if it meant avoiding potentially harsh remedies as a result of government investigations. in the United States or abroad, according to a source familiar with the discussions.

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

“There was a strong consensus that this could be a viable option if the company was ever pushed into a position where it had to negotiate a settlement,” the source told Recode. This person requested anonymity because they were not authorized to disclose internal discussions.

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

Early Friday, the Wall Street Journal reported that Amazon has cut back on its selection of private labels.

Talks at Amazon about giving up its private labels took place to and fro for several years as the investigation into the business line increased, the source said, with executives expressing a desire to keep this potential means hidden so it could come to regulators as a major concession. Leaders of such a decision believed that Amazon had the right to sell private-label brands, as many retailers do, but that the company was not strategically crucial enough to defend itself against more serious potential solutions that antitrust enforcers sought. When a company like Amazon offers such a concession, it does so with the hope of closing any current investigations.

“One goal of negotiations is to get completely out of the realm of queries,” Bill Kovacic, a former FTC chairman, told Recode. “It means all this is disappearing.”

Amazon has said that their private label brands account for a low-digit percentage of total product sales in its online stores. But they are still undoubtedly a significant source of profit for Amazon’s retail business, in part because the company does not have to spend a lot on advertising, as an external brand does. At competing retailers such as Walmart, Costco and Target, internal brands account for a larger percentage of total sales. From 2019, the biggest effect of Amazon’s private label business was the brand in the so-called “softlines”, which include merchandise such as clothing and bedding. In that area, Amazon’s own brands accounted for 9 percent of the company’s first-party sales in that category, Amazon told Congress in 2020.

Amazon consistently downplayed the importance of its private label business in testimony and communication with Congress during its Big Tech investigation in 2019 and 2020. The Federal Trade Commission, one of the two major U.S. antitrust enforcement agencies, has been investigating Amazon since 2019, but has yet to confirm an investigation or sue the company. The agency is now headed by President Lina Khan, who in 2017 wrote a legal paper called “Amazon’s Antitrust Paradox.” In it, Khan argues that the framework for antitrust enforcement over the last 40 years – which generally provides access to low-cost companies or popular services to consumers – has not taken into account the damage to competition posed by digital gatekeepers such as Amazon. . Khan also played a crucial role as a legal adviser The House Antitrust Subcommittee’s 16-month investigation into the Big Tech giants and into the production of the 400-page House Democrat reports, which claimed that all four of the top U.S. technology giants are engaging in anti-competitive practices and must be curbed.

Amazon is also one of the main targets of the U.S. Innovation and Choice Online Act, which is being advocated by Senator Amy Klobuchar and Rep. David Cicilline. The “self-preference” legislation will empower regulators to sue the technology giants for business practices that favor their own products and services over third parties that do business on their platforms or that use non-public data from their own users to their advantage. of their own services. Amazon’s use of non-public data, including sales figures, has sparked accusations that Amazon is using this kind of information to copy bestselling products.

Amazon has aggressively fought the bill and funded ad campaigns, putting forward the dubious argument that the U.S. law on innovation and choice would violate Amazon Prime if enacted into law. Proponents of her case have been working to make the actual transcript of this statement available online.

While it is unclear what U.S. lawmakers and regulators will do next, some of Amazon’s proposed concessions to antitrust officials at the European Commission appear to be in line with some of the goals of the U.S. self-election bill.

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

It is the first of five major concessions, including three related to Amazon Prime. The first of the Prime-related changes would let sellers qualify for the Prime badge even if they do not use Amazon’s warehousing and shipping service known as Fulfillment by Amazon (FBA) – Amazon has allowed a small percentage of sellers to do this in recent years, but it has done so in increasing degree difficult to do so, which means that the vast majority of salespeople need to use FBA to earn the Prime badge for their products. Another would prohibit Amazon from using information collected through Prime about the performance or pricing of external logistics providers for the benefit of Amazon’s own logistics and delivery business. The last Prime-related proposal would see Amazon no longer include the Prime brand in the algorithm that determines which company – whether it is Amazon or one of the third-party retailers selling through Amazon – wins a given sale when a customer searches for a product being sold by several parties.

Finally, Amazon has proposed showing two different “Buy Boxes” to give more visibility to product lists from different sellers when selling the same item at different prices or delivery rates. Today, Amazon customers across the globe have to click on a small tab to see other buying options than the one that Amazon’s algorithm selects as the Buy Box winner.

Now that Amazon’s European proposal is public, companies affected by the way Amazon does business have until Sept. 9 to provide feedback on the concessions. The European Commission will then decide whether to accept Amazon concessions or press for 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. Yet we now know that some top executives from Amazon have considered the benefits of such a move, and it is still unknown how they would respond to increased pressure from U.S. regulators. Either way, there is growing evidence that Amazon takes antitrust threats seriously.

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