Amazon celebrated the biggest Prime Day in the sales event’s eight-year history earlier this week. But the event was followed hours later by news of a series of proposed major changes to the way Amazon does business in Europe aimed at settling regulators’ accusations that Amazon is engaging in anti-competitive behavior.
The concessions offered by Amazon include giving more visibility to listings from multiple sellers for a given product so customers have more choice. They also prohibit the company from using nonpublic data from Amazon sellers to boost Amazon’s retail business, including its private label brands.
But Recode has learned that top Amazon executives have also been discussing internally a more drastic step to ward off regulators: ditch its private label business altogether. At least as recently as last year, several of Amazon’s top executives, including its current global CEO Doug Herrington and its general counsel David Zapolsky, have expressed their willingness to make this different but meaningful change if it means avoiding potential lawsuits. severe 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 local brands like 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 stationery brand Presto, food brand Happy Belly and fashion line Goodthreads. 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 labels has been criticized by politicians and regulators not only because they exist, but also because of the data Amazon leverages to create them and the tactics it uses to promote them in search results on its shopping website and app.
“There was a strong consensus that this could be a viable option should the company ever be pushed into a position where it had to negotiate a settlement,” the source told Recode. This person requested anonymity as they were not authorized to disclose internal discussions.
Amazon spokeswoman Betsy Harden said the company hadn’t “seriously considered” shutting down the private label business and continued “to invest in it, as do our many retail competitors. retailers have done so for decades and continue to do so today”.
Early Friday, the Wall Street Journal reported that Amazon had reduced its private label selection.
Conversations at Amazon about dropping its private labels have been on and off for several years as industry scrutiny intensified, the source said, with executives expressing a desire to keep the remedy secret potential so that it can appear to regulators as a major concession. Executives in favor of such a decision believed that Amazon had the right to sell private labels as many retailers do, but that the company was not strategically crucial enough to defend itself against potential lawsuits more harsh measures sought by the antitrust authorities. When a company like Amazon offers such a concession, it does so in the hope of closing any ongoing investigation.
“One of the goals of the negotiations is to get completely out of the investigative tower,” Bill Kovacic, former FTC chairman, told Recode. “That means it all goes away.”
Amazon said its private label brands accounted for a low-single-digit percentage of overall product sales in its online stores. But they undoubtedly remain an important source of profit for Amazon’s retail business, in part because the company doesn’t have to spend a lot of money on advertising like an outside brand does. At competing retailers like Walmart, Costco, and Target, private labels account for a larger percentage of total sales. In 2019, the biggest impact of Amazon’s private label business was felt in the so-called “softlines” category, which includes goods like clothing and bedding. In this space, Amazon’s own brands accounted for 9% of the company’s first-party sales in this category, Amazon revealed to Congress in 2020.
Amazon has consistently downplayed the significance of its private label business in testimony and communications with Congress during its 2019 and 2020 Big Tech investigation. Antitrust law enforcement has been investigating Amazon since 2019 but has yet to confirm an investigation or file a lawsuit against the company. The agency is now headed by chairwoman Lina Khan, who wrote a 2017 legal paper titled “Amazon’s Antitrust Paradox.” In it, Khan argues that the framework of antitrust enforcement over the past 40 years—which typically gives a free pass to companies offering low prices or popular services to consumers—has failed to take into account account the damage to competition posed by digital gatekeepers like Amazon. Khan also played a crucial role as legal adviser to the The House Antitrust Subcommittee’s 16-month investigation into Big Tech giants and into the production of the House Democrats’ 400-page reports, which alleged that the top four U.S. tech giants were engaging in anti-competitive practices and had to be controlled.
Amazon is also a prime target of the US Online Innovation and Choice Act, championed by Senator Amy Klobuchar and Rep. David Cicilline. ‘Self-preference’ legislation would give regulators the power to sue tech giants for business practices that favor their own products and services over those of third parties doing business on their platforms or using data non-public properties of their own users to benefit from their own services. Amazon’s use of non-public data, including sales figures, has drawn accusations that Amazon uses this type of information to copy top-selling products.
Amazon has fought the bill aggressively, funding ad campaigns that make the dubious argument that if passed, the U.S. Online Innovation and Choice Act would break Amazon Prime. Supporters of the bill are still waiting for Senate Majority Leader Chuck Schumer to push it through a full vote in the Senate before November’s midterm elections escalate.
While it’s unclear what U.S. lawmakers and regulators will do next, some of Amazon’s proposed concessions to EU European Commission antitrust officials appear to align with some of the goals of the U.S. privacy bill. self-preference.
For example, Amazon told the European antitrust commission that it would prohibit its employees and IT systems from using Amazon sellers’ “non-public” data – whether an individual seller or from a group of sellers – to help Amazon’s retail business. This first-party business includes products that Amazon buys at wholesale prices from other brands and resells to buyers, as well as private label brands like Amazon Basics that Amazon manufactures and sells itself.
It’s the first of five key concessions, three of which are tied to Amazon Prime. The first of the Prime-related changes would be let sellers qualify for the Prime badge, even if they don’t use Amazon’s warehousing and shipping service known as Fulfillment by Amazon (FBA) – Amazon allowed a small percentage of sellers to do so in recent years, but it has made it increasingly difficult to do so, meaning the vast majority of sellers have to use FBA to get the Prime badge for their products. A second would prohibit Amazon from using information collected by Prime about the performance or pricing of external logistics providers for the benefit of Amazon’s own logistics and delivery business. The latest Prime-related proposal would see Amazon no longer consider the Prime badge in the algorithm that decides which company – whether it’s Amazon or one of the third-party merchants selling through Amazon – wins a given sale when a customer searches for a product sold by several parts.
Finally, Amazon offered to display 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 times. Today, Amazon customers around the world have to click a little tab to see shopping options other than the one Amazon’s algorithm chooses as the Buy Box winner.
This is how Amazon could add a second “Buy Box” on its app as part of the concessions it offered to the European Union to end antitrust investigations https://t.co/IuaJyR7eC8
—Jason Del Rey (@DelRey) July 14, 2022
Now that Amazon’s European proposal is public, companies affected by the way Amazon does business have until September 9 to comment on the concessions. The European Commission will then decide whether or not to accept Amazon’s proposal. concessions or request 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 considered the benefits of such a move, and it remains to be seen how they would react to increased pressure from US regulators. Either way, evidence is mounting that Amazon takes antitrust threats seriously.