retail news in context, analysis with attitude

• The Wall Street Journal reports that Kroger’s deal with Ocado, which will bring the latter company’s robotics and software to Kroger’s supply chain, is likely to prompt a response from both Amazon and Walmart, injecting “a new urgency into traditional supermarkets’ efforts to sell goods online.”

Here’s the challenge: “The likely race among supermarkets into grocery tech will require additional capital. Brokerage Bernstein estimates that Kroger’s new Ocado-designed warehouses will cost roughly $400 million to build. Another problem for investors is that e-commerce is still hard to make profitable, so any growth in online sales at the expense of store sales will hit margins. Both pressures are manageable for the largest players, but will make it harder for them to grow cash flows.

“If this doesn’t sound appealing, neither does the status quo. For a reminder of what can happen when retail giants are late to e-commerce, investors need look no further than clothing chain H&M , whose shares have more than halved over three years, or Toys ‘R’ Us, which went bust. Groceries look set to follow books, electronics and clothes online. Big supermarkets have no choice but to invest.”


• The New York Times has a piece about Amazon’s fast growing private label business, which has grown to more than 100 own-label brands currently for sale on its site.

It started about a decade ago, when “Amazon quietly entered the private label business by offering a handful of items under a new brand called AmazonBasics. Early offerings were the kinds of unglamorous products that consumers typically bought at their local hardware store: power cords and cables for electronics and, in particular, batteries — with prices roughly 30 percent lower than that of national brands like Energizer and Duracell.

“The results were stunning. In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.”

The Times writes that “the move into the private label business (in which goods are sold under the retailer’s name rather than that of an outside vendor) appears to be a deft move by Amazon. Analysts predict that nearly half of all online shopping in the United States will be conducted on Amazon’s platform in the next couple of years. That creates a massive opportunity for Amazon to more than double revenue from its in-house brands to $25 billion in the next four years.” Plus, when Amazon makes the availability of desired private label brands contingent on being a Prime member, it allows the company to increase the number of people in what has become a highly profitable segment of its user population.

Of course, “the emerging private label threat from Amazon presents a quandary for small vendors and big, national brands alike. Even as Amazon takes away market share and eats into their profit margins, they have little choice but to continue to sell on Amazon’s platform in order to get themselves in front of millions of potential customers.”

And, there are legal questions - as Amazon gains share in the private label business, is it becoming monopolistic? Amazon’s answer to this question is to point out that it is just “a small fraction of a very large and vibrant global retail industry, and the competition and invention happening across retail is great for customers.”
KC's View: