Your house is stocked with products from Procter & Gamble and Unilever, even if you don't realize it. Those companies make Tide detergent, Dove soap, Q-tips, Axe body spray, Pampers diapers and many more brands. Yet these and other powerful makers of household staples are terrified of Amazon. And they should be. It's yet another industry Amazon is threatening to break.
It's not just that Amazon has become the world's most disruptive retailer, prodding people to put Tide and Axe into their Amazon virtual shopping carts instead of taking a trip to Walmart and Walgreens. That continuing shift to e-commerce has created just one more giant, penny-pinching retailer with which the household brands need to negotiate. But now Amazon is going a step further by trying to cut out the home essentials companies entirely.
The Seattle web company has been quietly expanding its lineup of private label products -- essentially store brands without the store. Amazon started off slowly with its own versions of dull products like batteries and computer cables pitched to members of the Amazon Prime shopping club. More recently, Amazon's homegrown brands have pushed into more high-profile areas that could threaten the P&Gs of the world -- diapers, coffee, cleaning products, 400-thread-count sheets and more. Seemingly any category with relatively plump profit margins could be fertile territory for the Amazon product-copycat treatment.
Yes, consumers can be loyal to their familiar brands of toothpaste and diapers. People shunned Amazon's baby diapers, which the company yanked from its virtual shelves last year. But Amazon can afford to try and fail in some categories. It also doesn't need to take significant market share in household products to make life tough for big companies including P&G, Kimberly-Clark and Unilever.
Each sale of Amazon's own products comes at a higher profit margin than if it sold a box of P&G's Tide and took a cut. Amazon can use those savings to undercut the big consumer product firms. For a glimpse at the potential pain from Amazon's private label products, talk to any company that used to make a living selling computer cables. Amazon can sell its versions for $5 and ship them to customers' doors within two days. It's nearly impossible for rivals to compete with that.
The answer is for home-goods companies to borrow a page from Amazon and start selling directly to consumers. That's one reason Unilever is spending about $1 billion to buy Dollar Shave Club, the shopping club that has undercut P&G's Gillette by delivering regular orders of razor blades to people's homes. P&G itself is testing a Dollar Shave-like subscription delivery service for its Tide Pods detergent brand, the Wall Street Journal reported.
These changes seem obvious, but they're not easy for P&G, Unilever and their peers. For years, the companies thrived because they spent billions of dollars on advertising and new product development and because they had the muscle to negotiate the best shelf space at Walmart and Walgreens. The importance of those strategies is fading now.
The future lies in knowing the customer intimately. Imagine the data Amazon has about global consumer tastes thanks to its decades of information on customers' purchases. P&G may have that, too, but more indirectly through shopping logs at Walmart and the like. Amazon's presence in households through its Amazon Echo home speaker and its one-button-restocking Amazon Dash buttons is helping the company figure out when users need to buy more Tide before they know it -- and before P&G does.
The danger of indirect customer relationships is also what's compelling TV networks to sell their own streaming-video services instead of just counting on landing a spot on the cable TV menu. Tesla is shaking up the auto industry not just because of its electric vehicle technology but also because it sells cars directly to consumers rather than through independent dealerships. A host of companies have sprung up to sell mattresses direct to shoppers without them having to set foot in a showroom packed with Sealys and Sertas.
Yes, just about every company that makes stuff -- whether it's razors, TV sitcoms, cars or mattresses -- realizes it will get the stuffing kicked out of it if it must rely on middlemen retailers and split every sale with them. The only way to compete is for household brands to become a little more like Amazon, before Amazon runs them over.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Shira Ovide in New York at firstname.lastname@example.org
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