By Paul Ziobro
Amazon.com Inc. is getting into the diaper business with a
private label brand that pits it against Procter & Gamble Co.
and other suppliers who increasingly rely on the online retail
giant for sales.
The generic brand, called Elements, will start with two baby
products, diapers and wipes, and Amazon has plans to later expand
into other household products. With Elements, Amazon isn't going
for the lowest price, rather it is trying to reach a consumer who
is willing to pay more to get detailed information about a
product's origins and the materials used.
Elements diapers will cost around 10% less per diaper than the
most expensive diapers offered by P&G's Pampers and
Kimberly-Clark Inc.'s Huggies, according to an analysis by Sanford
C. Bernstein & Co. But they are 25% more expensive than
P&G's low-end Luvs diapers and 40% higher than Target's private
label diapers, Up & Up.
The move adds a formidable rival into the $5.8 billion diaper
market at a time when P&G has been raising prices on its
Pampers brand and Kimberly Clark is struggling with declining
Huggies sales.
It also threatens to disrupt Amazon's close relationship with
consumer product makers. The online giant has set up distribution
operations inside the warehouses of manufacturers like P&G that
allows it to ship products more quickly.
Amazon and its diaper.com business are an important platform for
manufacturers as online diapers sales have grown to 5.2% of the
total market last year from 0.9% five years earlier, according to
Euromonitor International.
Consumer-products manufacturers will be required "to change the
way they fundamentally operate to adopt to this more dynamic and
potentially deflationary online pricing environment," Bernstein
analysts wrote in a note to investors.
Spokesmen for P&G and Kimberly-Clark declined to
comment.
Amazon is under pressure to improve profitability after recently
reporting its largest quarterly loss in 14 years. The company has
been spending heavily to move into new business lines, like
smartphones and music and video licensing, but has acknowledged
that it needs to be more selective where it spends its money.
Amazon already sells its own batteries, bedding and
smartphones.
Private labels add a new twist to e-commerce. Consumer products
manufacturers had long had to contend with private label brands in
brick-and-mortar stores that are generally sold more cheaply than
name-brand products. While they sell for less, retailers make money
on the sales because there little is spent marketing the
products.
The dynamic could play out differently online, where analysts
say display is more democratized and national brands don't enjoy
the incumbent advantages they have in stores, like control of the
most valuable and visible shelf space.
Amazon is only selling Elements products to its Amazon Prime
members, who pay $99 annually to enjoy such perks as free two-day
shipping and streaming movies. It also offering extensive
information on where the products are made, something that is rare
in private label offerings.
The Elements diapers, for instance, are made by Canadian company
Irving Personal Care with the diaper fluff using Loblolly pine tree
pulp from Alabama. The wipes, meanwhile, will use purified water
from White Lick Creek Aquifer in Mooresville, Ind., where they are
produced by Nice-Pak Products Inc., according to Amazon's
website.
Greg Bensinger contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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