Private labeling has long been seen as the golden child of business models for Amazon sellers. It allows you to create your own brand and a unique listing, then use some simple marketing methods to push it to success.
For a long time private labelers have had an open playing field to take advantage of the Amazon marketplace. However, a number of changes and challenges are making it increasingly difficult to prosper.
Competition is higher than ever, the market is oversaturated in many product categories, and it is becoming harder than ever to find new products. This has forced prices down and caused profit margins to shrink. Dirty tricks from some sellers are rampant and, overall, the marketplace today is far more aggressive and hostile than it once was.
In this article we discuss the changes which have most affected the Amazon private label business model. So much has changed, is it still possible to succeed as a private label seller?
View Top Amazon Seller ToolsPrivate labeling on Amazon
The principle of private labeling is simple. At the low end of the market, sellers buy cheap, easily manufactured, generic products which are in high demand. Then they slap their logo on the packaging to make it their own and start selling.
More sophisticated sellers have always been around, investing a lot more in developing their own unique products and brand, but the mainstream of private label selling is all about generic products and the bare minimum of branding effort.
The majority of private label products are manufactured in China. Sellers often export their inventory straight from the Chinese factory to an Amazon FBA facility in the US or Europe. They don’t have to worry about packing or shipping products and, with FBA, customer service is also provided by Amazon.
Theoretically, it’s a business you can run from your kitchen table. But a number of developments are making it more difficult than ever to run a private label business as a low-investment, low-maintenance cash generator.
1. Chinese sellers and market saturation
One of the greatest challenges private labelers face is the increase in Chinese sellers entering the market. A few years ago this wasn’t a concern – sellers would order products from China and the factories would act purely as a supplier. They weren’t too interested in where their products were being sold.
However, in recent years Chinese manufacturers have become wise to how easily Western businesses are profiting from their production capabilities. So they have started creating their own private label brands and aggressively competing on Amazon.
Five years ago it was a gold rush period where sellers had it very easy. Everybody had a hot opportunity with very few barriers to success. Now competitors have progressed. Five years ago we didn’t have a single mainland Chinese supplier as a competitor, whereas now they are our primary competitors in every product category.
Bernie Thomson, Founder, Plugable Technologies and CEO, PPC Ninja
These Chinese entrepreneurs are known for being very analytical, highly competitive and profit-driven. Chinese sellers have grown to become more sophisticated and dominant in the last couple of years, shaping the marketplace and setting prices.
As Chinese sellers are often the factory owners, they can produce items in volume with short lead times and rock bottom costs. This has driven prices down and caused profit margins to collapse. Western sellers have little chance to compete, when the owner of the factory that makes their product is selling their own private label brand on Amazon.
Because of this, and the popularity of the private label model overall, the marketplace has become oversaturated. Some product categories are swamped with near-identical private label products both from local sellers and Chinese factories. Kitchen and home products are particularly competitive, and it has become difficult to profit from these products like sellers once could. Many other categories are heading in the same direction.
But it’s not all doom and gloom. There are some things sellers can do to stand apart from the competition, although they might be beyond the reach of ordinary private label sellers.
Danny McMillan encourages business owners to sell products that are produced locally. Appealing to a sense of patriotism could give your products an edge.
If you can ensure your products are made in the US or UK for instance, this could become an integral part of its USP and marketing. Look for domestic suppliers and try to sell products that can’t be shipped globally but appeal locally.
Danny McMillan, Host, Seller Sessions and Founder, DATAbrill
The more your product is relevant to a national market the easier it will be to build this into your brand.
Another way to counter the threat of Chinese sellers is to leverage the assets of your business which they might not be as strong at naturally. If you can find a product that Chinese sellers aren’t interested in selling, or cater to a market that they don’t yet understand, that could also give you an advantage. Just be aware that the advantage might not last for long.
Also think about quality. Typically, Chinese manufacturers deal with items that are in the low-to-mid quality range, cheap to produce and cheap to buy. Many Western sellers go after the same segment, so this is where the market is oversaturated and highly competitive. High-end products which are more expensive to produce may have wider profit margins in the long run and allow you to exploit the end of the market that gets less attention.
