How does this work for B&M companies? Think Walgreens or Target. They have plenty of in-house brands and also major 3rd party brands. Are they allowed to continue having in-house brands?
They often only pay the manufacturers after its sold. And sometimes don’t return the units which don’t sell
This is not true at all. Costco buys everything they sell.
> They often only pay the manufacturers after its sold.
This is true, and may be where your confusion lies. They buy on net 30/60/90 terms from their vendors. This means they have 30/60/90 days to pay them. Because they move inventory so quickly, they have often sold an item before they have to pay for it.
But they are still buying it and still taking the risk that it won't sell.
> And sometimes don’t return the units which don’t sell
This is only true because as I said before, they own the items.
My source (which I understand may not be satisfactory) comes from working at two of the biggest US retailers for a total of almost 9 years.
The model isn't common for general consumer goods retail, but it's a fairly common practice once you get into more specialty and high-priced inventory.
[1] https://www.warehouseanywhere.com/resources/consignment-inve...
I don't know about Costco, but the big box stores don't carry any risk. If the product doesn't sell then they return it and deduct that off your next invoice. The same happens for a customer return.
Depending on the retailer/product category you might get charged slotting fees, pay-to-stay, plus a share of promotional costs[1]. There are also other fees for use of distribution centers, discounts for paying early (even if it's not early), fees (or extended terms) for slow-moving products, and so on.
"Owning the items" feel less correct than "borrowing items with a promise to pay".
[1] https://traxretail.com/blog/quick-guide-shelf-space-costs/
That clearly does not apply in many instances, otherwise we wouldn't have clearance sections. There are all kinds of scenarios where it's either not possible, not feasible, or just not economically viable to return products to the manufacturer.
I'm not making this up. There is an entire cottage industry of "product rotators" who work on behalf of suppliers to go into stores and "rotate" the product that's closest to expiration to the front of the shelf, because the supplier has to pay the retailer for any product that expires before its sold.
we're only talking about a situation where the entity running the marketplace is not the seller - they're merely the facilitator between buyers and sellers. If you want to run a business where you rent a space on the shelf to some other seller, and your business is bigger than $25bn, these rules would prohibit you from also placing your own products on the shelves beside the shelves you've rented out.
Amazon touts a 'free' marketplace where anybody can sell and advertise their product. Yet it uses its monopoly on ads within their domain against others.
Amazon facilitates direct transactions between buyers and sellers. It also participates as a seller.
P&G has been on the decline for years. Dollar Stores selling no name products have been on the rise.
To test this, go to Target and ask if you can put some items on the shelf for them to sell for you. If that's an option, it's a marketplace.
Everything sold by Target is sold by Target.
Amazon is the online version of a flea market in the parking lot of a big box store.
I don't know if that is the distinction lawmakers are making, but to me that is the difference.
The stores had already paid for the magazines, books, etc. When they returned the physical media to the manufacturer, it was because the manufacturer accepts and destroys them or attempts to resale them to discount retailers. The manufacturer usually rebates the stores for the returns because they want the stores to keep buying from them, but this usually comes in the form of rebates/discounts on new inventory purchases, not as refunds on the returned products.
Who would buyers go to? Amazon.com or the hypothetically amazonmarketplace.com?
Until Amazon Basic gives Amazon virtual “slotting fees” to have the best placements...
One is the liability is much clearer. At least in some jurisdictions, if the manufacturer can't be located to take responsibility for a defective product, the retailer can be sued instead. IIRC, Amazon weaseled out of some hoverboard product safety lawsuits by claiming it wasn't the actual retailer.
https://news.bloomberglaw.com/us-law-week/amazon-beats-state...
In this case, my hope would be that Amazon would shut down the 3rd party marketplace in favor of it's own retail business. Alternatively, it could explicitly wall them off from each other so there's a much clearer distinction and the marketplace could be more easily avoided unless explicitly desired.
I'm sure the integration is desired by many sellers [1], but my sympathies lie with shoppers, and Amazon Marketplace has made my buying experience worse.
[1] To give a slanted example: if I'm a seller trying to unload counterfeit or substandard goods, I want a trusted brand like Amazon's to hide behind. Even better if burred distinctions let me piggyback on any goodwill Amazon's first-party sales have created in shoppers.
What do you mean? Sellers can always sell on other marketplaces, like eBay, where it's clearer to the buyers what they're getting into.
If Amazon has too much power in the (retail) marketplace, the solution is to break it up, not give other sellers precarious access to its storefront via "Amazon Marketplace."
You'll note that I wasn't focusing on anti-competitive behavior at all. I personally don't like sites that commingle 1st party retail with a 3rd party marketplace, because I think they're a bad user experience.
Walmart is still larger.
https://www.mediapost.com/publications/article/331054/report...
Geeks have been complaining for decades that companies shouldn’t be able to patent stuff because “it’s on the internet”. Why limit the relevant market to “on the internet”?
But if consumers have a choice between Advil and CVS brand Ibuprofen, they must trust the CVS brand but not some other brand.
But the question remains - is the consumer being harmed? Store brand OTC drugs have existed for decades and have been cheaper than brand names.
But there's alot of shady as fuck shit that goes on in the OTC and generic market where they are produced largely overseas in labs that intentionally cut corners and the FDA doesn't give a shit. In fact, the FDA announces their inspections ahead of time which allows the labs to cheat.
https://www.npr.org/sections/health-shots/2019/05/16/7235458...
https://www.nytimes.com/2019/05/11/opinion/sunday/generic-dr... (One FDA inspector ended up quitting because of his consistent findings in unannounced inspections he made and the FDA not giving a shit and reducing violations)
https://freakonomics.com/podcast/how-to-save-1-billion-witho...
I don't see a problem with them selling their own banded stuff, or even if it's cheaper, in most senses.
I do see a big problem with using what most people consider to be an open market that you can get anything on (even whole computers!) and specifically using that power to inhibit competition by having different advertising policies. It's not like those products were pulling an epic and refusing to give Amazon a cut of the sale, or doing something illegal -- just being banned from visibility is ridiculous abuse of monopoly power.
This is probably bad for the brand name products but very good for consumers.
Undercutting is good though. It lowers prices. Undercutting should be encouraged.
I wouldn't mind house brands as much if supply chain information and process information was transparent across all companies, but that supply chain information is a pseudo-trade secret (and for real-time supply chain information, definitely a trade secret) [1], and you can forget about obtaining process information. I do use house brands for some goods personally, but this is the result of many years of a lot of careful vetting and monitoring ingredient lists that I know is not commonplace nor even feasible with many retail consumers.
House brands can be a useful tool in the market, but they can be abused in too many ways for me to relax my vigilance as a consumer. They also can be abused in too many ways in their distribution channel role to obtain highly-granular, time-sensitive competitive information that normally wouldn't be available in the open market, for me to completely accept their unregulated deployment.
I wouldn't go as far as to say ban house brands by law. But I wouldn't want to keep them completely unregulated in all contexts like we are currently doing, either.
Happy to change my mind with any new information anyone cares to share though, as this isn't an area I keep a close eye upon.
House brands of any product have to pass the same relevant regulations.
There is probably much, much more than meets the consumer retail eye to house branding, and I'd love to get an insider's look at the factors and considerations around the decision to roll out a house brand product.
[1] https://insulinnation.com/treatment/why-walmart-insulins-are...
[2] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4955122/
[3] https://www.pbs.org/newshour/health/insulin-market-shakeup-p...
This is because house brands are made by the name brands. In order to maintain their competitive edge for their name brands, they don't offer the modern formulations white label to the stores, and vaccines generally are not permitted by FDA regulations to be sold white-label.
In a couple of my previous links, some of the more modern formulations like Humalog came off of patent protection in the US around 2017, but no one outside the manufacturer has picked up white label manufacturing. A lot of times house branding just seems like market segmentation to me based around packaging when the original manufacturer is making the same product, but many times I've picked up a house brand and a name brand packaged food for example, and find sugar is higher up in the ingredients list in the house brand (and the nutritional panel reveals it is a significant ranking change).
Thus house brands seem like an obfuscation of the market to my uninformed eye so far. They seem to act in the macro scale as a way to prevent real competitors from arising and taking away real revenue and margin, by stuffing the distribution channel with SKU's that give a slightly larger cut to the distributors in exchange for maintaining the same vendor count (thereby making it much more difficult for a competitor to gain shelf space).
Those incentives probably all change around with an ecommerce site like Amazon. I just find this aspect of free markets fascinating as a layperson.
[1] https://www.cdc.gov/vaccines/vpd/dtap-tdap-td/hcp/about-vacc...
For drugs, generics still need to prove that their own product meets safety standards and is the equivalent to the drug coming off patent protection. It's not cheap. For biologics like insulin, it's even more expensive.
Thus house brands seem like an obfuscation of the market to my uninformed eye so far. They seem to act in the macro scale as a way to prevent real competitors from arising and taking away real revenue and margin, by stuffing the distribution channel with SKU's that give a slightly larger cut to the distributors in exchange for maintaining the same vendor count (thereby making it much more difficult for a competitor to gain shelf space).
That's not how retail works. Stores are more than happy to put new products on the shelf, especially if they sell well. They don't "maintain vendor count," they allocate shelf space based on actual sales. If a product doesn't sell well, it loses space to better-selling products on a daily or weekly basis (depending on the store). New products show up all the time, and depending on the arrangement with the manufacturer have between a week and a month to show their selling power. (New products are usually on a consignment basis so the manufacturer only gets paid if units sell.)
Thanks for explaining what goes on behind the scenes! I don't have the terminology for this since I'm not in the domain, so what is it called when a Wal-Mart or Home Depot or grocery chain purchasing department selects a vendor for a product, but will not consider another similar vendor, because physical shelf space is finite? For example, I see Lincoln welding machines, but not Miller, Fronius, or some white label from China at Home Depot, and every Home Depot has the same amount of shelf space set aside for welding machines, but all Lincoln. There isn't even experimentation with an alternative brand with one model.
Based upon your description, that finite physical limitation is not able to be strategically used by incumbents to take the oxygen out of the room for other vendors. One way to suck the oxygen out is to sell more. But if I'm an incumbent, and I get a chance to sell exactly the same product in house brand packaging for slightly less margin with a greater chance that a competitor won't get to see the same shelf, I'll take those reduced margins all day long. For a marginal loss in profit, I block shelf space without having to grow my sales by some commensurate amount to take up the same blocked shelf space. So why won't that work in the real world?
This is not true. I used to have a number of consumer products clients when I was at a firm. Store-brand products are all made for the stores by name brands as part of their white label programs (excepting clothing, since the transaction flows are different for that industry).
Usually the way it works is that the white label product is the same as the standard product, but with store-selected packaging. In most cases, the differences are purely cosmetic (as with cereals, which are made for most stores by General Mills and its competitors.) In a few instances, the store brand is usually a white label version of the brand name's discount brands, such as the store-brand products at the 99 Cents Only and Dollar Stores.
I wouldn't mind house brands as much if supply chain information and process information was transparent across all companies, but that supply chain information is a pseudo-trade secret (and for real-time supply chain information, definitely a trade secret) [1], and you can forget about obtaining process information.
This information is known within the industry. As 99.99999% of customers don't care about the supply chain of a store brand product, they don't include that information on the packaging. But then again, neither do the name brands. In some cases, you can the name of the manufacturer by asking the store's corporate office, and they'll usually tell you. Generally, they don't have access to "process information" for how the product is manufactured because they're just buying the product from the manufacturer. Whether the manufacturer will tell you depends on the product.
I wouldn't go as far as to say ban house brands by law. But I wouldn't want to keep them completely unregulated in all contexts like we are currently doing, either.
House brands are subject to the same regulations as name brands.
Does costco get some extra benefit if the consumer buys Kirkland from costco ?
Yes. Costco positions their store brand as a major part of their appeal. This attracts more consumers to their stores, which
A. Increases membership, for which there's an annual fee, and
B. Increases traffic, increasing sales of high margin items as well as the low margin store brand.
If they were to give away their reputation to other sellers by letting them sell their QC'd products, they would be lowering the value of their memberships.
a) To reduce costs by controlling the entire means-of-production
b) To ensure quality control on the product and build faith in the brand, which in turn
c) Pulls people into the store, forcing them to buy a Costco membership if they want the product.
For example, Kirkland coconut water is simply white-label Vita Coco, and the made by label indicates it is packaged for them by the same company that produces Vita Coco.
Costco has employees that oversee the QC of these white-label products.
Intels high price chips, and low price chips are often the same chip except the low priced one failed quality control and had some of its circuits turned off.
Wikipedia article, as a primer: https://en.wikipedia.org/wiki/Product_binning
A cheaper alternative for consumers?
Consider some consumer good made overseas produced at the same factory for both the name brand and store brand. As a consumer why should I have to pay for the huge marketing spend the name brand needs to recoup?
I don't see how harming consumers is a useful end of anti-monopoly laws.
This is a common belief, and also mostly false. I think it's common because it used to be true, but isn't anymore.
With the economies of scale that a company like a Target or a Wal-Mart have these days, plus the ever-declining cost to manufacture goods, most store brands are actually run for those stores, and not re-labeled big brand goods, or seconds that were rejected by the primary contractor.