Amazon (NASDAQ:AMZN) started selling private label products in 2009 with commoditized products like USB cables and batteries. Since then, it's expanded its reach with a growing list of products, including diapers, baby wipes, food, shoes, toys, and even mattresses.
The e-commerce giant now sells over 120 types of private label goods according to TJI Research. SunTrust's Robinson Humphrey claims that represents a nine-fold increase from early 2016, and the firm expects Amazon's private label revenue to rise from $7.5 billion this year (3% of its estimated revenues) to $25 billion by 2022.
This means that Amazon could hurt a wide range of consumer goods companies with its private label blitz. However, three particular companies could be hit harder than their industry peers: General Mills (NYSE:GIS), JCPenney (NYSE:JCP), and Procter & Gamble (NYSE:PG).
Amazon's purchase of Whole Foods last year already caused headaches for General Mills, the packaged foods giant that makes Cheerios, Yoplait, Haagen Dazs, and Betty Crocker. General Mills was already struggling with sales declines as consumers have shifted toward healthier food products, and many analysts believed that Amazon's strategy of lowering prices on Whole Foods' products would exacerbate the pain.
Earlier this year General Mills acquired Blue Buffalo, a maker of premium pet food products, to diversify its portfolio away from its legacy brands. The $8 billion acquisition, which isn't expected to become earnings accretive until 2020, was poorly received by analysts and investors alike.
Shortly afterwards, Amazon -- which already controlled over half of the U.S. dog food market according to Packaged Facts -- launched its own premium pet food brand. It also launched Wag, a dedicated online marketplace for pet food and other pet products with free two-day shipping. Those moves strongly indicate that Amazon plans to slowly crush aging consumer staple players like General Mills with its expanding portfolio of private brands.
JCPenney lost over 90% of its market value over the past decade amid slowing mall traffic and tougher competition from Amazon and superstores. The retailer's decline was exacerbated by former CEO Ron Johnson's disastrous run between 2011 and 2013, and it's struggled to retain a stable C-suite since then.
JCPenney investors recently breathed a sigh of relief when the retailer finally hired industry veteran Jill Soltau as its new CEO to replace Marvin Ellison, who abruptly resigned in May. One of Ellison's main turnaround strategies was to expand the retailer's private label apparel, including its Xersion athleisure brand and its City Streets contemporary apparel brand.
Soltau hasn't outlined her plans for JCPenney yet, but she has plenty of experience with private labels at her previous employers. Therefore it wouldn't be surprising if Soltau continued Ellison's push into private label apparel.
Unfortunately, doing so could simply increase JCPenney's exposure to Amazon, which sells nearly 5,000 private label clothing items according to Coresight Research. Amazon's brands include Core 10 and Peak Velocity activewear, Goodthreads casual menswear, and Paris Sunday dresses and tops for women. Morgan Stanley also expects Amazon to surpass Walmart as the country's top apparel retailer this year -- which could crush JCPenney's private label apparel ambitions.
Procter & Gamble
Procter & Gamble, which sells Pampers diapers, Tide laundry detergent, Olay and Pantene bathing products, and other well-known consumer brands, was already struggling against private label brands before Amazon entered the market.
For a while P&G seemed to believe that tethering itself to Amazon via Dash Buttons for consumables would keep its brands relevant. Unfortunately, that technological upgrade didn't change the fact that Amazon was launching a growing number of private label alternatives -- like Mama Bear diapers and Presto detergent -- to challenge P&G's top products.
Speaking to CNN Business, P&G VP Damon Jones admitted that Amazon's moves "up the ante for us to ensure our products are noticeably superior," but stated that the company could continue growing with new innovations. P&G currently expects to post 2% to 3% organic sales growth this year, but tougher competition from Amazon (as well as private brands from other retailers) could cause that growth to grind to a halt.
The road ahead
General Mills, JCPenney, and P&G aren't the only companies that could be hurt by Amazon's private label brands. But these three companies are already struggling with long-term challenges, and Amazon's ambitions could toss a wrench into their turnaround efforts.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.