[gamblor956]

Not the same thing. Retailers are the customers of the product manufacturers. They pay for all of the products that show up on their shelves, even the store brands.

(Note: only trial products operate on a consignment arrangement where the manufacturer only gets paid for units actually sold on.)

[treis]

>Not the same thing. Retailers are the customers of the product manufacturers. They pay for all of the products that show up on their shelves, even the store brands

That's not really true. They force manufacturers to accept returns of unsold product and have met 30-90 day payment terms. The effect is that these large retailers don't buy the product until after it's sold.

They also just rent shelf space to companies and have little if anything to do with what is stocked there and how it's priced.

[gamblor956]

They force manufacturers to accept returns of unsold product and have met 30-90 day payment terms. The effect is that these large retailers don't buy the product until after it's sold.

This is false. Net payment terms don't change who holds title to the product, just when the money changes hands.

Additionally, retailers only force manufacturers to accept returns of unsold product for products that overwhelming failed to sell. They don't return small batches of unsold product.

They also just rent shelf space to companies and have little if anything to do with what is stocked there and how it's priced.

True, but this is such a small portion of the retail market that it would be a rounding error of a rounding error. Generally, most retail companies don't do this.

[treis]

Holding title and nitpicking return policy doesn't change the core of my point. Retailers haven't paid for the products on their shelves. Holding title doesn't change that nor does having a minimum return size.

[gamblor956]

Holding title changes everything in legal terms, and since antitrust is a legal issue, that is what matters.

Retailers haven't paid for the products on their shelves.

Net payment terms aren't net of sale to customer. They're net of delivery to retailer. Some products sell before payment is due (i.e., perishable foodstuffs); many do not (i.e., electronics, toys, most non-food items). Title transfers before payment is due, since transfer of title is a huge consideration for a myriad of other legal issues, like product liability. Usually, title transfers when received by the retailer, but sometimes it transfers when handed off to the shipper. Actual timing depends on the contract between retailer and manufacturer, and there is an entire body of law dedicated solely to this.

Returns to manufacturers (for working/undamaged goods) are literally beside the point here, since they only happen for products that simply fail to sell through to end customers, even after substantial discounts by the retailer. Generally, outside of book sales, this happens rarely, and when it does happen the manufacturer almost always just provides discounts on other goods. (For books, returning unsold copies to the publisher is SOP, and the publisher usually takes them back and refunds the store because they want the store to purchase future books. Unlike other retail, book sales are heavily hit-driven and transient, so financial considerations differ.)

In the case of new products: for small manufacturers without a record, stock is usually provided on consignment with the manufacturer getting paid after units sell; for big/established manufacturers, the stock is purchased by the retailer at a substantial discount from wholesale price or for exchange of services such as marketing efforts by the store to move the product.

[arrosenberg]

No, the comment you are applying to is 100% correct. Store brands are a form of price discrimination, which is anti-competitive and illegal. Courts and regulators significantly weakened enforcement in the 80s, but the laws haven't changed.

[gamblor956]

No, the comment I am replying to is 100% wrong.

Store brands are a form of price discrimination, which is anti-competitive and illegal. Courts and regulators significantly weakened enforcement in the 80s, but the laws haven't changed.

Price discrimination (known as price segmentation in the business world) is perfectly legal, as long as it is between products and not between customers (and even there it might still be as long as the discrimination isn't based on a protected class). Price segmentation of products has always been legal in the US.

Store brands have been a thing for centuries. Most stores used to just sell the house brand.

Indeed, the concept of selling a "third party" brand in a store is a relatively recent development that can largely be traced to farm supply stores and the rise of department stores...which, notably sold their own store brands alongside those of other companies for decades without antitrust issues. (In fact, Sears' antitrust issues related to their use of market power to obtain discounts or to fix prices in certain geographic markets. They never had issues with selling store brands).

[arrosenberg]

If we were in 1930 and discussing a bunch of independent locals, I would agree with you. In this case, we are talking about vertically aligned retail giants producing store brands as a form of further vertical alignment.

Amazon/Walmart/Target know how much of a given product sells off their shelves. They use that data in order to develop store brands in order to further monopolize profits from their position as a distributor. This behavior is clearly anti-competitive, as numerous complaints from merchants on Amazon marketplace or from vendors who have to deal with Walmart's predatory purchasing teams can attest to. It is effectively a monopsony or oligopsony.

[gamblor956]

If we were in 1930 and discussing a bunch of independent locals, I would agree with you. In this case, we are talking about vertically aligned retail giants producing store brands as a form of further vertical alignment.

If you want to talk about vertically aligned retail giants producing store brands, it would be very helpful for you to understand that retailers like Walmart and Target are not vertically aligned and do not produce their own store brands. They buy them as white label products from other companies, most of whom make the name-brand products that appear in their stores alongside the store brands.

Tesla would be an example of a vertically aligned company, as would Apple to a lesser extent.

Amazon does not operate like Walmart or Target, so none of what I am saying applies to Amazon. I agree with you that Amazon is violating antitrust with its policies. There are fundamental differences in how Amazon's marketplace works compared to how retail sales work that drive that analysis.

They use that data in order to develop store brands in order to further monopolize profits from their position as a distributor.

The second half of that statement is false ("in order to..."), and demonstrates a fundamental misunderstanding of how the retail market works. Product manufacturers derive their profits from selling to retailers not to end customers. They sell their goods at "wholesale prices" that are far below what the end customers pay. The wholesale prices for store brand products are generally the same or close to the same as the price of name-brand products.

Once on the shelves, the products compete on the basis of marketing. Manufacturers do this by advertising, like on TV. Stores do this by discounting their products or placing them in a better position on the shelf.

And you know what? Advertising simply works better. People prefer the name brand even though the store brand of comparable quality (and often the same underlying product) is right there next to it. There are hundreds of studies on this, and literally trillions of dollars of consumer spending supporting this.

Also, in many cases the stores work with the product makers and provide them data about in-store sales statistics to help them determine marketing spend (including advertising, product design, package design, etc.), because they care more about getting people into the store to buy any product than they do about making a tiny bit more from selling a store brand item instead of Name Brand Product X.

[arrosenberg]

> If you want to talk about vertically aligned retail giants producing store brands, it would be very helpful for you to understand that retailers like Walmart and Target are not vertically aligned and do not produce their own store brands. They buy them as white label products from other companies, most of whom make the name-brand products that appear in their stores alongside the store brands.

This is a distinction without a difference. The mere fact that they don't own the factory producing the goods doesn't change the fact that they are acting as both producer and distributor in the same marketplace. If Costco buys bottled water from Nestle they are only a distributor, and there is no conflict of interest. When they put Kirkland Signature water on the shelf next to it, there is a pretty clear conflict of interest that allows Costco to leverage it's power as a distributor into pricing power against producers. Additionally, there is only a single buyer for the product line, regardless of whether the producer is legally independent. This is a vertically aligned operation - if Costco stopped selling Kirkland Signature tomorrow, it would cease to exist. The fact that they are buying the store brand products from the same producers who make the name brand product makes the entire operation look more aligned and concentrated, not less.

> The second half of that statement is false ("in order to..."), and demonstrates a fundamental misunderstanding of how the retail market works. Product manufacturers derive their profits from selling to retailers not to end customers. They sell their goods at "wholesale prices" that are far below what the end customers pay. The wholesale prices for store brand products are generally the same or close to the same as the price of name-brand products.

Don't be patronizing. The entire dynamic as it exists gives chain stores negotiating leverage against those name-brand products, allowing them to get better prices on goods than a smaller, independent operator would be able to get. That is price discrimination, and it's why small businesses in the US are getting killed and big, consolidated corporations keep getting larger.

[gamblor956]

This is a distinction without a difference. The mere fact that they don't own the factory producing the goods doesn't change the fact that they are acting as both producer and distributor in the same marketplace.

This is a huge distinction. They don't simply not own the factory, they don't produce the goods under any legal definition of the term. Nor are they a distributor under the legal definition of the term; they are a retailer which has specific and different legal meaning. (A distributor sells products or other parties that sell to end-customers. The manufacturer is usually the distributor of its own products.)

If Costco buys bottled water from Nestle they are only a distributor, and there is no conflict of interest. When they put Kirkland Signature water on the shelf next to it, there is a pretty clear conflict of interest that allows Costco to leverage it's power as a distributor into pricing power against producers.

No, it doesn't. Costco pays Nestle or one of Nestle's competitors for Kirkland Signature water. Absolutely none of the Kirkland Signature products are made by Costco itself other than the assembly of food in the food court.

Additionally, there is only a single buyer for the product line, regardless of whether the producer is legally independent. This is a vertically aligned operation - if Costco stopped selling Kirkland Signature tomorrow, it would cease to exist.

Note: by vertically aligned you actually mean "vertically integrated" (and I should have edited my earlier comment to correct the terminology). A vertically integrated company must own at least two of the following levels: the suppliers, distributors, or retailers of its products. (If it is a retail company, that would mean it needs to own one of the other levels of companies to be vertically integrated.)

The fact that they are buying the store brand products from the same producers who make the name brand product makes the entire operation look more aligned and concentrated, not less.

No, it's exactly backwards. The manufacturers don't just sell to Costco. They sell to other retailers as well. Vita Coco, for example, sells white-label coconut water to both Costco and Kroger (i.e., Ralphs), among other retailers. (Vita Cocoa used to be a client of mine.)

The entire dynamic as it exists gives chain stores negotiating leverage against those name-brand products, allowing them to get better prices on goods than a smaller, independent operator would be able to get.

Yes, that is how market power works. A participant with greater market power can use that as leverage to negotiate pricing. This is an acceptable use of market power; for example, it is the basis behind insurance pools, coops, group discounts, etc.

It would not be acceptable if the big retail chain used its market power to effect how a supplier deals with other parties or in other markets, such as by attempting to restrict a supplier from selling to competitors. (But note: exclusives are fine, so long as the exclusive product is not a condition of, or conditioned upon, restrictions on the sale of non-exclusive products, because a manufacturer can simply refuse exclusivity and offer it to competitors exclusively or non-exclusively or can negotiate the terms of the exclusive product with the retailer before them. See, for example, Orgain's nut-based protein powder, or the myriad models of TVs that are "exclusive" to each retailer.)