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Should CPG Brands Let Amazon Lure Them Away From Traditional Retailers? Inc. just put another crack in the foundation that underlies traditional retail.

Last month, Amazon hosted a three-day get-together at its Seattle headquarters with representatives of major consumer brands. According to news reports, invitees included big producers such as General Mills and Mondelėz International. Amazon's objective: to get those companies to bypass brick-and-mortar merchandisers like Wal-Mart Stores, Inc., Target Corp. and Costco Wholesale Corp., in favor of selling directly through Amazon.

Old-line retailing is already on the ropes. Once-dominant players such as Sears Brands LLC, J.C. Penney Co., Inc. and The Limited can’t seem to find their footing. They’re being pummeled by Amazon and other e-tailers, who are responding to changing consumer habits. (The situation has been made worse by the coring out of store-based retail, leaving only discount and high-end merchandisers.) Now, Amazon apparently wants to cut them out entirely.

Producers must adapt as well. “Many brands are at a crossroads,” says Jenn Markey, vice president of marketing with price optimization specialist 360pi. “They need to increase the online presence and performance of their brands to connect with more customers and ultimately grow their overall business.”

At the same time, she notes, they risk alienating an essential sales channel. Markey recalls Target temporarily delisting Procter & Gamble Co.’s products from its stores in 2014, in retaliation for P&G allowing Amazon to operate within its warehouses.

There’s no question that the traditional consumer packaged goods (CPG) channel is being disrupted, says Tushar Patel, chief marketing officer with omnichannel software vendor Kibo. It comes down to a choice between partnering with Amazon, or competing with it.

That’s not a battle that anyone in the CPG sector relishes fighting. In 2016, Amazon was responsible for more than half of all digital and e-commerce growth, says Patel. He views the current threat to consumer brands as equivalent to what Netflix did to Blockbuster, and Uber to traditional taxis.

Amazon has already cut out, or at least minimized the participation of, brick-and-mortar retailers in areas such as electronics and apparel. Now the question is: can it do the same for CPG?

The answer is mixed. Patel doesn’t believe CPG brands will completely walk away from the channel that has made them a success, and continues to provide access to the majority of consumers today. Only between 10 and 15 percent of retail sales are made through online orders, he points out. “That’s a lot of dollars that you would have to move over to Amazon’s channel.”

Markey believes that brands “definitely need to be leery about Amazon’s long-term ambitions.” They’ve already seen the e-tailing giant destroy some traditional retail partners. What’s more, Amazon hasn’t tried to hide its intention to pump up its private label. (Consider what it’s already accomplished in consumer electronics with Amazon Basics.) Producers who choose to partner with Amazon at the expense of stores could find themselves up against the same threat they faced on physical shelves: the presence of a cheaper house brand, severely undercutting their sales.

Today’s “partner” could be tomorrow’s channel master. “As Amazon continues to build its position as the de facto retail channel,” says Markey, “just imagine the uneven bargaining position brands could potentially be in.” Brands already are subject to the whims of mega-retailers such as Wal-Mart and Target. Do they really want another 800-pound gorilla in the room?

In struggling to balance store sales with online orders, many CPG producers are experiencing the diminishing importance of brand identity. Patel cites a recent survey by Kibo that found 70 percent of consumers naming price as their most important factor in making purchases online. Product brand influenced just 12 percent of consumers, while retailer brand was a distant third, at 6 percent.

“This obviously tells us that consumers will choose pricing over a retailer brand if they can obtain their desired product at the time required,” Patel says.

All of which raises an even more profound question: What does it mean to be a brand today? CPG producers can’t afford to walk away from the identities that have shaped their success over the years. But they must also be cognizant of the modern-day consumer’s priorities. According to Patel, they need to run trials and engage in strategic conversations about where the traditional retailing channel is going over the next five years. (One can assume that such conversations are already well underway within CPG giants such as P&G.)

For producers, the most frightening scenario — and the one that’s looking increasingly likely — is that Amazon becomes the brand. That’s at least partly the case today; for many online shoppers, “” is their first stop on the Web, regardless of the product they’re looking to buy. Expect that presence to expand, as the company pursues sales through its Amazon Fresh service, and opens brick-and-mortar stores in support of its growing grocery business.

Channel conflicts aside, the future of retailing will have to embrace all alternatives. Brands will need to strike a delicate balance between preserving their own identities while selling through the dominant e-tailers, whoever they might be.

Patel says brands should draw on the fulfillment best practices of big-box retailers, “by utilizing locations, warehouses and logistics to implement options like buy online, pickup in store, return to store, and ship from store for their consumers.”

They should look on the bright side, Patel suggests. “These brands have inherited channels they did not have before, and can realistically compete with Amazon if they continue to focus on price, shipping and order fulfillment.” For their sake, here’s hoping he’s right.

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