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How Amazon Wins: By Steamrolling Rivals and -2-

Mr. Bezos set out to make Amazon a destination where consumers can find everything they want and continues that push. "If a company is offering something that Amazon thinks they can do better, or can do less expensively, then they will try to do it," said Patrick Winters, an Amazon Prime Video manager who left this summer to work for Albertsons Cos. after more than a decade at Amazon.

"That was Amazon's philosophy from the start," Mr. Winters said, "to basically have everything a customer wants even if it's something only a few customers want."

Quidsi, parent of Diapers.com and Soap.com, became a target a decade ago, when Amazon set up a team to focus on it, according to emails released as part of congressional hearings. Amazon wanted to know how the New Jersey e-commerce company could deliver bulky packages of diapers so quickly, said people familiar with the matter.

Diapers.com had an avid following, and Amazon had been wooing those shoppers, who tended to be loyal to vendors they liked and often expanded their diaper orders with higher-margin products such as baby formula.

Amazon in 2009 developed a 12-step plan to take on Quidsi, according to the emails released by Congress. Action items in emails included "Beat or meet Diapers.com's delivery speed" and "Beat or meet Diapers.com's 6PM order time cutoff." An internal email that year from a top Amazon retail executive called Quidsi "our #1 short term competitor," and said: "we need to match pricing on these guys no matter what the cost."

In a June 2010 email chain that included Mr. Bezos, a senior executive laid out tactics, saying "We have already initiated a more aggressive 'plan to win' against diapers.com in the diaper/baby space," a plan that included doubling Amazon's discounts on diapers and baby wipes to 30% off, and a free Prime program for new moms.

When Amazon cut diaper prices by 30%, Quidsi executives were shocked and ran an analysis that determined Amazon was losing $7 for every box of diapers, former Quidsi board members said. Senior Quidsi executives were even more surprised when, the day of the price cuts, Jeff Blackburn, a top lieutenant to Mr. Bezos, approached a Quidsi board member saying the company should sell itself to Amazon, said a person familiar with the matter. At that point, Quidsi wasn't for sale and had big growth plans.

Quidsi started to unravel after Amazon's price cuts, said Leonard Lodish, a Quidsi board member at the time, missing its internal monthly projections for the first time since 2005. The company felt it had no choice but to sell itself because it couldn't compete with what Amazon was doing and survive. Amazon bought Quidsi in 2010 for about $500 million. It shut down Diapers.com in 2017, saying it was unprofitable.

"What Amazon did was against the law. They were selling diapers for below cost," said Mr. Lodish. "But what were we going to do? Sue Amazon for antitrust? It would take years and tens of millions of dollars and we'd be bankrupt by then."

The Amazon spokesman declined to comment on the specifics of the Quidsi acquisition, saying Diapers.com wasn't profitable when Amazon acquired it. Mr. Blackburn declined to comment.

Wayfair Parity Team

In 2016, Wayfair was an online retailer of furniture such as coffee tables and nightstands with $3.4 billion in revenue that year, compared with Amazon's $136 billion. Amazon had less furniture selection than Wayfair, and its so-called S-team of senior vice presidents -- some directly under Mr. Bezos -- made the market a priority, said the people who worked on the team.

That year, Amazon launched its Wayfair Parity Team, which analyzed Wayfair's business with the goal of eventually selling on Amazon 90% of furniture Wayfair offered, the people said. The team grew to around 100 people. It struggled to find Wayfair's suppliers. Wary of competitors, Wayfair was buying items from manufacturers and rebranding them to mask their identity, said the people.

The team eventually identified the manufacturers by ordering Wayfair products to check manufacturing information and by going to trade shows to find Wayfair's suppliers, they said.

Amazon didn't stop Wayfair's growth. The smaller company increased its share of online furniture sales in the U.S. to 25% last year from under 18% in 2016, according to market-research company 1010data -- although Wayfair's net loss also widened during the period. Amazon's market share stayed steady, at just over half of online furniture sales, including its direct sales and those of outside vendors on its platform.

In the most recent quarter, Wayfair's revenue grew 66.5% and the company posted its second consecutive quarterly profit after straight quarterly losses since its 2014 market debut.

The Amazon spokesman, while declining to comment on the Wayfair Parity Team, said part of earning customer loyalty is making selection and pricing as good or better than competitors'.

Williams-Sonoma Inc. successfully fought back against Amazon, which it claimed had copied a chair sold by its West Elm brand, known for its midcentury-modern furniture style. West Elm's distinctive-looking orb dining chair was a particular hit, with more than $2 million in sales in the first 10 months of 2018, according to a complaint Williams-Sonoma filed in a lawsuit against Amazon over the incident, alleging patent infringement. In 2017, West Elm had filed a patent for the design of the chair.

In March 2018, Amazon began selling an "Upholstered Orb Office Chair" under its Rivet brand. The "Amazon Orb Chair is so highly similar that the ordinary observer would be confused by the imitation," said the complaint. Williams-Sonoma's complaint identified other furniture items that Amazon's private-label team launched that looked nearly identical to designs it began selling earlier, including a coffee table and a few lamps.

Amazon removed the items from its website and settled the lawsuit in October, with a favorable outcome for West Elm, according to people familiar with the matter. Amazon and Williams-Sonoma declined to comment on the lawsuit.

Powerful tool

In targeting competitors, Amazon's private-label team has access to a powerful tool: Amazon's database of search terms customers frequently use. The team can add those terms to their product descriptions and detail pages to gain a boost on Amazon's search engine, some former Amazon private-label employees said.

When employees on Amazon's private-label team in 2017 launched its Goodthreads line of apparel such as military jackets and chino pants, they sought to create an aesthetic similar to that of J.Crew, one of the former employees said. Parent company J.Crew Group for years avoided selling on Amazon. J.Crew's then-Chairman Mickey Drexler in a 2017 conference said he wouldn't sell on Amazon because: "No. 1, they own the customer" and would "take every bestseller and put it into their private label collection."

So the Goodthreads managers took steps to help searches for "J.Crew" show results that included Goodthreads, according to the person. Goodthreads is now one of Amazon's top 10 private-label brands, according to e-commerce intelligence firm Marketplace Pulse.

The Amazon spokesman said Goodthreads targets an aesthetic common among multiple brands and isn't unique to J.Crew. J.Crew declined to comment.

Shoe seller Allbirds, too, refused persistent Amazon efforts to get it to sell on the tech giant's site, said Mr. Zwillinger, the co-CEO. The San Francisco startup launched its first shoe, "Wool Runner," in 2016. It was the product of three years of research and development, using fabric from an Italian mill and a sole that was "carbon neutral," produced with a Brazilian chemical company.

The lightweight shoe became an instant success. Amazon consistently contacted Allbirds between 2017 and 2019 to sell on its site, said Mr. Zwillinger. Allbirds always declined.

Allbirds' team in mid-2017 began noticing that, on Google's search engine, the top results for "Wool Runner" were knockoffs from outside vendors on Amazon, Mr. Zwillinger said. Allbirds believed Amazon was buying advertisements on Google to siphon demand for the shoes to itself, he said.

Mr. Zwillinger said it isn't possible to track the damage to his company, but that "to see a company with the deep pockets of Amazon try to siphon off demand and give it to copycats is really frustrating."

Then came the Galen shoe. Mr. Zwillinger said he believes search data guided Amazon's decision to clone his hit product, which he said looks "eerily similar" to his shoe.

"I'm not saying whether they did or didn't infringe. We didn't get a lawyer involved," he said. Because of Amazon's size, he said, "it seems like that's going to be an uphill battle that's not worth fighting."

The Amazon spokesman said that the company didn't target Allbirds on Google advertising and that it was obvious wool shoes were trending.

Now, Amazon is targeting one of the biggest pandemic beneficiaries, Shopify, a platform that helps bricks-and-mortar stores set up online shops. With the coronavirus causing store shutdowns, many smaller retailers have invested in creating online stores using Shopify's technology.

Small retailers on Shopify had aggregate sales of $5.1 billion over Black Friday weekend, topping Amazon's $4.8 billion from its third-party sellers. Amazon won't disclose how much it made in sales from its first-party business where it buys inventory and resells it. The 14-year-old Shopify's share price has roughly tripled over the past year.

Amazon had largely dismissed the Canadian company internally, said employees on and off the project, but that has changed over the past year now that it looks like a significant threat. "It's super high on our radar," said one of the people.

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December 22, 2020 10:40 ET (15:40 GMT)

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