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Now Amazon wants to take over the furniture business

The Motley Fool logo The Motley Fool 11/9/2017 Daniel B. Kline

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Video by CNBC

Amazon seems to have no limit to its ambitions. The company has launched a number of private label clothing brands and it has taken steps toward entering the pharmacy business.

Now it has set its sights on a new market entirely. The online retail giant has unveiled two private-label furniture brands, Stone & Beam and Rivet.

Both offer free returns for 30 days as well as a three-year warranty on all furniture. Calling Stone & Beam "modern farmhouse" and Rivet "Mid-century," the two lines target different consumers. Rivet offers "small-space solutions" and seems aimed at city-dwelling Millennials. Stone & Beam incorporates country and modern touches for families with a little more money to spend.

These aren't Amazon Basics-style offerings. Neither brand chases low prices or offers Ikea-style values. Instead, the online retailer looks to be entering the "good value for the money" space. Think $800 couches in the Rivet line and $1,150 sofas under the Stone & Beam brand.

Why is Amazon doing this?

Clearly, Amazon wants to own every retail market it does not currently control. It can do that partially by selling other people's brands, but having its own gives it more flexibility. It also keeps it from helping another company build a following and then decide to stop selling through Amazon.

Of course, going private label also allows Amazon to cut out the costs associated with a middleman. It can have the hundreds of lamps, chairs, sofas, tables, and other items in each of these two lines made and then sell them directly to consumers.

Amazon is not alone in pursuing a private-label strategy. Target has revamped its clothing and furniture offerings to include a number of company-owned brands. This includes Hearth & Hand with Magnolia, from Chip and Joanna Gaines of Fixer Upper fame. 

That line, which isn't furniture, includes "over 300 items spanning tabletop, home décor, and giftables," according to a Target press release. The company also has Project 62, a private label brand that includes everything from furniture to bath towels. 

Will private-label strategies work?

The challenge for any brand is creating demand. Target can build recognition through in-store displays, and partnering with the Gaines' gives those lines a built-in following.

Amazon has a bigger challenge on its hands, but the retailer likely uses its existing data to make product decisions. It almost certainly had enough searches on its platform for "tiny sofa" or "farmhouse chair" to justify entering the furniture space.

Not every private label will work, but Wayfair has shown that there's a stronger-than-you-would-expect market for furniture that people are buying without actually seeing it or sitting on it. Amazon should be able to follow that model leveraging the credibility of its own brand name as well as its strong reputation when it comes to making returns easy.

In many ways, this is maybe not a toe, but not more than a foot, in the water for Amazon. It's two lines targeted at Millennials and young families respectively. Those are core customer bases for the online retailer and are both groups more likely to have limited experience and loyalty when it comes to buying furniture.

Amazon has made it feel normal to buy nearly anything online. There's no reason it won't be able to do that in furniture and this could be just the start of something that grows to be huge.

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