It’s spring cleaning at Amazon, as the commerce behemoth folds Diapers.com, Soap.com, and others into the main brand.
Amazon will shut down subsidiary Quidsi, which it purchased in 2010 for half a billion dollars after a bitter price war. The company cites unprofitability as the reason, but many see the decision as the final move in a consolidation of home products that prepares the giant to pivot to new markets, such as grocery delivery.
"We have worked extremely hard for the past seven years to get Quidsi to be profitable and unfortunately we have not been able to do so," an Amazon spokeswoman said in a statement.
Quidsi covers a number of brands including Diapers.com, Soap.com, BeautyBar.com, and employs more than 1,000. Some workers may apply for other Amazon jobs, and the software development team will shift to building technology for the grocery delivery service AmazonFresh, but the restructuring will come at the cost of 263 jobs at the New Jersey headquarters, according to the New Jersey Department of Labor notice.
The market reacted favorably to the news, with Amazon’s stock rising 2.1 percent.
The commerce company bought Quidsi seven years ago after undercutting its profitability by slashing diaper prices and launching a competing Amazon Mom (now renamed Amazon Family) benefit program under the umbrella of its Prime subscription service.
The purchase eliminated the competition and brought in new customers in one fell swoop – customers Amazon is likely eager to convert to Prime subscribers, if they haven’t already.
"It is likely that Prime has grown to the point where members no longer separately shop on Diapers.com or Soap.com so maintenance of separate product-specific sites makes less sense," Wedbush Securities analyst Michael Pachter told Reuters.
Amazon Prime subscribers pay a yearly membership fee, but their real value comes from their high shopping frequency, encouraged by free, two-day shipping and media subscriptions. Now that Amazon has had time to absorb all the value they could from the Quidsi services, it’s time to clean house, some say.
“They sucked out any knowledge that team had and now they’ll put it behind the Amazon brand and steamroll those categories,” Allen Adamson, founder of Brand Simple Consulting in New York said to The Seattle Times.
Low margins on the household commodities Quidsi specializes in also contributed to its eroding value.
"Consumables like soap and pet food are often priced very competitively by retailers in order to drive price perception and ultimately drive online and in-store traffic," said Guru Hariharan, chief executive of retail technology company Boomerang Commerce.
Rather, the company seems to be focusing on a recent push into the $600-billion grocery market, which makes the timing right for consolidation.
It recently launched a trial grocery delivery service in Seattle where customers can shop online, then drive to a specified pickup location at a certain time. Similar services are available from Amazon’s main competitor Walmart, as well as other grocers.
“Amazon wants to be the single easy place to go for everything. The timing is not coincidental as Amazon wants to bring more attention to its specific brand entities in areas like grocery where it wants to expand,” said Matt Sargent, senior vice president of retail at Frank N. Magid Associates.
This report uses materials from Reuters.