the inside track on private labels
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Private labels have been around for centuries (e.g. A&P in the US with its Eight O’Clock Breakfast Coffee, Marks & Spencer in the UK with its St. Michael brand, etc.), and have been exploding since the 1970s. In the US, private labels have outperformed manufactured brands in all but one of the last 15 years. In this report, you will learn what they are, how they have developed and why they are critically important to retail today.TRANSCRIPT
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The Inside Track on Private Labels
Sertus LLC. © 2011
www.asiatradepro.com
Jay Peirce The Inside Track on Private Labels (305) 215-3414 March 2011 [email protected]
What is a Private Label
Simply put, private label is the practice whereby retailers sell products in their stores under their own branded label in order to increase profitability and enhance customer loyalty. A Brief History Private labels have been around for centuries (e.g. A&P in the US with its Eight O’Clock Breakfast Coffee, Marks & Spencer in the UK with its St. Michael brand, etc.), yet they have historically maintained a very small share of the overall market. In the twentieth century, manufacturers dominated their retail customers. Consumers purchased manufacturer-endorsed brands that symbolized trust, quality, aspiration, affluence, and lifestyle. However, in the 1970s, as the industry experienced a consolidation and mom-and-pop channels gave way to global players, the balance of power began to shift in favor of retail over brand manufacturers. In the US, private labels have outperformed manufactured brands in all but one of the last 15 years. They represent over 20% of sales at the largest retailers in the world and the growth rate is expected to continue over the next decade in the range of 50% (which is what it approached during the decade ended 2010). As a result of the success of private label around the world, global private label sales now approach USD1 trillion. Why Private Label is Increasing % Floor Space A majority of the growth seen in private label has been due to retail’s incentive to promote its own store brands. Even when there are exclusivity agreements in place with manufacturers, any efforts to promote manufacturer brands in its stores creates a free rider problem – manufacturers may be tempted, because of the retailer’s success in creating a following, to end exclusivity and offer the product elsewhere. By contrast, if the retailer is able to create a following in its private label, consumers must return to its stores to purchase it. In addition, retailers have figured out that products designed and/or sourced by their own teams have higher profit margins than do manufactured brands. The potential profitability is highly appealing
and more and more retailers are jumping into the private label arena with the hope of boosting gross margins. Yet there are a number of challenges that many retailers have not had to confront and that must be well managed if they are to be successful. Building Brand Loyalty Time is a limiting resource. We never have enough of it, and the consumer experience is increasingly becoming one that is highly time sensitive. Therefore, consumers are even more reliant on brands to help them make the purchasing decision quickly. Brands must communicate if they are to be effective and retailers must build their brands over time so it becomes highly recognizable and synonymous with quality, value and trend-right fashion. Many retailers have tried buying their private labels from large manufacturers that are selling competing national brands and the experience is not always a positive one because the priority for most manufacturers is to support and build their brand equity, which can be at odds with the goals and objectives of the private label. Therefore, it is critical that retailers select independent, professional specialists that have experience in managing private label programs in the products sought.
The Importance of Assortments While the private label wave is pushing retail to increase floor space dedicated to their own store brands, it is still important to offer the consumer relevant choices. Striking the right balance of private label and manufactured brands is of paramount importance and is part of any good merchandise planning process. The private label products selected must compliment and not compete with the branded products in their assortments in order to offer a comprehensive and relevant selection for the consumer. Ask an Expert For retailers that do not have the in-house expertise for developing and rolling out a private label, the first decision is to find the right company that can help.
Jay Peirce The Inside Track on Private Labels (305) 215-3414 March 2011 [email protected]
Retailers must consider the complexities of development and need to coordinate the planning, positioning, selection, sourcing, and quality control processes required to launch an effective private label program. Building brand loyalty is not an easy venture. It requires a consistent offer of quality, trend-right products at competitive prices and the assortments must be relevant and correctly positioned to compliment the national brands. Sertus has helped numerous clients from large retailers like Walmart to wholesale distributors in many countries launch and manage profitable private labels. We can also help you achieve greater profitability, shorten cycle times, and strengthen customer allegiance. For more information, please contact [email protected] or visit www.asiatradepro.com