6 Ways Retailers Gain Control By Using Private Labels

In the ongoing quest to leverage products, pricing and profits, retailers now see that offering hundreds of brands in every store is no longer a winning proposition. They appear to realize they have a better chance of reeling in more customers and profits by taking a more aggressive approach with private label products. JCPenney (Dallas Morning News) and Kohl's are the latest retailers to join the parade that includes Nordstrom, Bloomingdale's, Saks Fifth Avenue*, and many many more, as they all seek competitive surcease and greater profit margins through innovations that include private label brands.   

As a side note, Amazon, last year, appeared to be going to school on -- and quickly offering successful similar products to -- its own third party sellers (whose information they had collected and assiduously studied). (Does Amazon Eye Its Own Marketplace Vendors' Best Sellers?) Almost simultaneously (perhaps anticipating the flight of third party retailers it copied), Amazon added its own private label clothing brands. (Amazon Pursues Profitable Fashion Sales With Own Private Label Offerings).   

So what are the advantages of private label?

It's all about CONTROL:

1. Control over branding. Private label products are, by definition, unique to, and identified with, the specific retailer. 

2. Control over pricing.  Control over pricing means control over profits. Retailers have discovered that sourcing a wide range of products can be made at prices that allow for net margins to account up to several times the cost of the goods sold.  

Cases in point:

-- Kohl's private label brands generated nearly half of the retailer’s $19 billion 2016 sales. (Retail Touchpoints)

-- "Apparel margins are generally... as high as 80 percent depending on the product, price, and materials and labor used." Forrester retail analyst, Sucharita Mulpuru, quoted in Wired

-- Even in the grocery business: A Food Marketing Institute study found that retailers earn a 35% gross margin on store-branded products compared to 25.9% on comparable nationally advertised brands.

3. Control over design, production, marketing and distribution. Private label allows more independence, higher control of production, marketing and distribution as well as control over placement, signage and related promotions.    

4. Control over changing customer preferences and over the customer experience. Private label provides for a personalized image (and higher customer loyalty), as well as personalized sales and come-ons spotlighting both the private label product(s) and the retailer identity to the customer.

5. Control over value perception. Value or perceived value has always been a touchstone for pricing and sales. For the retailer, value is extremely important regarding the company image, which, in turn, enhances the ability to command optimal prices. For the consumer, perception of price is related to a perception of "value" as well as reinforcement of their own savvy as shoppers.

6. Control over competitive maneuvering. Private-brand products allow retailers to differentiate their products from competitors' products and provide consumers with alternatives to other brands. Most importantly, private label deflects comparisons and counterfeiting -- it's much more difficult to find and compare, let alone create, a similar private fashion item.

Bottom line for your bottom line:

There are many compelling reasons for retailers to emphasize private labels in today's omni-channel landscape.  

Retailers with well-respected, well-marketed, desirable private-label brands can create better sales opportunities for themselves as they build value and recognition from the customers.

The biggest advantage of private label is about control: Control over branding, pricing, value, product, marketing, positioning, reaching the customer, and offering a unique customer experience.  

Another highly important advantage of private label is the competition's inability to price match or copy -- giving retailers the competitive edge they need so badly in today's transparent landscape.

Ultimately, the magic formula emerges:

With private label (as with retail sales in general), the lower your expenses, and the better your pricing, the greater your profits will be.                                  

So retailers adding to and beefing up their private label offerings makes a lot more sense than racing to the bottom on price.

Author's note:  As we "go to press" with this blog post, comes news that Saks has just opened a new store in Manhattan, full of exciting (my word) content and innovations, including one hundred "exclusive" styles.  (Chain Store Age). Stay tuned for more news of how retailers are addressing the need to adapt and innovate in today's marketplace to make ultra-appealing customer experiences.  

 

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Naomi K. Shapiro

About Author

A seasoned market communications specialist, Naomi headed public information for several academic and professional associations and was the founder and CEO of award-winning agency, Creative Brilliance Strategic Marketing Communications. She created and published Brilliant Ideas for Publishers Magazine and authored popular newspaper trade reference, The Brilliant Book of Promotions, Sales Tools & Special Events. Simultaneously, Naomi savored the world as an adventure travel writer that included trekking on glaciers, fishing with saltwater crocodiles and swimming with piranhas. Naomi holds her M.A. from the University of Wisconsin, including participation in a unique industry-science-technical writing program.
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