These days, more and more retailers are creating private label brands as a way to offer exclusive, unique product for customers and to control the production supply chain. The contribution of private label product within a retailer’s assortment can vary. Some companies carry a small percentage of private label product while others carry a larger percentage in order to satisfy the unmet assortment needs of a customer. While a private label collection can enhance a retailer’s assortment and potentially drive higher profitability, launching and fine-tuning exclusive product is difficult and requires plenty of advanced planning and resources. Once private label product launches on a website or in stores, it is important to stay reactive and play close attention to customer comments and sales metrics, specifically comparing private label versus non-private label performance. Let’s take a look at the features of a private label assortment and what is needed to ensure the successful planning and management of these styles.
Private Label 101
Private label, also referred to as “own brand” or exclusive, refers to product that is designed and manufactured by a retailer in a vertically integrated fashion. Typically a retailer will assign a name to a private label collection. Examples include Target’s Merona, Safeway’s O Organics, and Walmart’s George. These brands sit adjacent to name brands and therefore must compete with the fleet of a retailer’s brand offerings. I spent four years at an eCommerce apparel start-up that carried product from over 200 brands. This company decided to develop private label plus- sized assortments because external vendors did not have adequate offerings.
Why invest in Private Label?
There are several reasons to justify an investment in private label.
- Fill the gaps: It allows retailers to exercise their creative direction and develop unique product in-house that cannot be obtained by vendor partners. If external brands are missing key trends or silhouettes, a retailer can utilize their private label resources to develop these products. Retailers generally hire a team of designers, product development specialists, and a fashion director to oversee private label product development and construction.
- MSRP & Cost Control: A retailer is able to set ticket prices and engineer the costs of products produced internally. With no manufacturer’s suggested retail price (MSRP) to adhere to, one can set a retail ticket that is competitive, compelling, and maximizes profitability. It is important to ensure that tickets remain fair and in line with similar product, otherwise this can lead to a decline in selling velocity and can generate negative customer reviews.
- Supply Chain Control: When a retailer oversees product development and manufacturing, it is able determine the optimal factory to produce products. In addition, a retailer can oversee the product creation, vetting samples to ensure that trim and fit are up to standard.
- Decreased reliance on external vendors: With an increase in private label, a retailer can decrease its reliance on external brands and vendor partners. This is useful for several reasons. For example, if a core vendor goes out of business, your company is more protected since it can produce similar items using its private label channel.
Planning Private Label
An investment in private label usually requires significant unit quantities in order to hit factory minimums and achieve favorable costing. Thus, especially within smaller retail companies, planners find themselves utilizing comparable styles and adding additional upside when determining buy quantities for private label styles. For example, during my tenure as a merchandise planner within an eCommerce start-up, I was tasked with determining buy quantities for a collection of private label dresses using a bottoms up planning approach. With no other comparable private label styles, I had to select non private label styles with similar price-points and aesthetic features to serve as benchmark styles. I used selling data from these styles to determine optimal inventory quantities. However, since the factory minimums were higher, I had to assume a longer time on offer to justify an increased unit investment. Thus, using comparative styles and increasing selling duration is a common technique planners use when planning private label buy quantities.
Perils of Private Label
It’s important to be cognizant of potential issues that can arise upon launching a private label collection. Here are some examples and potential resolutions.
- Customer Complaints Regarding Quality: If this happens, ensure you are addressing this issue with the factory and make sure you are properly assessing make and fit during the sampling process.
- Price Resistance: Are your tickets fair? Is the ticket reflective of make and quality of your product? Be honest with your team and determine if action needs to be taken to adjust private label ticket strategy. Ideally, product is initially priced right, however, there are times when you must take in-season action to alter your ticket prices and hopefully induce a sales lift.
- Cannibalization: Is your private label product too similar to your non-private label product? This is a huge problem that can create a poor shopping experience and lend to lackluster sales results. It is crucial that private label product represents items that are NOT already present within your assortment. Ensure that there is alignment on private label product strategy before proceeding!
A successful private label investment strategy can yield great benefits for a retail company including margin growth, increased assortment choices, and supply chain control. With a thoughtful strategy and consistent in-season management, a retail company can drive a favorable private label business. The biggest mistake a company can make is overinvesting in private label resources prior to testing product and developing a thoughtful, cross-functional plan. So before launching a private label brand, plan!