Growth of Retailers’ Private Label Business Challenges Brand Owners, Licensees
As retailers step up the number of private labels they deploy, and apply ever-more-sophisticated positioning and merchandising strategies to them, brand owners and licensees are increasingly challenged to adapt to the changed environment.
Research from NPD Group shows that private label now accounts for a significant portion of sales in some of the biggest categories in the U.S., including technology, accessories and housewares. But the industry being most impacted at the
moment is apparel, where private label now accounts for 30 percent of total sales in the U.S. In Europe, private label is even bigger, with about one in three purchases made on private label brands. For some European countries like Switzerland, nearly half of purchases made are on private label, according to NPD.
In grocery, according to a Nielsen study for the Private Label Manufacturers Association (PLMA), sales of store brands rose 9.3 percent to $122.3 billion in 2017. (Those figures don’t include major private label purveyors such as Aldi, Trader Joe’s and Costco, nor does it include online-only retailers such as Amazon. Nielsen estimates that including such companies would add at least another $35B to the total.)
And while retailers’ proclivity for private brands has tended be cyclical in the past – they’re attracted by the margins, until something doesn’t work and they’re stuck with the markdowns, at which point they head back toward national brands — there’s general agreement that we’re in the midst of a fundamental change.
The Second Wave of Private Label
“Private label has always been around, but the quality and breadth of items available today are a far cry from the Brand X macaroni and cheese in plain white boxes in the value sections of 1970s supermarkets,” says Marshal Cohen, chief industry advisor, NPD, in the report “Private Label Revolution.” “Today, we’ve entered the second wave of private label, where big name retailers are investing more and more in bringing to market their own labels, which customers are growing to love.”
As with many of the other major shifts happening at retail right now, one can look directly to the consumer (and their enthusiastic e-commerce and social media uptake) to find the cause.
Consumers are now accustomed to the benefits of shopping and sharing online – instant price comparison, access to extensive product reviews and the idea that purchases reinforce their own identity (not the identity of a brand or retailer), says NPD. As a result, brand loyalty is trending down, and brands (all of them, not just private label) have to give consumers a reason to choose them, beyond just value or familiarity.
Want to find out about how retailers are using private label n their apparel strategies, and the implications for licensing? Then don’t miss the next LIMA/NPD Executive Breakfast, Nov. 14 in New York City. Two of NPD’s apparel and fashion experts will discuss not only the private label revolution and its impact, but also increasing consumer demand for sustainability in fashion, which is driving purchasing decisions, particularly among Millennials. Register now.
“Retailers went from seeing private labels as opening price point margin builders to viewing them as proper brands that could compete against national brands with a full spectrum of good, better, best products,” says retail consultant Carol Spieckerman. “They now consider these brands owned assets to the point of not only looking at the equity the brands have, but making them available to other retailers.” Indeed, Walgreen’s earlier this month unveiled plans to test sales of Krogers’ Simple Truth organic private label products through select stores.
An example of the tiered strategy retailers are taking with private labels can be found at Target, which earlier this month launched the Smartly brand — more than 70 basic products ranging from all-purpose cleaners to body lotion, paper plates and shower gel all priced between 59 cents and $11.99. Those items are priced about 70 percent below national brands such Procter & Gamble and 50% less than Target’s own Up and Up brand. Meanwhile, Walmart has expanded use of its Mainstays brand for bedding, in some cases in the price range of the Better Homes and Gardens label it licenses via a DTR with Meredith Corp.
To some market watchers, the genesis of this latest surge toward private label business is a case of retailers reacting to the realities of an omnichannel world in which brand owners and their licensees have developed their own direct-to-consumer business. Of course, the brands say they’ve been forced to do that as stores close, existing chains shrink and shelf space contracts. Also, the channel definition that once separated, for example, department stores and mass merchants, has blurred, driving retailers to carve out their own niches in extending private goods from entry-level to mid-priced, and in some cases, premium products.
Co-Branding With Licenses
In some cases, the private labels are co-branding with licenses. For example, Bloomingdale’s has introduced a Happily Grey x Aqua collection featuring 12 styles of women’s apparel priced $68-$249. The capsule collection combines fashion blogger Mary Lawless Lee’s Happily Grey brand with Bloomingdale’s Aqua private label, marking the first time the retailer has partnered with a social media influencer. Bloomingdale’s move comes a year after Nordstrom launched a similar collection with fashion blogger Arielle Charnas’ Something Navy brand, combining it with its Treasure & Bond private label. The collection registered $1 million in sales within the first 24 hours of being available last fall.
It’s not just for apparel. Seltzer Licensing’s Stuart Seltzer, who works with Safeway Albertsons, said he’s helped the company license in brands for co-branding with more than 100 products of that retailer’s private label products.
To navigate the new retail landscape, licensees must be complementary rather than competitive with private label brands, since retailers have built their own product development, brand-building and sourcing operations, say industry officials. To complement private labels, licensed brands must find a niche within a category that isn’t being addressed by retailer’s own label.
Co-Existing Rather Than Competing
“Instead of thinking about it as competing, licensees/licensors need to think about it as co-existing. Because if you look at it that way, then you also are speaking the retailers’ language,” says Spieckerman. “You are positioning your portfolio (of brands) in relation to a retailer’s platform and brands. It is about complementary strategies across multiple categories, rather than trying to knock the other guy out. There is always going to be a role for something that complements private brands.”
Yet finding those complementary strategies has become increasing complex, especially with broad array of brands readily available not only in stores, but online as well. Amazon has increasingly introduced private label brands – P.O.V. (personal care), Lark and Ro (dresses), Peak Velocity (sweat pants, shorts hoodies), Good Threads (men’s shirts, pants), The Fix (women’s bags, clutch, shoes) – but with little promotion and relying instead on consumer data to match products with buying habits. Walmart has been responding by buying online brands – Bonobos (men’s apparel), ModCloth (women’s apparel) and Moose Jaw (outdoor gear) — to create what essentially have become online private brands that can complete with Amazon’s labels.
“Amazon and other ecommerce retailers have been aggressive in building their own brands,” says The Joester Loria Group’s Debra Joester. “This is something that is not going to go away. Smart (bricks and mortar) retailers will figure out what their selling proposition is, what their consumer will accept and how they maintain a balance between branded products and private label items that are legitimate competitive options.”
If licensees and licensors need a measure of the private label business, the grocery business is a good marker. Grocery chains have long used private label for opening price point (OPP) items, but have gradually spread their use to more premium products such as organic food. Premium products accounted for eight percent of private brand grocery sales of $59.1 billion in the year ended July 8, 2018, while OPP accounted for 32 percent, according to Nielsen.
At the beginning of this year, Albertson’s announced that its O Organics line, launched in 2005, now generates $1 Billion in sales annually. The line features more than 1,000 products. In the most recent year, O Organics added about 200 new products and grew sales more than 15%. When it made the announcement, Albertson’s said that it planned to introduce 500 or more new products this year under the O Organics line, from produce, dairy and meats, to deli, snacks and baby items.
Joester Loria Group, Debra Joester, Pres., 212-683-5150 x302; firstname.lastname@example.org
NPD, Marshal Cohen, Chief Industry Advisor, 516-625-0700 , email@example.com
Seltzer Licensing Group, Stuart Seltzer, Pres., 212-244-5548, firstname.lastname@example.org
Spieckerman Retail, Carol Spieckerman, Pres., 650-307-6635, email@example.com