Implication For The Retail Industry
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Thomas, Ryan, “The Right Mix: Brands versus Private Labels,” Apparel, Feb04, p. 30-33
Overview of Article
Department stores that may want to develop or expand private labels to replace lagging national brands should be aware of the downfalls as well as the benefits.
Private labels increase margins from 6-10% higher than national brands. They also allow for fashion garments to be reproduced the following season if they are still in demand. However, department stores risk opposition from national brands if such private labels create too much competition.
If private labels are to be expanded, they should be of higher quality than the norm. They should also be offered in a wide range of categories, to decrease advertising costs.
Article Summary
Department stores have traditionally used private labels on the selling floor as a way to provide a low-cost alternative to consumers. However, they may be expanding and developing more private labels to replace those national brands that have been falling behind.
Private labels are helpful to department stores because they increase margins. On average, private label margins are 6-10% higher than national brands.
Another benefit of private labels is one not offered by brand manufacturers. If a fashionable garment sells out fast in any particular season, theres a high probability that it is still in demand during the next season. A manufacturer wont reproduce a fashion trend the following season, but a department store has that option with private labels.
However, there are definitely some downfalls with creating private labels. If a private label directly competes with a particular brand, the department store risks losing that brand permanently. This is why some chains only provide private labels in fashion-sensitive merchandise categories like home furnishings, pants and sweaters. Also, customers like having brand names, giving them an option to choose between the lower-cost private labels or the fashion-conscious brand names. Nevertheless, retailers are placing more attention on the profitability of each brand. Those national brands that bring in customers, yet continue to lose money are at risk of being replaced by private labels.
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