Developing a personal brand or proprietary label for a product, service, or content involves several key steps:
Rewritten Article:
Private Labels: The Secret Sauce for Successful Retail Transformations?
When retailers seem to hit a snag, they often talk about the same solutions: trimming costs, finessing operations, updating technology, or revamping stores. But what about merchandise? That’s where private labels enter the fray. In recent years, Macy's, J.C. Penney, Kohl's, and others have put considerable emphasis on developing their own brands as a strategy to boost sales and attract new customers.
Target has paved the way with nearly 50 brands across apparel, home goods, consumer products, and food, several of which rake in over $1 billion annually. Intrigued by Target's success, competitors have poached key personnel from its private label operation. For instance, Macy's has recruited and contracted with top Target designers and merchants, while Bed Bath & Beyond went a step further by hiring Target's top executive in the space, Mark Tritton, previously known for his stint at Nordstrom.
Yet, Bed Bath & Beyond's fledgling private label efforts didn't yield the expected results. Despite introducing over ten new private labels, the home goods retailer filed for bankruptcy last year, leaving Overstock to take over its name but not its stores.
"Private label isn't a catchall buzzword," says Jeffrey Sward, founding partner of Merchandising Metrics. "In the customer's eyes, it's a new brand, and developing it requires more than mere replicas of best-selling national brands." Success comes from creating a distinctive brand story that gives customers a compelling reason to switch from established national brands. Trust is something that's built over time.
The Powerhouses of Private Labels
Target and Costco have created private label juggernauts, with about a third of their sales coming from owned and exclusive brands, according to their respective annual reports. Costco's Kirkland Signature private brand accounts for 28% of its merchandise, as per Star Tribune. Both retailers emphasize that their private labels contribute to their margins, sales, and customer satisfaction.
"We've invested heavily in developing and protecting our well-recognized brands, including the Costco Wholesale trademarks and our private label Kirkland Signature," Costco stated in its annual report last year. "We believe that Kirkland Signature products are high-quality, offered at lower prices than national brands, and help lower costs, differentiate our merchandise offerings, and generally earn higher margins."
Target mentions that its private brands "generally carry higher margins than equivalent national brand products" and differentiate the retailer from its competition. Yet, Target alsorecognizes the complexity of the undertaking and potential pitfalls: "owned brand products involve greater sourcing risk, which can expose us to reputational risk... They generally require longer lead times between order placement and product delivery and require us to take ownership of those products earlier in the supply chain."
The Time and Effort Behind a Successful Private Label
According to Lee Peterson, a veteran merchandiser, a private label operation is not just a side project but "a company within the company." You need sourcing, buyers, factory explorers, brand creators, and testers. You need to merchandise these products in the stores, especially to create engaging visual displays that enhance the customer journey.
Liza Amlani, principal and co-founder of Retail Strategy Group, emphasizes that successful private labels are driven by customer insights and closure of the feedback loop: "Target is a leader in private brand because of these things - they also pay attention to marketing and signage." Costco, on the other hand, doesn't require "bells and whistles of visual merchandising," according to Amlani, as a significant part of its brand promise is products that mimic name brands at lower prices.
Time is an essential factor, both in terms of spending enough time and choosing the right moment for launching a private label. A private brand is developed for at least a year before it reaches stores, open to risks as a lot can change in the meantime.
Macy's Private Label Progress
Bed Bath & Beyond's private label push didn't yield much success, but Macy's might fare better. In 2020, Macy's emphasized the role of private brands in its Polaris turnaround plan, promising that they would account for a quarter of its sales. In 2021, with the pandemic in the rearview mirror and its Target team on board, Macy's launched its first private label, On 34th, developed by the former Target merchants. Sward applauds the launch's scope and scale, calling it "a serious attempt to launch a lifestyle brand, which is no small undertaking."
Yet, Macy's must exercise patience and possibly refine the effort before expecting significant results, according to Peterson. "Developing private labels requires more than just hiring the right people. Timing plays a crucial role. Was it the right time to launch this category? Was it the right time to launch this price point, given the current economic climate?" Peterson says. "Macy's might not have a lot of patience for such endeavors, so we'll see how it pans out."
- Amidst the pandemic, Macy's has emphasized private labels as a vital strategy in its Polaris turnaround plan, aiming for them to account for a quarter of its sales.
- In 2021, Macy's launched its first private label, On 34th, a substantial effort developed by former Target merchants, marking a serious attempt to launch a lifestyle brand.
- Developing a successful private label is more than just hiring the right people; timing also plays a crucial role in determining success.
- For instance, was it the right time to launch On 34th, given the current economic climate and the competitive retail industry?
- Target and Costco stand as powerful examples of private label juggernauts, with about a third of their sales coming from owned brands, contributing to their margins, sales, and customer satisfaction.
- Target differentiates itself from competitors by carrying private brands with higher margins that generally earn higher profits.
- On the other hand, Costco's Kirkland Signature private brand makes up 28% of its merchandise, offering high-quality products at lower prices than national brands.
- However, owning and managing private labels come with risks, as they involve longer lead times between order placement and product delivery, requiring retailers to take ownership of products earlier in the supply chain.
- Additionally, developing a new private label brand requires substantial resources, with a need for sourcing, buyers, factory explorers, brand creators, testers, and effective visual merchandising to create engaging displays, all of which emphasize the importance of customer insights and a well-executed feedback loop in the private label industry.
