Thomas, Ryan, "The Right Mix: Brands versus Private Labels," Apparel, Feb'04, 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, there's a high probability that it is still in demand during the next season. A manufacturer won't 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. Private labels can be very helpful to a department store's sales if quality and quantity are considered.
The quality of private labels is important because if it seems too cheaply made, it will have to be marked down, which greatly lowers profits. Also, to get large profit benefit from a private label, it should be available in large volume, particularly across similar categories. For example, offering a particular private label in men, young men, and boy's allows for minimal advertising to cover all three categories, increasing the label's overall sales. Private label clothing lines are typically more appropriate with merchandise that is sold year-round with no seasonal trends-meaning lesser fashion risks. Nevertheless, private labels are becoming a bit more fashionable. They " ve increased from having only four seasons per year to twelve seasons per year.
This means more frequent introduction of fashion items. Overall, private labels are designed as alternative choices to national brands, not to dominate any categories. Implications for Retail Industry Department stores need to be careful not to upset any national brands by developing private labels to compete with them directly. I agree that private labels are very useful in creating a lower cost alternative to the more expensive "name" brand. However, many people that shop in department stores are shopping for the prestigious brands they know are available, and department stores count on that fact alone.