Everybody wants brand names, right?
By definition, they are recognizable, trustworthy (more or less) and, therefore, popular. The upshot for the wholesale manufacturers behind those brands is, of course, that they are able to set their suggested retail prices a little bit (or, sometimes, a lot) higher than items bearing lesser-known labels.
And that has become something of a problem for brick-and-mortar retailers.
It wasn’t always a problem, to be sure; for quite a long time, it was an acceptable cost of doing business. Retailers were perfectly willing to pay a higher wholesale price to carry major brands because they, in turn, were able to charge consumers a little bit more for them.
The key factor in that longstanding successful equation was that the consumers themselves remained amenable to paying higher prices for brand-name items at physical retail locations.
Then, that pesky Internet (not from our perspective, of course — we love the Internet; we’re literally always on it) came along and eventually gummed up the works for traditional methods of commerce.
The ubiquity of online shopping — offering as it does an ever-expanding range of options for consumers to search for the best price on goods — has turned the practice of price-matching for brick-and-mortar retail operations into a nigh unwinnable quest.
With their field of competition no longer limited to a manageable amount of businesses of the same stripe, department stores have been put in a bind as they fight with online retailers not only for consumer dollars in general but particularly in their efforts to move higher-ticket brand-name items without losing their shirts (financially speaking; in the case of actual shirts, retailers who sell them would be happy to be free of them provided they receive payment in exchange).
For many retail chains, the solution to the increasingly prevalent profit-margin problem surrounding brand names, as a recent story by CNBC shares, is starting to become that they simply don’t sell so many brand names.
Or — at the very least — they don’t put as much effort into stocking and moving as many of those nationally recognized brands as they once did.
Where is traditional retailers’ focus moving instead? To private label.
The growing practice of designing and selling in-house, private-label brands — as well as brokering exclusive deals with established third-party brands — not only gives department stores slack in terms of pricing versus both online and brick-and-mortar competitors (in that the items in question are simply not available anywhere else), it also, as CNBC notes, enables them to keep a greater percentage of the sales than that from goods that traverse the traditional manufacturer-to-retailer-to-consumer chain end to end.
If there was an “early adopter” of the practice of private-label retail, that title could certainly be applied to JCPenney, which the CNBC story points out first boarded the private-label train more than a century ago. Although the chain did, at one point, reduce its focus on private-label offerings — which had grown to account for nearly 50 percent of its business — in recent years, it has ramped those operations back up, with the intent to climb even further.
According to CNBC, sales of private-label goods have increased JCPenney’s gross profit margin by 6.6 percentage points over the last three years. The retailer is aiming to keep that trend going through promotional efforts like its “Penney Days” campaign, which allows consumers that buy an item at full price to purchase a private-label offering (such as those from the in-house Arizona brand) for the cost of one cent.
"It's differentiated product, [and] it offers great value," John Tighe, executive vice president and chief merchant for JCPenney, told CNBC. "We think it gives us a great position in the marketplace to control our destiny."
Controlling their destiny. That’s got to be an appealing concept for brick-and-mortar retailers that have been feeling the squeeze from eCommerce businesses as they try to drive consumer traffic around brand-name items.
Is private label physical retailers’ ticket to freedom from the uphill battle against the digital realm?
It might not be so simple. Private-label items are growing in consumer popularity, and that’s a good thing for retailers with the capability to produce and offer their own in-house brands.
On the other hand, though, that very popularity has caught the attention of a little online retailer you might have heard of called Amazon, which is moving full speed head with its own private-label offerings.
So, this fight, for brick-and-mortar retailers, may have taken on a whole new dimension.