Private Labels Gone Public

Zalando is not a well-known website in the U.S. However, for European consumers, it’s a digital treasure chest for fashion and accessories at all levels. Among the things that separate Zalando from Amazon — the U.S.-based eCommerce giant to which the company is most often compared — is its luxury brands, like Givenchy and Proenza Schouler.

Zalando has had much success in the upper and even middle-tiers of fashion: Fast-fashion brands like Zara and H&M were long holdouts. Necessity, however, has long been the mother of invention. In Zalando’s case, that invention was zLabels — their 17 brands of private label offerings that make up the zLabel unit. A unit that, as of 2016, was spun out of its parent firm, free to take on the larger world of online commerce.

“We see great potential. We want to strengthen the brands outside of Zalando,” said Jan Wilmking, managing director of zLabels.

It was, however, a move that drew criticism at the time.

Launching a fleet of private label products isn’t unheard of. In fact, it’s considered a margin-boosting way to extend a brand’s reach among consumers. For Zalando, making zLabels independant meant that its 17 labels would now be appearing on other retail marketplaces — like ASOS, Alibaba’s Tmall and even Amazon, which is an unusual move. You can only buy Amazon private label products on Amazon itself; ditto for ASOS, although they do stock Zine (a zLabel shoe brand). And for good reason, UBS Analyst Adam Cochrane pointed out: Making private labels public oftentimes means they don’t live up to their full potential, which draws consumers back to the home retail site.

“Having your own product seems to be a better defensive move than selling via someone else’s channel. That gives you one less reason to go to Zalando rather than Amazon,” Cochrane added.

But zLabels disagrees. Bucking tradition has paid off for their fleet of private label brands, by gaining access to a wider base of customers and allowing their parent firm to target them more accurately to the right buyers.

Knowing the Offering

With 17 different brands, zLabels is somewhat different from other firms that have launched private label businesses, noted Zalando Vice President of Product and Merchandising, zLabels, Sergio Odriozola: their offerings have more of a reach. Instead of focusing on millennials or business shoppers, zLabels hopes to capture a wider footprint of shoppers.

And, if a retailer is expanding its target base, from zLabels’ point of view it makes sense to create more touch points for consumers to reach those offerings. By limiting zLabels’ availability on the Zalando site, they could force customers to come to them. However, Odriozola noted, that runs the risk of never encountering a consumer at all.

“Understand your customer … from each specific platform,” he said. “A private label that works well for Zalando might not for ASOS. It’s about understanding what the customer is willing to buy at that moment.”

The opportunity arises when a customer is looking to make a purchase. If a company decides not to be available at that moment, the brand essentially has taken themselves out of consideration. To expand the brand over time outweighs the risk of cannibalization — and the pattern has seen bigger sales among those zLabels goods, as they’ve grown their digital reach in the last 18 or so months.

To be sure, zLabels’ strategy interprets “private label” very differently from its usual definition. It could be argued that when a private label is available on multiple marketplaces, it can no longer truly call itself “private.”

But for zLabels — which, despite having its own warehousing and logistical network, is still officially part of the Zalando family — public private labels are the next natural evolution for a brand that, from its inception, has aimed to reach every type of consumer.

A diverse set of goods, the company reasons, requires a diverse collection of places from which to access them to really live up to their full potential.