Private Label Brands:

Encroaching the big brands share

November 24, 2008

By:
Dr.Hitesh Gaur
MBA Student
Institute of Management
Nirma University
I. The Apparel Private Label Paradigm
II. National Apparel Brands Counter
Strategy
III. The Future of Apparel Private Labels
IV. Indian Scenerio
70%
60%
50%
40%
30%
20%
10%
96 97 98 99 '00 '01 '02 '03 '04 '05 '06

Private Labels National Brands

  Worldwide Private Label retail sales have
passed US$1 trillion
 2006 US apparel & shoes retail sales: $358.6
Billion
 2006: 45% apparel sales were private label
 2005: 39% apparel sales were private label
 2002: 35% apparel sales were private label
 By 2010, private label merchandise expects to
increase by 22% to 55% of total apparel sales

Source: US Dept of Commerce, expand on May 2007 Apparel and Textile News
 Consolidation of retailers
 Brands sell to same retailers and become a
commodity
 Retailers need differentiation and better margin
 Declining retail prices (women’s apparel prices
dropped 2.4% 2007 vs. ‘06)
 Globalization of Production
 Product
From % the
1996 to 2006, Change
averageRetail
retailChannel % Change
price declined a minimum
Total -8.9 ofTotal
9% -8.9
Jeans -5.5 Department -13.7
Slacks -11.7 National Chain -9.0
Shorts -4.9 Specialty -5.8
Sweat Apparel -12.6 Mass merchant -7.5
Shirts -8.1 Off-price -4.2
Sweaters -16.3 Other -11.2
Shirts/Dresses -6.1
Source: adapted and expanded from Cotton Inc. winter 2003
 How do retailers achieve low PL prices?
 Imitate designer brands to reduce R&D costs

 Source direct with factories to eliminate middlemen

cost

 Buy in larger volume to receive lower cost

 Source from low cost, duty and/or quota free countries:

China, India, Bangladesh, Vietnam, Pakistan, South &
Central America, Africa
 Generic –very promotional, very low margin,
Conway, Walgreen
 Fast Value Fashion – knock-off brands, Zara and
H &M
 Premium Store Brands – Retailer’s own brand
offers same or better quality at better price. The
most profitable strategy in private label.
 What is the preferred PL strategy?

 Highly competitive - same or better quality at

better prices, average 37% less than national brands

 Higher Gross Margins (est. 58 – 68%)

 Higher selling price per square foot than other

Private label strategies

 Biggest threat to national brands

 Brand Loyalty
See Appendix 2
Retailer 2006 Total Private Label Private Label
Sales % to total sales Sales in USD*

JC Penney $19.9 50% $9.95

Kohl’s $15.5 35% $5.42
Wal-Mart $312.4 40% $124.96
Macy’s $27 33% $ 8.9
Target $59.5 32% $19.4

*Sales in billions include all private label & exclusive products

Macy’s percentage includes 18% private label and 15% exclusive merchandise
 JC Penney’s – a.n.a., Arizona, Ambrielle
 Macy’s - INC, Alfani, Style & Co
 Wal-Mart - Faded Glory, George
 Target - Mossimo, Circo
 Kohl’s - Urban Pipeline, Sonoma, Apt 9
 Combined effort, a win-win strategy:
American Living, Simply Vera, Isaac Mizrahi
 One time exclusive deal – H & M, Target
 Blending in with Premium brands - INC,
Arizona
 Marriage with a celebrity name – Sarah Jessica
Parker, Hilary Duff
 Develop unique products and stay ahead as a trend leader
 Create own stores
 Develop a compelling marketing strategy
 Increase brand loyalty
 Combine effort by offering exclusive lines. I.e, Simply Vera,
American Living, Liz & Co
 Create one shot exclusive deliveries and SKUS
 Evaluate sourcing strategy and production cost
 Maintain net price (minimal promotions & discounts)
 Improve forecasting and turn around time
 Becoming national premium lifestyle brands: INC,
Alfani, Arizona
 Branching out to create specialty chain business: George
apparel stores, Wal-Mart, UK
 Increasing depth of multi dimensional merchandising
product mix (Tony Hawk mens, boys, footwear and etc)
 Spin off PL brands (Aeropostale)
 Cannibalize weaker PL brands
PROS
 Exclusivity & differentiation
 Bring customer loyalty
 Better margin
 Better control in deliveries
 Brand equity
 Freedom in pricing strategy
 Increase bargaining power with
both national brands and PL
factories
CONS
 Inventory risk
 Higher R&D expense
 Higher marketing expense
 No markdown or return
allowance from branded
suppliers
 If product fails, will create
negative image
 Quality control, complex
production & import issues
  KOHL’S
 New Launches– Simply Vera by Vera Wang, Elle Apparel, Food
Network Kitchen estimated growth rate 6-7% for 2nd half of 2007
 Tony Hawk, board-sports inspired, a hot category
 JC PENNEY
 American Living by Ralph Lauren 2008
 C7P – Chip & Pepper Denim 2007
 Liz & Co
 Arizona - $1 billion lifestyle premium brand
 MACY’S
 INC, Alfani, Style & Co, Martha Stewart, Field Gear, Epic
Threads
 WAL-MART *
 George - $3 billion men’s urban fashion
 Faded Glory - $3 billion lifestyle premium brand

*Wal-Mart figures represent worldwide sales

I. Retailers believe private brands are their strategy:

 To differentiate
 To gain and maintain consumer loyalty
 To achieve higher gross margin
 To compete with national brands
 What This Means
II. National brands should:
 Change mind set and realize that Private Labels are
competing brands
 Innovate and stay as market leaders to beat PL
 Stay focused on target audience
 Increase and market brand imagery to gain and maintain
customer loyalty
 Partner with retailers to produce exclusive brands,
SKUS, one-time offers or lines
 Price competitively and streamline expenses
 What This Means
III. Future of private labels:
Private brands will continue to play an important
part of the assortment to their growth strategy
Become national lifestyle premium brands
Deploy a multi-layer strategy in brand, price and
quality
Cannibalize weaker private and national brands
Private Label Retail $ National Retail $ Price
Brands Gross Margin Brands Gross Margin Difference
betw. Brands
INC (Macy’s) $79-129.00 BCBG $158-178 37%
Dresses GM 60-69% Dresses GM 48-56%

Alfani (Macy’s) $34.50-42.0 Nautica $45-55 30-39%

Men’s Polo GM 58-68% Men’s Polo GM 50-54%

Faded Glory $10.77-14.42 Levi’s Denim $19.68 37%

(Wal-Mart) GM 38-54% For Wal-Mart GM 45-48%
Denim

Sonoma (Kohl's) $ 16-28.00 Dickie’s, $16 – 40.00 20 –25%

Menswear GM 60-62% Shady’s & etc GM 40 – 48%

Average price gap 37% based on quality equivalent categories

Average price gap 21% based on national brand’s quality is
perceived to be less than private label brands.
 12/07/21

•Naturals
•Jade Blue •Reliance fresh
•Mochi Ka Juta •Patidar
•Food Bazaar •Shree ji
•Pantaloon •Induben-
•Westside Khakhrawala

21
 Contract PL
manufacturing company

Balsara enterprises:
Contract PL manufacturing company
•Colgate Palmolive
•Beecham Group
•Henkel Cosmetics
•Reckitt & Colman
Vasa Cosmetics :