Attractive private brands are a proven engine for growth . . . when done well.
While retail sales figures are looking grim, mobile shopping just keeps gaining. During the past holiday season, mobile commerce was up 63 percent in the US, according to Business Insider.
That's hardly a silver lining for today's retailers. While mobile shopping still accounts for a small fraction of sales, it has a far more profound impact on wider shopping habits. It is estimated to influence an astounding 60 percent of all purchasing, as smartphone-wielding consumers check for cheaper prices while in-store–then simply buy somewhere else.
In a bid to keep their customers from straying to competitors, retailers are extending into online and teleshopping, and developing increasingly sophisticated, data-driven loyalty programs. Yet in the frantic search for new solutions, they often neglect a powerful weapon that has been around for years: private (or "own") brands.
An attractive private brand–such as Target's "exclusive" lines–offers something unique that customers can't buy elsewhere. And when done well, these private brands can be an engine for growth. Canadian food retailer Loblaw, for example, has private-brand sales of about 30 percent of retail sales through its "President's Choice" line, which is well above the U.S. and Canada retail average of 20 percent.
Unlike many other retail strategies, the beauty of private brands is that they cannot be easily or quickly replicated. Establishing a distinct, compelling private brand is a challenge, but we've found that the best companies do five things well.
The five steps to private-brand success:
- Sound management principles matter. If private brands are to remain competitive and profitable over time, retailers have to apply sound product management principles similar to those employed by CPG companies. This means constantly reassessing what customers want, what competitors are offering and what it costs to manufacture the items. In this state of continuous improvement, products may be regularly redesigned, adding features that promote sales while eliminating unnecessary attributes that only serve to drive up costs. Future stars should be nurtured, receiving appropriate levels of investment and given sufficient breathing space in-store, with less popular items scaled back or withdrawn entirely.
- Focus the innovation. Few retailers possess the R&D capabilities and budgets of multinational packaged goods companies. But what they do have is extensive knowledge of their customers' buying behavior, enabling them to identify unmet needs (such as new pack sizes or novel flavors), changing tastes (in the form of organic food or international dishes) and high-growth segments (such as "aging convenience-seekers"). Given limited resources, retail groups tend to focus efforts on a few, innovative products that can enhance their overall reputation. Looking beyond the organization, many partner with small, innovative vendors and form exclusive supplier relationships.
- Provide the right marketing support. Private brands launched without a thoughtful marketing campaign face stiff headwinds. Proven tactics like attractive packaging, switch-and-save comparisons and a carefully thought-out assortment of brands can help. In addition, companies should consider using existing marketing channels in-store and online, via flyers and viral media, to test and raise awareness of their most innovative products. Only a few, larger retailers (notably Loblaw and Target) employ national media campaigns to promote private brands.
- Extend the brand. By stretching established private brands into new areas, retailers can build sales volumes and increase their return on marketing investment while strengthening brand equity. UK supermarket chain Tesco, for example, has expanded the range within each of its "healthy," "unique" and "international flavors" brands. President's Choice has moved into financial services, telecommunications and home goods, while Sears and the UK's Boots have both diversified into new retail channels and markets. Mainstream consumer brands find it hard to match this approach, as they lack the retail presence to test out new offerings.
- Stay nimble and build talent. Many of the best companies design and innovate products in-house, which allow them to react more quickly to changing external circumstances, track commodity costs more closely and ensure shorter development cycles and better tracking of commodity cost rises. Their private brands also have a solid support structure, thanks to investment in category knowledge, supplier development and information and knowledge management systems. Loblaw follows this model, and has its executive chairman, Galen Weston, as the face of the "President's Choice" private brand on all television advertising, leaving consumers and employees no doubt about the company's commitment to the brand. Since retail category managers are often not rewarded for promoting private brands, incentives need to be aligned with performance (e.g., "shadow P&L" for that brand) to give these brands a higher priority.
The kind of skills needed to create and manage outstanding private brands is often in short supply, and many retailers have chosen to bring in external talent. Duane Reade turned to former Loblaw executives Joe Jackman and John Lederer to reinvent its store format and private brand; Loblaw hired Joe Mimran to launch its "Joe Fresh" line; and Target is renowned for its exclusive partnerships with Isaac Mizrahi and other designers.
Given the relentless march of mobile and online shopping, retail CEOs should ask themselves:
- Do we have a clean private brand portfolio? A degree of ruthlessness is necessary to jettison any brands lacking clear target markets and/or a loyal customer following. Only those that can help differentiate stores should remain.
- Do we have strong sourcing and design capabilities? Better procurement, packaging and product design can shave as much as 10 to 15 percent off private brand costs.
- Are we innovating intelligently and flexing our marketing muscle? Once questions 1 and 2 have received an affirmative answer, retailers can look for low-cost innovations and aggressively market private brands in-store, at point-of-purchase, in flyers, on websites and through external media.
In an age when retailer loyalty sometimes lasts as long as it takes to click onto a price comparison website, high quality private brands may just give consumers cause to fill up their baskets in one store–and come back next time.
This article originally appeared on Retail Leader