Why are private branding strategies becoming increasingly important to the retail industry? We unpack this question in detail, first clarifying some often confusing terminology, while also making the important distinction between "private labels" and "private brands." Mostly we center the important role of exclusive products in providing competitive differentiation, minimizing web-enabled price shopping and improving margins. We also call out how retailers young and old, vertically integrated and multi-line, are doubling down on private brands as a way to become more remarkable.
Why are private branding strategies becoming increasingly important to the retail industry? We unpack this question in detail, first clarifying some often confusing terminology, while also making the important distinction between "private labels" and "private brands." Mostly we center the important role of exclusive products in providing competitive differentiation, minimizing web-enabled price shopping and improving margins. We also call out how retailers young and old, vertically integrated and multi-line, are doubling down on private brands as a way to become more remarkable.
What's behind big shifts at Amazon, Target and Bed, Bath & Beyond? Why are DNVB's partnering up with legacy players like Nordstrom for semi-exclusive distribution? Why are Nike and others moving away from wholesale distribution to more exclusive, DTC channels? We take it all on!
But first we open up the with the Top 3 retail stories that caught our attention this past week, including some take-aways from "Singles Day" (aka the 11.11 Global Shopping Festival) and what to make of the big bounce back in sales and earnings for some legacy players--and the lack of profitability among many so-called disruptor brands. While we're not exactly sure just what the heck the "Metaverse" is (a second life for Second Life?), we do take on Facebook's (er, Meta's) plans to market it through their own physical stores.
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks and The Food Professor with Dr. Sylvain Charlebois. You can learn more about Michael here or on LinkedIn.
Michael LeBlanc 00:00
Welcome to the Remarkable Retail podcast, Season 3, Episode 16. I'm Michael Leblanc.
Steve Dennis 00:10
And I'm Steve Dennis.
Michael LeBlanc 00:11
Well, Steve, we have a solo episode today and I really have been looking forward to it because it's focused on an area of retail that at one level can be pretty tactical, but I actually think in a very real way, it is some of the most strategic decisions that a merchant can make.
Steve Dennis 00:25
Yeah, it's, it's, you know, as we as we get into, it's not as if private label or private brands, we'll talk a little bit about the distinction there, which I think can be useful one, it's not as if they're new, but I think we're seeing it play out in many different ways, many interesting, strategic ways. So, we'll dig into that a little bit and talk about some of the best examples of companies that are out there trying new and different things in the face of this new world we're in.
Michael LeBlanc 00:51
All right, well, before we get to that, let's talk about our top three things that are in the news. We're actually recording this on November 11, Singles Day, 11-11, which is, I think, and we're not going to get into the numbers because they're very easily found, but I think it is the biggest day e-commerce day, like, the numbers are just mind boggling, like in the, I was looking at JD, 48 billion in a day or a couple of days, so fascinating Alibaba as well. I was briefed actually by Alibaba, pre, about what they're doing for this 11-11, this Singles Day, what are you, what's your observation of this, this whole thing, maybe there's some lessons for us all to learn from that market?
Steve Dennis 01:31
Absolutely. For years. In fact, I made my first trip to China to take a look at what was going on in retail back in I think 2007, maybe and have been trying to stay on top of it since then, and often say to retail clients or just other people you know, it's, it's absolutely worth looking at the state of innovation in China particularly in retail, Alibaba certainly gets a lot of press with their new retail, you know, just kind of their, their version of omni channel, I guess, but, but JD and a whole host of others and it's and it's not just retail, it's payment technology, logistics, you know, robotic fulfillment, you name it, there's just a lot going on there. So, I absolutely think it's worth, worth looking at. You know, you have to make your translation from, I don't mean translation from Mandarin to English, but the translation from some of the unique dynamics of the Chinese market to the US to Canada,
Michael LeBlanc 02:25
Yeah,
Steve Dennis 02:25
to the UK, but,
Michael LeBlanc 02:27
Yeah.
Steve Dennis 02:27
They, they're definitely leading edge on a whole number of things.
Michael LeBlanc 02:30
Well, and the news coming out was that, and Alibaba was talking about this, you know, it can only go up, sir, for so long. Now, of course, there's been a big shift thanks to COVID. They were like 30%, pre COVID. Not unlike everywhere else in the world, they had a bit of an acceleration as well. I mean, as you say, the market evolved differently. It started more dot com than physical and kind of evolved, but it's fascinating because it just comes back and back to the role of stores.
Michael LeBlanc 02:56
Very important role of stores and the interplay between a goes back a couple of episodes, right, the interplay between what is ecommerce anyway, when people are walking in a store, free ship. Oh, you and I were talking about free ship a lot off-mic. You know, they're shopping online on a mobile phone and they're not even taking the groceries home. There's someone on a bicycle that takes it home for them and like it's just, you know, the blur is real when you think of the Chinese market. Right on, all right, well, let's talk about earnings, lots of different earnings coming out over the past week. We could spend a whole episode on just talking about earnings, but sum it all up for us because, you know, how do we, how do we kind of frame this in a couple of three things that you've observed from this earnings cycle?
Steve Dennis 03:33
Yeah, you know, I was making note during, as, as we do during the week, as the stories we want to talk about, and I ended up with, you know, like, 15 companies that had earnings reports and I thought, well, we're not, you know, we're not going to go through all this. This isn't CNBC. It's, there’s other reasons not to do it, but. but when I was thinking about it, I thought, well, there's, there's a little bit of the kind of the stores strike back, dead cat bounce, sort of narrative, and perhaps a pitch demised by some of the more traditional apparel companies like a Ralph Lauren, or just this morning, again, you mentioned we recording this on Thursday, dealers, big regional department store, posting really great sales increases, and pretty solid profitability.
Steve Dennis 04:16
And I think, you know, as you try to dissect the numbers, is this suggest that these mature brands are somehow having this big Renaissance are really going to be remarkable going forward? I'd say no, this doesn't speak to that when it speaks to is they're comparing against a period where stores were closed, where people were not spending nearly what they would normally spend on apparel and accessories. And we're also in a moment where because of shortness of supply, we haven't seen as, as many promotions and so the gross margins are very good.
Steve Dennis 04:49
So, I think we're in a moment in time for maybe another quarter or two with, with some of these brands. The other kind of characteristic, I think, and we touched on this last week with wayfarers earn peloton reported this past week. And, you know, they've, they've seen the boom that was caused by COVID really slowed down a lot, and therefore, the profitability got hit. So, I think, I think there's this bounce back kind of phenomenon from brands that were hit very hard. There are some brands that certainly got a real unusual push because they were in the home or home fitness or work from home kind of space and that's, that's being tempered.
Steve Dennis 05:27
The other thing I think, just to keep taking a look at and I know, we did get into this a lot with Wayfarer last week is some businesses like DoorDash, which reported huge sales increases, but worsening profits, some of the, the resale companies, these disruptive brands, again, where they got this big boost because of this huge shift to e commerce that's now moderating a bit, you know, still can't seem to make money in what seemed to be kind of a perfect storm. I don't know.
Steve Dennis 05:56
I mean, I think there's a lot to unpack, you know, going through this sort of noisy period where we kind of rebalance of that and to closer to normal regression to the discussion on a call it, but, you know, when you go to the underlying economics, you know, why is it that DoorDash still loses so much money, like where's the pricing the cost piece, because presumably they're, they're past the peak of spending on creating awareness or past the peak on building out their technology, right, like at this point, it's, kind of, cost of goods sold, which is really delivery drivers against the price, against the cut that the restaurant companies get. So, I think really starting to pay attention to those go-forward margins is going to be interesting as we, hopefully, get to appear that it's a little bit more, more stable than we've seen.
Michael LeBlanc 06:39
By the way, we should tell people that we are going to wrap our Season 3 in December, I think it's the, our last episode of season three, and we've been renewed for Season 4.
Steve Dennis 06:51
Folks at the network said, said yes.
Michael LeBlanc 06:53
Yeah, it was, as we said last time, it was touch and go, but we did. We are going to do Season 4, we’ll pick it up again, actually around NRF in January, I think, is when we will launch our Season 4, we have lots of stuff to continue to talk about. So, stay tuned for that, but I'd love in Season 4 in 2022 to talk about this intersection between, you know, how do these folks make money, we're not really a restaurant, food service podcast, but there is an integration between grocery right, the, this grocer rant, you know, a lot of the grocers have upped their game, particularly now, right.
Michael LeBlanc 07:23
They've had a lot of people; they've been the beneficiary of a lot of transference of volume from the soup from a service perspective. So, they're, you know, they're taking a good hard look at how do we not just make plates or roasted chicken on a Wednesday night special, but how do we actually make and then how do we make good restaurant quality food and then therefore, how do we integrate into these delivery services because they need to play in that in some way, shape, or form. So, I think there is lots of lots of food for thought, if I can make that
Steve Dennis 07:49
Oh, oh.
Michael LeBlanc 07:50
All right, well, let's end, kind of, a last and actually probably least big changes from Facebook, from a naming convention perspective, which always brings up for me that, that old joke, I never met a data that I didn't like, their new name is Meta and interesting, buried in all this, kind of, stuff. All this noise is his physical stores, what the heck is Facebook and physical stores, what is going on here, they think it could turn the business around by getting physical.
Steve Dennis 08:16
You know, once again, physical retail, apparently not dead. It's interesting, you know, you think about Amazon being the behemoth in e-commerce, but now actually has close to $20 billion in sales, through physical stores and really doubling down on that. So, that, that was something I think five years ago, when a few of us were predicting that they would make a big move, not necessarily the Whole Foods thing, but just more broadly, because they were going to need stores to accomplish certain things. You know, a lot of people thought that was crazy and Google's opened a store.
Steve Dennis 08:51
So, you know, we're just, we're just seeing some, I guess, uncharacteristic moves you would think on the part of some of these digitally based brands, but I think in the case of what I understand Facebook's trying to do is they're trying to be able to demonstrate this new Meta-verse, which I'm still not sure I entirely understand, but, you know, a lot of the technology, the virtual, AR, VR, sort of things, you know, to be able to demonstrate that is, you know, some cases you have to first expose people to it in real life. So, just like, we've seen showrooms on the part of some of these usually native vertical brands because sometimes you know, customers want to see it in person, try it on or whatever and they may always buy in the future online, but in order to kind of get that, that awareness, get that experience that get that connection physical stores are pretty good at doing that and certainly, Facebook or Meta has the money to experiment with this, so I think, I think it's an interesting move. We probably should talk about what the metaverse means for retail. I'll have to figure out what the hell the Meta-verse is before we do that episode, but there's some people, apparently think that's going to be big.
Michael LeBlanc 10:02
If you're listening to this, check out our YouTube site. We've got a very active YouTube site where we put both bonus content, expanded episodes, we chop up some of this conversation. So, if you just want to hear the bites about our views on 11-11, or the Metaverse or whatever, we, kind of, it's snack size snackable bites, so to speak, on YouTube, smash that subscription button. So, you don't miss a single episode or a single moment of the thought leadership that's coming out from, from us here. Anyway, well, listen, without further ado, and there's been much ado, without further ado, let's get to our episode talking about private labels because it's a fascinating discussion. So, let's start. Let's kick that off too.
Steve Dennis 10:41
Well, part of the reason we wanted to have the episode I think, is to, kind of, unpack as we like to say, some of the different aspects of this, try to get sort out some of the semantics and some of those kinds of things, but it's mostly because private branding strategies seem to be becoming more important to retailers as part of their overall strategy. Now that they're new, we'll probably touch on that, like, certainly not new, but different.
Michael LeBlanc 11:05
Right.
Steve Dennis 11:06
And, and more important, more attention and I think we're also seeing when we think about exclusive merchandising, that there are strategies from some of these newer brands, like digitally native brands, which in essence, our exclusive, kind of, private brands, either only available online or in many cases now available in their own stores.
Michael LeBlanc 11:25
Well, as you said, private label, as a broad catchment term has been around a long time, Tesco in the UK, for example, big private label, Loblaw created this President's Choice brand of chocolate chip cookie, which, which, you know, you know, elevated what in many consumers minds was, you know, private label, so to speak on the shelf was a cheaper, cheerful, more economical, and then this whole other genre came up where it was actually better for the same price, but before we get too far down the rabbit hole, so to speak and speaking of rabbit holes, there's a bunch of interchangeable terms, and why don't we kind of create some, why don't we chalk the field, so to speak a little bit between a private brand, controlled brands, captor brand, proprietary brands, store brand, house brand.
Steve Dennis 12:10
Yeah.
Michael LeBlanc 12:10
You know, there's a, there's a lot going on there. I don't want to, you know, neither of us want to be at the bottom of a rabbit hole, but many of these are actually interchangeable, but not always, right. So, talk about that for a bit.
Steve Dennis 12:20
Well, the fundamental idea, really, is that a brand is exclusive to the retailer. Now, I'll talk about some nuances there, but, but, you know, it's exclusive to the retailer, and the retailer is, somehow or other controlling it, putting it together, you know, they may have helped on the outside, certainly than unnecessary manufacturing it, but they are responsible for the brand strategy, the packaging, how it fits in their assortment, strategy, in many cases, very actively involved in the product development and sourcing. So, it is exclusive to a retailer. So yes, house brand, captive brand, owned brand. Most of these things, I think pretty much mean, the same thing.
Steve Dennis 13:07
I think the two distinctions that are worth talking about. One is what often people call a private label versus a private brand, and I do find that people use those terms often interchangeably. I think it's useful to make a distinction there. I think in my, the way I look at it, a private label, you're, you're, kind of, just filling a gap in your assortment, it's really about price. So, if you go back to when there used to be generics, or like we were talking about, a lot of supermarkets, pharmacies, they would have a lower price version, kind of a generic version of the national brand and so it was very much about being, this is pretty much the same or essentially identical, in some cases, like with pharmaceuticals, to the national brand, but it's cheaper.
Michael LeBlanc 13:58
And for the retailer, it's a better margin generally.
Steve Dennis 14:01
Right. Yeah, because, I mean, you're really taking advantage of either the consumer understanding that Acetaminophen is the same whether it has the Tylenol name on it, right, and so why don't I just pay 30, 40% less, but also, if you are the retailer, you're not paying the packaging and all the branding costs. So yes, you're typically able to just basically take the cost of goods sold, mark it up a little bit and make a pretty good margin. So, everybody, you know, the retailer wins, the consumer wins because they save some money, but it's really about a price value proposition. What started to come as you, as you pointed out in the supermarket industry, happened in the department store industry, particularly at places like Sears, Montgomery Ward, others back in the day was starting to create private brands.
Steve Dennis 14:48
So, the distinction being that you're actually trying to create equity in the name of the product and you're trying to help the customer understand, understand that there is something else above and beyond simply the kind of pure functional benefits. So really almost certainly in the case of Sears, in the case of Tesco, and others, some of these really big players, in many cases that consumers didn't even necessarily realize that they weren't national brands. Crafts, like, Craftsman was, was for many years
Michael Leblanc 15:19
A household name.
Steve Dennis 15:19
Kenmore appliances was one of the most powerful national brands, it just turned out, at least for most of Sears history, you could only get it at Sears. So, so I think there's a distinction and as some listeners will know, as you certainly know, I spent a lot of years at Sears and we actually were a little bit different in that we kind of used Kenmore, Craftsman, Diehard, some of our other exclusive brands both as kind of that private label, as well as kind of a premium brand. You know, we went across a wide range of price points, which isn't, which isn't uncommon. So, in some cases, it was, hey, you know, this is the opening price point dishwasher, and you can get the Kenmore version for 10% less. but other times it was for the same price as the other brands, the GEs, the Whirlpools, whatever, you needed more features at the same price.
Steve Dennis 15:28
So, either way, there was, kind of, a value equation of if, your price oriented, you can save some money for not so fully featured, or get more, but either way, again, it's, it, the point of it was to have a part of your overall merchandising strategy to have specific goals strategically, but typically, it's to create a point of differentiation and give you better margin and you know, more control, I guess you could argue over your, your destiny.
Steve Dennis 16:35
Just quickly the second distinction because we're trying, you know, when we talk about supermarkets, we talk about department stores, you know, we're, we're talking about retailers that carry multiple brands, they're multi line retailers, so their private brand or private label strategy is part of a mix of things that are trying to do, but you also have exclusive branding strategies in the case of direct to consus-, direct to consumer, digitally native vertical brands, you know, as much as we talk about the Warby Parker's and Bonobos and everything. This is not a new strategy, LL Bean, Lands' End, Sur La Table, William Sonoma, you can go through a list of what were originally mostly catalog brands, that eventually open their stores and for the most part, they only carry their product and for the most part, the only place you can get that brand is on their website or in their stores. So, again, strategically, it's about creating differentiation and in the case of the standalone retailers, you know, they have a vertically integrated supply chain. So, there's also opportunities for them to earn greater margin and, you know, really more control the brand experience.
Michael LeBlanc 17:46
So, let's talk about private label, private brand in the context of your work, in terms of being remarkable. What role does it play, we've talked about differentiating, but as a, as a retailer, why would you, and you talk often about, listen, you know, it's no longer time not to be remarkable. So, how does this fit into a strategy that retailers can set themselves apart overall, including their products?
Steve Dennis 18:11
Yeah, well, yeah, I dig into this a little bit in, when I talk about Essential Number Seven: Memorable in, in my book, Remarkable Retail, go through a bunch of different ways to be more remarkable and one of them is this idea of being the only place, again, it could be from the perspective, like we talked about, with these fully integrated brands, whether it's, you know, the Nike store, or it's the Bonobos store, or Duluth Trading Company, you know, got and the list goes on and on, where, if I like that product, I have to go to their website, I have to go to their store because that's the only place to get it. It's not sitting on a big floor with 12, other versions of the khaki pant, or whatever.
Steve Dennis 18:52
So I think it could be very important in a vertically integrated strategy, where I think it's playing out more from the kind of the wholesale, multi-line retailer dynamic is, is from giving customers a reason to choose one multi line retailer over the other. So, we've seen I think one of the best at this, for sure is Target. That Target has developed and in fact, they've had a lot of things going on in terms of consolidating smaller, which were basically private labels into more mega brands and so I think they have five or six of their own exclusive brands that are over a billion dollars in sales and so yes, it gives them margin opportunity, but it gives them product that you can only get at Target by going there, you know, or by going to the website. So, I think, I think
Michael LeBlanc 19:45
And that would be, that historically would be the brands, a consumer brands push on the retailer. Basically, I'm going to put so much money into the market that if you don't have my product or brand in your store, you will not be a destination and so that, that is the, the other side of the coin, right, in other words, everyone wants to be a destination. So, you're fighting back the fear by saying, well, geez, if I don't have that product, people will go to another retailer. So, you're trying to own that.
Steve Dennis 20:12
Right.
Michael LeBlanc 20:13
Again, own, own the relationship or just own that, that experience to be remarkable versus other, other name brands, right?
Steve Dennis 20:21
Yes and the, I think the two, maybe there's more, but the two that pop to mind that, or two things that have really shifted in recent years. One is with the internet, it's very easy to price shop for national brands, right, so if you want a, you know, Mr. Coffee or something, right, you just Google Mr. Coffee, and you go, oh, I can get it, you know, for $29.99 on Amazon delivered the next day, that's where I'm going and so if in the, you know, in the old days of department stores where he carried a lot of those kinds of brands, you had to go to those stores, now you can get a lot of these products almost anywhere and price often becomes the determinant because it's a Mr. Coffee Pot, whether you get it at Macy's, Bed, Bath & Beyond, or Amazon, right.
Steve Dennis 21:06
So, so I think part of the push to create these exclusive brands or to dial up the exclusive brands is that can't be price shopped. But I still think it gets back to what is that reason to get consumers to traffic your store, what is that reason to have them come back and develop loyalty with that store, you point out an important thing. I mean, it does turn out that certain, kind of, attract magnet brands have spillover effects that are very, very powerful.
Steve Dennis 21:39
So, but I do think the, the, the internet, online shopping, has caused more retailers particularly more of the kind of middle of the road retailers to try to find ways to not be so prone to price shopping, unlike items, I think the other thing that is becoming more and more important, and definitely we'll take this on in a future episode is, there's, there's this big transformation in terms of brands both up and coming, but also established brands going direct to consumer, so where vendors were reliant on their wholesale and multi-line partners as a place for people to get stuff now when they're opening their own stores, or like if you're Nike, and not only do you have your own stores, but you now have a really great direct-to-consumer presence, you know, you don't necessarily have to go to the department store to go see the Nike products and Nikes, as we've talked about before, and a lot of people probably know Nike has been pulling back from a lot of those wholesale distribution partners.
Steve Dennis 22:40
So, now if you're that if you're that department store, you're that specialty retailer, and you don't have Nike available to you or you don't have whatever, it might be luxury department stores have seen a lot of the classic, iconic brands develop their direct strategy. So, if you're Neiman Marcus, or Saks, you know, maybe you can't get some products that were important to you before or maybe you're, kind of, like why do I want to support them when they're competing aggressively and trying to steal my customers away, maybe I want to do something more proprietary.
Michael LeBlanc 23:11
The other thing I wanted to talk briefly about, and our podcast is more oriented to retailers than it is on the vendor side, but the vendors think about this interestingly, we should spend a minute on that, because they would think A: in response to retailers requests for exclusivity, they would channel manage their products, you can have, you know, the coffee pot with a white handle, and you, retailer B, would have the coffee pot with the blue handle, hopefully some more differentiation than that's sometimes, but they would purposefully channel manage, they put different kits together in different segments. So, that's one side of the, of the equation and, and the other, I guess, would be and maybe this is a whole other discussion because it, the dynamics and interplay is, well why don't you just make it for us?
Steve Dennis 23:52
Well, I have a fair amount of experience on this in a bunch of different categories and a bunch of different price points and I see, I think it is pretty complex because certainly the retailer's want more differentiation, and sometimes that's, you know, their own brand, but sometimes, like you say, it's a different version or you know, we bought, we, at Neiman's, we've talked about, we bought, we bought it different or we have a capsule collection or, or whatever. There have been a lot of creation of these derivatives, so called derivative brands, you know, a second line, which might, you know, you might sell at a higher end department store, but then it's a Dillards.
Steve Dennis 24:23
So, the manufacturers have a stratification strategy, like you say, managing their channels, the retailers are trying to create a sense of differentiation, and there's I think this gray area because it's certainly helpful when we reworked our private brand strategy and apparel. When I was at Sears a million years ago, we were trying to do a mix of, we wanted to create our own brands, but we recognize was going to take time to get to have the customer understand them, a lot of marketing. It was often bene-, beneficial to do I think you were talking about with Martha Stuart, as you know, how can we borrow a recognized brand, but moving into our strategy, so that led to the Lands' End acquisition. So, so Lands' End was essentially a captive brand only available at retail at Sears, while being an existing national brand in its own right.
Steve Dennis 25:17
So, there's a lot of different ways to, kind of, skin the cat here, I think that the, the underlying drivers are differentiation, hopefully finding higher margins, I could come back to in a second some of the challenges there, but in theory, the ability to have better margins, and also the ability to, kind of, control your destiny, if you've got more of your assortment that is, is, you know, under your direct control, in theory, it gives you both strategic advantage and financial advantage, but, you know, easier said than done sometimes.
Michael LeBlanc 25:53
Let's talk about let's transition to the whole margin issue. So, you know, if you're a retailer listening to this, you're like, This is great, I own I make more margin, I get my death, you know, my own destiny, it's both a defensive and an offensive strategy and a defensive against what brands could do to me and creates a destination, but on the on the other side of the ledger, I think of things like what you just mentioned, right, if you're going to build a brand, you go spend marketing dollars, those are your marketing dollars, not the national brands, marketing dollars, I think about the, what you're not getting, which is trade spend dollars, right, you're not getting co-op dollars here, that you'd like, there, there is, it is not a, you know, you almost would say in other words, well, why wouldn't retailers have every single product on the shelf of private label if it all makes some, some similar sense, but it's more complicated, let's talk about the financial implications and the decisions as, as you would think about them.
Steve Dennis 26:45
Well, I think well, first of all, you know, you do have some, I mean, aside from the, the JCrew, LL Bean, kind of, discussion we had before, you do have stores like Trader Joe's, Aldi's, that are essentially all private,
Michael LeBlanc 26:56
Yeah.
Steve Dennis 26:56
Private brands, right. So, that's very much a
Michael LeBlanc 26:58
Decathlon, yeah.
Steve Dennis 26:58
part of their whole strategy. To do it that way, though, I think, you know, the, the category dynamics there are different. When you start to get over more to, to fashion merchandise, gets, it gets a little trickier, right, because you're dealing with trends becoming more important, you know, fabrication design, you know, it's constantly changing. So, to your point, I mean, it takes a while to get customers to understand these, these brands, and why it's worth considering them, why it might be worth paying more, or maybe paying less, but moving away from a brand and national brand that's been around forever. So, the marketing part of it is tricky. Product Development sourcing is tricky. You know, it's one thing.
Michael LeBlanc 27:40
That's a great plan, I mean, that's a great plan.
Steve Dennis 27:42
Companies that are, yeah, companies like Target. You know, I think Macy's and others have been pretty good at this for a while they have very significant investments in design teams, and underlying, vertically integrated brands, you know, plans and I know basketball trading, I know, well, they have very significant product design teams, sourcing teams, yeah, you know, supply chain management and everything, but if you're, if you are designing and having your product made in, let's say Vietnam, you know, you own that inventory, you are taking quite a lot of financial risk in a way that you may not be buying a national brand with return privileges and, and things like that, or like you say, have trade dollars, leveraging their overall advertising, some of which will benefit you, just to kind of get your fair share.
Steve Dennis 28:33
So, so there are definitely tradeoffs. And there's some examples of companies. I mean, Kohl's, if you look at them, I'm sure there are others, but Kohl's sort of top of mind about 10, 12 years ago, I think they made a big push into private label and private brand and I think they got about 60% of their mix, to be somehow rather exclusive captive brands, and they really overshot the runway, they had a hard time on sell through on quite a number of the brands because they didn't ultimately, you know, the customer didn't understand them well enough and I think it turned out that customers were coming to Kohl's for, you know, a different mix, not that they couldn't buy some sort of brands, but they hadn't really created and it's too many private labels, not enough private brands basically, like, so I think it's a tough balance to get, to get right.
Steve Dennis 29:18
But I think we're just seeing more and more retailers actively pursuing this strategy because of the, the price shopping because of the, in some cases, lack of availability or lack of trust in the flow of their historical vendor partners and I think I need to create, you know, another reason or a different reason to come to the store and you know, be part, but I think what, I think what I, what I worry about if you aren't, like Target has been really good private branding for a while. They've made some very significant moves in the last few years that are going pretty well. Folks are probably Be aware that Amazon has already a ton of private labels and private brands and they're a great case study to look at it the difference because they clearly have a bunch of things which are all about price Amazon Basics and then they have Basic, and probably don't even realize are owned by Amazon because they've got their whole separate, separate image, Wayfair does a lot of this too and so there's clearly companies that are investing a lot of money in it and these, these private brands, private labels become a big part of their sale.
Steve Dennis 30:27
Other folks that are kind of looking at it now, I mean, it's a tough road to hoe from either doing something very basic price oriented to really building a meaningful portfolio of brands. So, for example, we're seeing, and you know, I have confidence that it will work out pretty well, because Mark Tritton came from Target, but he's, he's, you know, really developing the private branding, private label strategy, Bed Bath & Beyond as a point of differentiation, as well as margin enhancement. So, so a lot of things.
Steve Dennis 30:56
The, the other one I wanted to mention briefly, which is kind of interesting. It's a little bit like what you were talking about, with Martha Stewart and I was mentioning with, with Lands' End, it's kind of like, you know, everything old is new again, a lot of these digitally native brands, which, you know, probably beating the dead horse about, how, it turns out, they need stores, their own stores, but it also turns out they need wholesale in many cases, you know, that so many of these brands that got all this venture capital funding they went from, you know, we're only going to be online, pure play ecommerce to we're going to open our stores to, oh, actually, we're going to sell wholesale, you know,
Michael LeBlanc 31:33
Which isn't direct-to-consumer, right?
Steve Dennis 31:35
Yeah, for me, well,
Michael LeBlanc 31:36
Right.
Steve Dennis 31:37
Even just, I mean, if you look at Target, and Nordstrom, alone, they've got quite a few of these digitally native brands that they have, kind of semi exclusive distribution with but you're absolutely right, you know, Casper, Purple, some of the bed in the box guys, have, are selling through traditional mattress stores or, or big home furnishing stores.
Steve Dennis 31:59
So, that too, is when you think about it from the retailer perspective, it's not, it's not their own brand, and that they are designing and developing it and taking the risks that we described earlier, but it is this push towards differentiation and not exclusivity, but semi exclusivity. So, you know, getting your, your Harry's Razor or your Quip toothbrush at Target, it's not the only place you can get it, but it is one of either very few, or it's the only physical place you can get it. So, again, I think the strategic reason is still about differentiation, or being, you know, maybe not the only place but you know, a handful of places or a different experience because if you are online only, except for being sold in a target or being sold in, in Nordstrom, it is a different, you know, a little bit different value.
Michael LeBlanc 33:00
Well, and, and there's lots of great examples, as I said, we're gonna wrap this part of the episode up, but you know, Joe Fresh, from Loblaws, started this, let's move apparel in with, with our groceries and then Joe Fresh became a huge brand and a billion-dollar brand and we've seen that, you know, I wanted to comment on two quick things. One is, you know, back to this ownership of the private label brand, when things don't go well, when you don't forecast perfectly, there is no return to vendor privileges, to your name, that brand is on that product, right, return to shelf, which means you know, the traditional ways of either going to a B channel or going into a TJ-X, maybe not the best option for you.
Michael LeBlanc 33:41
So, now you've got, you're probably going to have to take more aggressive markdowns, and it may just wind up in another country very far away, because it's not anywhere near your brand, which, which is, you know, margin erosion writ large and though, you know, I shouldn't we should have mentioned this at the beginning. One of the reasons we've been thinking about this so much, is because Amazon and you mentioned Amazon with their Basics, they get knocked on all the time for, hey, you know, they just want to get to know what sells well and create private brands, like yeah, yeah, that's great. Like every other, right.
Michael LeBlanc 34:12
So, you know, I just wanted to wrap this episode, because we often talk about, we talked about Amazon, what's going on in there, you know, people are kind of saying, you know, bad, bad Amazon, I'm like, well, that's actually what, you know, retailers have part of this thinking and strategy. Maybe people want basics, maybe they don't, but it's, you can make your own private label from learning or not, because that's a big decision, right?
Steve Dennis 34:34
Well, I can tell you for sure. A lot of the knowledge that inform the strategies for Craftsmen, Kenmore, Diehard, you know, the litany of, of private brands we had at Sears back in the day was rooted in our understanding of what sold and customer insight, now he didn't have the data and ability to leverage insights back then that Amazon, Amazon does today and you could certainly argue that Amazon has the ability to, sort of, force products to the front of the line, in the way, you know, I sort of envision if you walked into the Sears store, I mean, the salespeople, kind of, did this because they were incentivized to push Kenmore, but It's almost like you couldn't walk down the aisle because every single time, you know, there was Kenmore blocking your way, you know online, you can, there are things you can do with the real estate and leverage that power that I think arguably, you could, you could say, gives Amazon a bit of an unfair advantage. It's, this, this is all playbook, really.
Michael LeBlanc 35:30
I mean, I guess because, you know, if you think of the retailer shelves, you know, the old thing you who gets eye-level, right, maybe it's your private brands, that's eye level and the national brand that's, you know, down at the bottom of the shelf. So, you know, true, Amazon, other people can put it more forward in their particular vehicle, but again, it's a familiar playbook, it's nothing new here. Let's move on because that's, there's a lot of things to talk about a business-like Amazon. Yeah, I don't think that's one of the ones that's so interesting from like, what are they doing,
Steve Dennis 35:58
Yeah.
Michael LeBlanc 35:59
different or wrong, if we want to make, if we want to be judgy about it, you know.
Steve Dennis 36:03
I think the big takeaway at the risk of being a little repetitive is it you know, it fits back to this idea of being remarkable, you know, which is even very good is not good enough anymore, it just raises the bar, you know, it's always been important to have a unique value proposition to be differentiated. Like, that's not a new idea in business at all. But because of the commoditization or because it's so easy for customers to shop for price, or shop for alternative that really puts the pressure on creating even more differentiated product and this idea of being the only place, or one of very few places to experience I think has become more important and that is driving both retailers developing their own more aggressively and maybe in some cases, in different ways, but also some of these, kind of, semi exclusive partnerships. So, I think we'll see more and more of it, that as you pointed out, well, the caution is, yeah, when you get it wrong, there aren't as many places to hide. So, it's a balance, for sure.
Michael LeBlanc 37:09
Well, a great discussion and again, you know, we could spend a lot of time on this, but I think we really hit the high notes for anyone thinking about these things. So, it's very, it was a great episode because every now and then private labels in the news in one way shape or another, but I love the strategic discussion around it. So a great episode. And let's wrap it here.
Michael LeBlanc 37:29
If you liked what you heard, please follow us on Apple, Spotify, Amazon Music or your favorite podcast platforms. So, you can catch up with all our great interviews, subscribe so that, just automatically shows up. Tell your friends and also new insights and new episodes will show up every week. So, tell your friends because that will help us share the word, the good, the good wisdom. Now be sure and check out and be sure and check us out on our new YouTube channel, not so new anymore. We've got a couple episodes up there and just look for Remarkable Retail.
Steve Dennis 38:00
And I'm Steve Dennis, you can check out more of my work at my website stephenpdennis.com or on Forbes, or on Twitter and please check out my second edition of my book, ‘Remarkable Retail: How to Win & Keep Customers in the Age of Disruption’. Available just about everywhere books are sold.
Michael LeBlanc 38:20
And I'm Michael LeBlanc Producer and Host of The Voice of Retail podcast and a bunch of other stuff. You can find me on LinkedIn learning about me on meleblanc.co. All right Steve, great episode. Look forward to chatting again next week. Be safe and have a great rest of your day.
SUMMARY KEYWORDS
brands, retailer, stores, private label, retail, strategy, amazon, kenmore, product, big, differentiation, price, private, people, talk, remarkable, important, department store, episode, create