Research: Going private


The headstrong journey of private label brands into US retail stores shows no sign of abating. According to Tom Stockwell of Stockwell Associates, private label in office products has grown by more than 15 per cent over the last three years (from around 4.6 per cent in 1988) to take around a 20 per cent share of the pie – a growth rate far superior to that of vendor brands.

Although US retailers are not quite as aggressive when it comes to private label as their counterparts in Europe, at superstores like Staples and Office Depot, where private label ranges are growing by 2-3 per cent per year, are looking at following the European example by implementing ranges consisting of 20-25 per cent private label within two to three years, Stockwell told OPI+. And if Corporate Express has its way, it will see 40 per cent of its products carrying the private label brand in coming years (although Stockwell claims this target is a little unrealistic).


The US supermarkets and drug store chains, meanwhile, such as CVS, Rite Aid, Walgreens, Target and K Mart are demonstrating the fastest growing ranges of private label. The pace at Wal-Mart is slightly slower since many of its branded products are already sold at such low prices.


"There is a definite movement and progression here," said Stockwell. "It is a defensive mode in a way whereby retailers can differentiate themselves from competitors…In its most effective form, a private label strategy is a cure for retail sameness and an answer to the question: ‘Who controls the store – the retailer or the vendor’-


OP private label sales are already holding the largest share of sales in a growing number of categories. Copy paper and writing instruments are showing particularly big growth at the moment, said Stockwell, as are consumables. And there are new products being added to private label ranges all the time. Batteries and scissors, for example, are relatively new additions to the once traditional office product mix. One area that is not being touched by the private label claw, however, is PCs, office machines and office furniture.


Why has this private label reality been enabled so quickly, so fast? As the consumer becomes increasingly accepting of this type of product, demand increases, says Stockwell. Since retailers have improved the quality, packaging and marketing of private label, these labels no longer denote "cheap quality". In fact, they often indicate premium quality among customers.


Another trend that has promoted private label is the aggressive pricing adopted by retailers over the last two to three years, which has strengthened the perception that there is little difference between private label brands and vendor brands and that, in fact, vendor brands were often priced too high in the first place.


Stockwell expects private label in office products to carry on growing at a slow but continuous rate of around 5 per cent per year moving forward, compared to the 1.5-2 per cent growth increase the industry has seen since 2002. Eventually, the rise will level off though, says Stockwell, and there will be no more jumps in the cycle like in the early 1990s.


There are various factors that will help to enhance private label, says Stockwell in one of his most recent reports. First, as the US economy improves, retailers and resellers will ease back on the promotional pricing of vendor label, which will further strengthen the shelf price advantage enjoyed by store brands.


Second, as retailers look to leverage their loyalty programmes to focus on their most profitable customers, they are finding that these customers are typically heavy buyers of the store’s own brands. This is partly because private labels are exclusively available through a specific retailer and therefore act as magnets that draw consumers into one specific retail store. This eventuality "enables private label to capture a more significant share of the consumers’ purse, heart, loyalty and lifestyle than a national brand," says the report. 


Furthermore, resellers are also becoming more proficient at sourcing private label products with their own specifications, both from overseas and home.


But Stockwell warns that pushing private label brands to the detriment of vendor brands could be harmful for the retailer. "The key here is to develop the [product] category so that it remains profitable and emotionally appealing to the customer so that both private label and branded goods win," says the report. "The partnership means determining planograms and shelving scenarios to rally the greatest degree of category interest and excitement from consumers."


And of course, it is vital for retailers to constantly assess the quality of the private label product and continually develop new designs or product enhancements to keep the customer enthusiastic, adds the report. This in turn will help leverage vendor brand innovation.