The need for privacy

The office products sector is a long way behind other retail sectors in its private label strategy, according to Tim O’Connor, principal of retailing research consultancy Retail Performance Solutions (RPS). But the OP industry’s relatively late adoption means that OP players are now picking it up rapidly. That said, there is still a lot for OP manufacturers and resellers to learn and apply, believes O’Connor, a clear proponent of private branding. 

"It is generally the case that with people who come late to the party, the transformation is faster because retail participants learn from other industry categories," he told OPI+. "And OP retailers, dealers and suppliers should absolutely be learning from the likes of Tesco and Wal-Mart, the leaders in private label. Even though Staples, Office Depot and OfficeMax are not yet near the class of Tesco, they are catching up and pushing the right buttons, but have in no way reached their potential yet in private label."

One of the key lessons for the OP industry, claims O’Connor, is the need for collaboration between manufacturers and resellers throughout the supply chain. He said: "For suppliers the real threat is the failure to understand the retailer’s strategy in private label, and in this way, how to innovate and market their brand. If you don’t understand what’s really going on out there, how can you really be successful in that category? There is a real opportunity to build partnerships between retailers and suppliers, but to date this has not happened very well in the office products industry."

O’Connor uses the example of global sourcing to demonstrate his point. The likes of Wal-Mart and Tesco – and increasingly Staples and Corporate Express (CE) – are managing to eliminate the middleman and manage their global supply chain well. But many retailers are not collaborating enough with branded vendors to maximise benefit from their categories.

Take the example of the extremely successful and innovative power staplers, which are now being copied by a number of manufacturers in China for private label ranges in the US and Europe. Knowing this was going to happen, it would be best practice for the original manufacturer of the product to work directly with the retailers to produce a private label alternative, which would allow both sides to save on costs by sharing local management and supply chain efficiencies and collaborating on product life cycle management.

SKU proliferation – the trend of launching a new item while also maintaining the old one, creating more and more SKUs – is another hurdle for the OP industry. "This is bad for the consumer because it is cluttering and confusing," said O’Connor. "And also bad for the retailer, since research shows customers are less likely to shop a category that is confusing – and this is bad news for the whole supply chain."

The right private label approach is also crucial, claims O’Connor. For a reseller, private label is about differentiating yourself from your rivals. It is about the brand, not price points, but some buying groups in the US are getting involved with private label only to establish a price-point position. "This seems to me like a defensive move and I question whether this is good for business," said O’Connor. "Buying groups may be more limited in what they can do in private label, without scale like a CE.  Private label is about differentiation and price cannot be a long-term differentiator. It’s about branding and meeting customers’ needs."
Traditionally, the UK and Europe have been ahead of the US in private label, mainly because it has been dominated by a select few retailers which were quick to shift to customer-centric differentiation. The US is still not as consolidated (Wal-Mart still has less than a 20 per cent share of total retail). When retailers in the UK consolidated and after they had competed on price as much as they were able to, they realised that they had to focus on another differentiator, and private label gave them this differentiator. But the US is catching up quickly.

And in OP specifically, private label will likely touch every office products category in time. "If you talk to resellers, there is no category that is not an opportunity for private label," said O’Connor. "Question is, in which category the industry will move the fastest and where is the most money to be made? After establishing credibility in printer cartridges, they could even move into printers. And why not-

Private label currently accounts for approximately 15-20 per cent of the OP industry. O’Connor sees no reason why this number cannot reach the 30 per cent region within three to five years. Some product categories he expects will be even higher. "One major retailer told me that its private label was 70 per cent of one huge category on the delivery side, "he said. "Now that’s a big number."

"There is a lot for the smaller resellers to learn. Even if their economics are different to that of the big retailer, it’s the same fundamental approach," added O’Connor. "Each step towards a successful private label strategy moves them closer in the right direction on a path of business sustainability."
       
OPI is collaborating with Retail Performance Solutions (RPS) to produce a report on the development of private label in the North American office products market. Published at the end of March, Private Label Office Products – Threat and Opportunity aims to give retailers and suppliers in the region a headstart. For more details and to find out how to make a saving of $300/ £188/€260 on your order, click access www.opi.net/privatelabelreport