Retailers who sell private label products as part of their assortment-mix today have a reason to fear Amazon’s entry into private label assortments or collections. It has increased the threat of further online competition. EKN’s 2016 Private Label Sourcing survey (in partnership with CBX) of 50 North American retailers has revealed that compared to 2014 or prior, retailers are giving higher importance to private label brands for their top line and bottom line net earnings.
Taking into account the threat from the likes of Amazon and an already high forecast growth within eCommerce and mobile channels till 2018 (14.5% & 29.4% CAGR, respectively¹), omnichannel operations is the top trend shaping the state of private label brands especially in the area of strategic private label sourcing and product development. Private label is no longer a store phenomenon and moving forward retailers fully expect private label categories to grow in the physical-digital domain.
The second biggest trend impacting private label brands, sourcing and development is new consumer demand. These new consumer demand patterns are as much about growing private label demand as it is about growth in main street retail, subscription retail and food retailing in formerly non-food stores (i.e. drug). Price sensitivity is definitely increasing as there is an increase in off-price stores emerging in luxury categories. Retailers are well aware that the price sensitive consumer cares a lot about private label or store brands. Within private label, sales reached $118.4 billion in 2015, an all-time record and an increase of +$2.2 billion over the previous year. In the past two years alone, annual sales are up by +5%, or +$5.4 billion, in major retail channels, according to PLMA’s 2016 Private Label Yearbook.
Despite signs of a positive private label sales trend in the US retail, the #1 private label related business challenge highlighted by retailers in EKN’s 2016 Private Label Sourcing survey is the need for greater speed to market (ranked 2.56 on weighted score out of 3). When compared to manufacturer brands, a private label brand allows retailers to be on or ahead of consumer buying trends. When it comes to responding to new and emerging consumer trends for products, retailers can directly access new, agile and cost-saving private label sourcing sites that are on or ahead of consumer trends. The reason is that unlike manufacturer brand, private label is all about product, design and sourcing innovation led by the retailer and its partners without the overt control of the manufacturer on the entire product concept-delivery process.
Private label brands can be sourced directly through own international buying operations, domestic wholesale, importers, independent buying agents or directly from factories without international buying operations. Besides other advantages, such sourcing models save valuable go-to market time and arm retailers with a strong consumer value proposition in terms complying with the growing consumer need for speed to market. While the current new product concept-to-delivery cycle time is 4 months, retailers’ desire a reduced cycle time of 3 months for improving sales and cash-to-cash cycles, according to EKN’s private label sourcing survey.
There are several solutions and possible business outcomes that focus on strategic private label sourcing in retail. Our upcoming blogs on this topic will discuss these issues further.
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¹EKN’s 2016 Future of Omnichannel & eCommerce survey