Consumers are turning to private label brands to ease the impact of high prices this holiday season.
Executives from Target, Kohl’s and Walmart last week said in their earnings calls that more consumers are trading down to these value-driven brands as inflation rips across the U.S. Private label — or retailer owned — brands typically sit at a lower price point for shoppers and allow companies to achieve higher profit margins.
Target last week noted that shoppers are trading down to owned brands, which continue to outperform their national counterparts by growing twice as fast as total business in Q3. Sales of Target’s more than 45 owned brands generated over $30 billion in 2021, up 18% from 2020.
“Because of our unique industry-leading, in-house design and sourcing capabilities, Target’s exclusive owned brands provide tremendous quality at incredibly competitive prices, a great combination anytime but never more so than in an inflationary environment,” said Target chief growth officer Christina Hennington in a call with investors last week.
Walmart U.S. president John Furner said last week that more customers have “traded in” to private label brands than in previous years as well.
In addition to often being cheaper, private labels can also fill in product white space in underserved markets, such as women’s activewear. Walmart currently operates a slew of apparel and footwear private brands, including Time and Tru, Wonder Nation, No Boundaries, Love & Sports and Ozark Trail. Inlate March, Walmart announced that the Caleres-owned Sam & Libby brand as well as the Steve Madden-owned Madden NYC brands would now be sold exclusively at Walmart.
Walmart’s penetration in the private brand sector has been flat since 2019, but picked up in March of 2022. In food, private brand penetration increased about 130 basis points in Q3.
“We are there for customers in whatever situation that they’re in,” Furner said about private label offerings, adding that many customers, especially on the higher-end of the income spectrum, have continued to opt for premium brands at Walmart.
Kohl’s also noted more middle-income consumers trading down to its private label brands such as Sonoma, Croft & Barrow, Jumping Beans, Nine West, Tek Gear and Lauren Conrad.
Going into the holidays, Kohl’s CFO Jill Timm said the company will feature its private brands “more prominently” in its marketing and lead with a message of value to win over inflation-stricken consumers.
FAQs
The private-label business model offers advantages to both manufacturers and retailers. These benefits include increased profit margins and control over branding, as well as: A unique value proposition. High profit margins.
Can a private-label product ever develop brand equity and brand loyalty? ›
Exclusivity matters: Private label products are exclusive to the retailer that develops them. This exclusivity can be a powerful tool for differentiation and building brand loyalty. White label products, on the other hand, can be sold by multiple retailers.
What are the biggest private-label brands? ›
Inflation-weary shoppers in search of discounts have flocked to private label brands over the past year and data analytics firm Numerator has been keeping track, naming Kroger's “Smart Way”, Dollar Tree's “Sure Fresh”, and Amazon's “Amazon Basics” as the top three most popular in 2023.
Why are private-label brands more profitable? ›
Increased profitability for retailers.
Retailers have greater control over pricing and promotion strategies with their private label brands, allowing them to maximize profitability. They can optimize their pricing strategies and adjust prices to meet market demand, boosting profit margins.
What are the disadvantages of private label brands? ›
Drawbacks of Private Label Products:
1. Higher Development Costs: Developing private label products requires upfront research, development, and production investment. 2. Longer Lead Times: Creating private label products from scratch can result in longer lead times before they are ready for market.
Can you make money selling private label products? ›
Private labeling is a lucrative business strategy that allows sellers to create their own brand and sell products under that brand on popular online marketplaces like Amazon. With the right knowledge and strategies, private labeling can be a profitable venture for anyone looking to make money online.
What is the success rate of private label? ›
Private-label success rates are 43%, while branded label rates are 71%. A test of the difference between the private label success rate and the accepted new product success rates of 20 and 30% were run using a Z-test.
What percent of Trader Joe's is private label? ›
The company struggled in its nascent years, but the breakthrough came in 1972 when Coulombe produced the store's first private-label product, a proprietary granola that undercut the competition on price. Today about 85 percent of Trader Joe's inventory is private label.
Is Costco a private label brand? ›
Build brand loyalty. If you think private label can't compete with consumers' brand affinity for national brands, look no further than Kirkland Signature. The Costco private label brand has a devoted customer base who purchase everything from its consumer packaged goods to its branded apparel.
What are the four types of private labels? ›
There are 4 types of private labels: generics, copycats, premium store brands and value innovators.
“Delivering on product quality has been vital to the growth of private label,” she said. “Retailers such as Target are offering products that are consistent in their quality and meet the needs of their shoppers. And consumers are telling us the same thing.
Why are some grocery retailers creating more private label brands? ›
Private labels build customer loyalty, enhancing your store's brand and image. The average consumer wants high-quality products at affordable prices. Many consumers are aware of major retailers' brand names.
How does a retailer benefit from selling private label brands on Quizlet? ›
By selling private-labels, a national retailer can differentiate its assortments. The premium option in the multiple price tiers created for store brands offers: consumers quality that is comparable to that of national brands.
What is an advantage of having a private label brand? ›
Production control: With private labels, retailers have complete control over the production method a supplier can follow to make their goods. Manufacturers often control the product's components, characteristics, ingredients, and manufacturing details of white label products.
What is a major advantage to a retailer's use of private dealer brands? ›
Major private branding benefits include allowing retailers to offer a greater variety and reach a wider audience while keeping control over their marketing and image.
Why would a retailer desire to have private label or store brands? ›
Private labels build customer loyalty, enhancing your store's brand and image. The average consumer wants high-quality products at affordable prices. Many consumers are aware of major retailers' brand names.
