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Op-Ed: Key Trends & Challenges Impacting Private Label Retail

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 Software) 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 forecasted growth within e-commerce and mobile channels until 2018 (14.5% and 29.4% CAGR, respectively), 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.

New consumer demand patterns are as much about growing private label demand as they are 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 a growing number of off-price stores emerge 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 a record-high $118.4 billion in 2015, an increase of $2.2 billion over the previous year. In the past two years alone, annual sales are up by 5 percent 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 U.S. retail, the No. 1 private label related business challenge highlighted by retailers in the survey is the need for greater speed to market (ranked 2.56 on weighted score out of 3).

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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. This is because, unlike manufacturer brands, 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 time to market and arm retailers with a strong consumer value proposition in terms complying with the growing consumer need for speed. While the current new product concept-to-delivery cycle time is four months, retailers desire a reduced cycle time of three months for improving sales and cash-to-cash cycles, the private label sourcing survey noted.

By Sahir Anand, vice president research & principal analyst at EKN Research

As vice-president research and principal analyst at EKN Research, a division of Edgell Communications, Sahir Anand’s work experience spans more than 14 years as an industry line of business practitioner, media practitioner, technology industry analyst, research leader and global technology strategy/marketing executive.