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Retailers Turn to In-House Brands to Woo Price-Conscious Consumers

Photo: Sonoma Goods for Life

Amid the chorus of department-store chains blaming the warmer-than-usual winter for their weak fourth-quarter sales was one standout hook: a renewed focus on private brands.

J.C. Penney, which shed most of its own brands in favor of national names during Ron Johnson’s short stint as CEO a few years back, announced its intent to leverage its private-label infrastructure going forward, like St. John’s Bay, Ambrielle and the Millennial-focused Belle + Sky.

“The most aggressive pricing environment in retail exists online because of the dynamic price scraping,” Marvin Ellison, chief executive officer, said on a conference call with analysts in February. “We believe that [private brands] give us a tremendous advantage going up against pure-play e-commerce because we are going to be exclusive sellers of certain brands online.”

Likewise, Kohl’s reintroduced Sonoma Goods for Life, its 22-year-old in-house apparel and homewares line, but with less product, better materials and washes, and more frequent collections.

“Sonoma Goods for Life is one of Kohl’s largest brands and also represents the greatest opportunity for growth,” Michelle Gass, Kohl’s chief merchandising and customer officer, said when the retailer announced the relaunch. “We believe that the new Sonoma will resonate with our customers and build great momentum for Kohl’s.”

Amazon is getting in on the game, too. Earlier this year, the online retailer launched seven of its own brands (four for women, two for men and one childrenswear label), each selling on-trend items similar to any mass-market chain’s offering and priced under $100.

Even Lord & Taylor has been ramping up its private-label offerings of late. The high-end retailer recently launched Laboratory, a contemporary menswear brand inspired by runway trends. Prices range from $295 for a wool-blend suit jacket to $98 for an embroidered satin bomber jacket to $42 for a crewneck tee featuring a chinoiserie print.

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The pendulum swings

But private labels and exclusive brands are nothing new to the world of retailing (a quick dive into The New York Times archives unearths at least seven articles discussing their resurgence in the last 30 years), and neither is the decision to promote them front and center on the store floor.

“From a macro perspective, there’s a divergence today between multi-brand retailers and brands. And the brands for the time being believe they can go it alone and go direct to consumers, open stores, open e-commerce, and department stores are feeling that they may need a little more control over their assortment and destiny. It’s a cyclical thing,” explained Mortimer Singer, CEO of the business development and strategic consultancy firm, Marvin Traub Associates.

Marshal Cohen, The NPD Group’s chief industry analyst, echoed that sentiment. “One of the biggest things that private label does is it gives the retailer control over the product and pricing structure. It allows them to have built-in margin to be able to play with whatever discount promotions they might want to use and it creates a unique assortment that no one else has,” he said.

“In a crowded retail brick-and-mortar marketplace, and especially one in which Amazon is the online juggernaut, private label is truly one of the best ways to differentiate your brand and stores, and give customers a reason to come back to your brand,” Dwight Hill, a retail consultant at McMillanDoolitle, agreed, adding, “If sourced correctly, private label merchandise is also a channel to higher margins.”

Sonia Lapinsky, a director in Alix Partners’ retail practice, likened the latest push into private brands to a pendulum swing. “It’s not really a new thing,” she said, noting that right now, the consumer path to purchase—particularly for teens and Millennials—is determined more by trend and price than the name on the label. And such a shift in behavior presents retailers with ample opportunity to remove a link from the supply chain.

Not to mention, as Katie Smith, senior fashion and retail analyst at Edited, pointed out, it’s a great way to fill in the gaps. “There’s a span of consumers for whom brands, for the most part, don’t cater to too well. That includes plus size in both men’s and women’s apparel and footwear, as well as older demographics of shoppers,” she said. “With competition fiercer than ever, catering to these consumers and earning their loyalty is valuable for department stores. Private label can speak directly to retailers’ customer profiles as well as increase the proportion of trend the retailer has in their assortment.”

Fill in the gaps

Photo: Boutique+

Take J.C. Penney’s recently announced plus-size women’s brand, Boutique+, for example. Instead of simply extending the size ranges of existing collections, a dedicated team of design, trend and product specialists created the line in order to ensure the colors, prints and fabrics picked would flatter and fit the curvier shopper.

“There are millions of incredibly stylish, full-figured women who are seeking comfortable, well-fit clothes that offer style and versatility,” Siiri Dougherty, senior vice president of women’s apparel, said in a press release. “J.C. Penney is committed to winning her loyalty by designing an entirely new modern brand made just for her and creating a dedicated shopping environment that respects her time and budget with a greater selection of affordable plus-size fashion that takes into account diverse body types.”

It’s also part of J.C. Penney’s bid to reverse the damage that was done during Johnson’s reign, when his grand mission to transform the retailer’s image into something sleek and modern caused sales to plunge by more than 30 percent.

“Private label absolutely drives margin so if retailers are looking to improve margin, that’s definitely an avenue to pursue,” Lapinsky said. “However, you need to be able to bring the customers into the stores first. A lot of department stores use the national brands to get the customers in and then once they’re inside there’s a good chance they will look at the overall assortment and be less finicky about whether they need to buy the brand name.”

Smith echoed this point, explaining that while consumers are often unaware they’re buying private label, it makes content a little harder for the retailer. “They’ll need to build strong seasonal stories in which to engage customers,” she added.

“For the most part, consumers will react better to private brands if they are actually disguised as national brands with lifestyle campaigns, visuals and fixtures like other brands have,” Singer said. “If it’s just clothes on racks and piled high it doesn’t inspire the same level of design and injection of value that other brands do.”

Hill said it’s up to the store to make data-driven decisions to identify opportunities to serve their customers. “Identify merchandise category opportunities, then develop either a private label or items within an existing private label to serve their customer,” he said. “However it doesn’t stop there—retailers must generate awareness and demand for these items to drive the business through promotional marketing activities.”

More brands, more problems?

Photo: Belle + Sky

But what does this private-label push mean for national brands? Will buyers have to buy less because more in-store real estate will be taken up with the retailer’s own merchandise?

According to Cohen, national brands will have to work harder. “The more successful the private brands and labels are, the more pressure it puts on national brands to maintain their share of the pie. It’s not going to get that much bigger just because somebody adds a new line,” he said. “It carves up the pie differently and national brands have to work harder at sustaining their share.”

Lapinsky echoed these thoughts. “The big brands are going to have to work even harder to provide compelling enough products that are worth the price difference,” she said. “It’s about providing newness more often, which they’re less likely to do today, especially in relation to the department stores. That model is not really set up for branded goods to have refreshes on the cadence that consumers are expecting when they go into fast-fashion and off-price stores.”

Singer, however, said that house brands will lean toward basics, while national brands will provide fashion and trends.

Smith agreed: “It’s more important than ever for brands to have a strong message or carefully narrated heritage—this is where private label will suffer.”

“National brands typically have a higher level of customer awareness, simply due to their scale,” Hill added.

But while private labels and brands can boost the bottom line for retailers, it’s not always as lucrative a deal for manufacturers because, as Cohen explained, the margin pressure is greater. “They have to deliver these products with higher margin for the retailer, which means they have to do everything for a lower price and that always means a higher risk for them,” he said.

Singer agreed, but noted that it’s a “relatively risk-free” arrangement for the manufacturer. “Unlike when they sell wholesale and get returns and chargebacks, in this case it’s a straight sale. The retailer can’t send it back,” he added.

With that being said, while today’s consumers are incredibly price savvy and house brands can help cater to underserved segments, the wheel is always turning.

“There’s a huge swath of consumers who demand a brand and product story, driven by the transparency and immediacy of social media. Generation Z, as they get older will be particularly attuned to ‘true’ versus ‘false’ storytelling. Brands which put this at their core will succeed,” Smith said.