Amazon’s entry into the private label apparel space is no small threat for retailers, but many are starting to give greater importance to their own private label brands to increase growth in the face of the stiffest competition.
According to the 2016 Private Label Sourcing survey by EKN Research, done in partnership with CBX Software, retailers are looking to private labels to bump their top and bottom lines, considering the threat of Amazon and high forecast growth for e-commerce through at least 2018.
Private label sales reached a record-high of $118.4 billion in 2015, a $2.2 billion jump over the previous year.
A need for speed is what’s driving most change in retail and so far, no one has quite beat Amazon on speed.
“Speed to market is the No. 1 business challenge for retailers today. Fashion cycle times are the highest in the industry and only the complete retailer control on private label lines can ensure faster time to market,” said Sahir Anand, principal analyst and VP of research for EKN Research. “Fashion retailers can control the entire or bulk of the design-delivery process on private label lines, including compliance, quality and audits.”
What’s more, private label brands can be sourced directly through a company’s own international buying operations, domestic wholesale, independent buying agents or straight from factories without international buying operations.
“Per EKN’s and my own analysis, Amazon’s entry into the private label space will prove disruptive in terms of flexible fulfillment options and enhanced prime membership value across several categories including general merchandise, apparel, drugs & wellness and even food,” Anand explained.
Recent findings by EKN’s sister brand CarbonView, show that 98 percent of shoppers buy private label products occasionally or whenever available. More specifically, one in five shoppers and 25 percent of millennials will buy Amazon’s private label products when they are available, Anand said. Sixty-two percent of shoppers said they believe Amazon’s private label products will be of high quality, compared to just 46 percent who feel that way about other private label brands.
Consumers, according to research, Anand said, seem to perceive that private label is as much as two times more value for money compared to named brands. And with price sensitivity increasing and the rate of off-price store openings ramping up, consumers are caring even more about private label brands.
“Even in terms of quality and trustworthiness they are not far behind named brands,” Anand said. “There is an off-price trend taking place in retail across several categories and private label brands are and can benefit from such a trend. In terms of operating profit, for instance in food retail, some private label can command 8 percent to 12 percent operating margin compared to 3 percent to 8 percent margin from named brands. In apparel, margins can be much higher.”
Omnichannel operations has the most impact on private label sourcing, according to the survey, with 42 percent of retailers citing it as the most important, followed by new consumer demand (34 percent) and price sensitivity (32 percent).
“Private label is no longer a store phenomenon and moving forward retailers fully expect private label categories to grow in the physical-digital domain,” CBX said in an article on the survey findings.