It is part of the strategy of many department stores to rely on private labels, but the business model is constantly changing, which is why the International Department Store Association (IADS) conducts an annual survey on the situation among its members. In the most recent survey, he found that private label is bridging the gap between successful pandemic-driven strategies and supply shortages.
On average, the own brands of the IADS members were able to increase their share of sales from 9 percent of the company’s total business in 2019 to 11 percent in 2021. This is due to a combination of several factors: On the one hand, price-conscious consumers switched from international or national brands to private labels as a result of the Covid pandemic. In addition, strategies introduced in recent years to make this part of the business more profitable and efficient have borne fruit.
Less is more
Successful strategies included, for example, consolidating the range of own brands and relying on one brand per category or even bundling different product categories under one overarching brand.
Own brands can also be used for customer loyalty, as they recall the name of the business. As a result, for some IADS members, up to 50 percent of their private label buying clientele are also loyalty program members.
“Whether it’s about fashion and sustainability (Galeries Lafayette), high quality (Breuninger), or targeting a specific customer group (luxury customers in the case of El Palacio de Hierro), the members have defined clear brand values to promote their own brands in the to position it in line with the brand strategy of your company,” states the IADS.
This led to a review and optimization with a view to more flexibility, for example by separating the structuring of the collection (merchandising) from the commercial presentation in the stores. As a result, private labels, which in the past were developed and presented by the same isolated teams, are now presented to department store buying teams on an equal footing with international and national brands.
However, one solution or strategy does not fit all department stores. However, three problem areas were identified by all members: sales efficiency, sustainability efforts and attracting younger customer groups.
Sales efficiency, sustainability efforts and younger customer groups
“Store design and visual merchandising are key to reinforcing and enhancing brand messaging, but require significant financial investments at a time when department stores also need to focus on and fund digital growth, including for their private label business , could lead to a conflict,” the IADS summarizes the first point.
When it comes to sustainability efforts, apart from costs and sourcing difficulties, there are also communication issues as different certifications can be confusing and not relevant in the long term. The IADS points to own labels such as Galeries Lafayette’s Go for Good as an “efficient and worthwhile investment in conveying a simple and effective message”.
After all, the average clientele of own brands is around 50 years old, older than the average clientele of department stores. Online-only categories and fashion that caters to specific niches (maternity, casual, and plus sizes, for example) should help here. The same applies to the communication of private labels via social media, newsletters, advertising campaigns and influencers.
“In short, private labels are increasingly being treated as brands in themselves and not as product groups as they used to be,” the IADS sums up.
Delivery bottlenecks remain a challenge
However, the current supply chain disruptions currently require rapid rethinking, such as earlier product development with a new purchasing calendar, nearshoring instead of Far East to offset the increase in transportation costs, pre-ordering materials and ordering larger quantities to get better prices and estimate orders to be able to
“As supply chain issues are evolving rapidly and are far from over, members are also working on tactics to mitigate the loss of profit margins and increase retail prices as seamlessly as possible,” concludes the IADS.