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What the Increase in Private Labels Means for Retailers

What the Increase in Private Labels Means for Retailers

Recently, Amazon launched its own private label dog food called Wag. For some, this signals the e-commerce giant’s first foray into the pet products business—a market estimated at $72.1 billion.

Other retailers have launched their own brands, too. Walmart, for example, added four new private label fashion brands in an effort to compete with retailers like Amazon and Target. Even Macy’s plans to expand its private and exclusive brands 11% (from 29% to 40%) by 2020.

For major retailers, it makes sense to produce and market owned brands. After all, they can sell owned brands at a lower price point, incentivizing shoppers to buy private labels, which increases profit margins. Plus, the retailers have more control over the supply chain, as well as advertising and branding. Additionally, these retailers have already established trust with shoppers, so they are more likely to choose what they know.

While private labels may be a lucrative option for major retailers, what does it mean for external retail brands who sell through their stores? With private labels expected to filch an estimated $64 billion from nationally advertised brands in the next ten years, how can independent retailers compete?

3 Ways Independent Retailers Can Compete With Private Labels

Increased pressure on name brands will require some strategizing on how to maintain their market share. Here are three ways retailers can keep up with private labels:

1. Technology

Independent retailers will need to amp up the in-store presence of the name brands they sell and demonstrate their value over private label products. This means incorporating technology to ensure their products are top of mind for shoppers as they’re making decisions about similar items.

Considering 76% of purchasing decisions are made in store, using technology that helps draw attention to name-brand products can play a significant role in offsetting the low prices of private labels.

Improving merchandising and inventory control through integrated, cloud-based software, for example, will benefit both retailers and shoppers because they’re crucial components in driving brand performance and delivering excellent service. Inaccuracies in inventory and merchandise management result in frustrated customers—and employees—as well as lost sales.

2. Marketing

One way retailers can compete with private labels is through advertising. Why? Because major brands don’t typically market their owned items beyond the shelves.

This gives name brands an advantage because they can offer innovative new items that draw attention and generate the potential to convert future customers.

Private labels typically try to ambush the innovation of name brands by copying their products as quickly as possible. But because it takes time for copycat manufacturers to research and develop their own versions, name brands have the distinct advantage of standing out on retail shelves and gain a loyal following

Plus, when brand names combine marketing with new products, consumers aren’t likely to miss or ignore them!

3. Experiences

According to ThirdChannel, simply having a presence in stores is no longer enough. Brands also need to curate engaging in-store experiences that draw shoppers in and set their products apart. “In order to stay competitive, retail brands will need an in-store strategy that educates customers on their products and develops long-term affinity,” says the company.

Having the right sales associates will be an important part of engaging and educating shoppers, as well as converting them to buyers. Considering that 61% of consumers say they value or highly value being able to ask a sales associate for product recommendations while shopping in-store, retailers have a golden opportunity to promote the unique benefits of their products.

Whether that means educating shoppers on warranties, user advantages, or any other important factors, retailers and their sales associates must provide shoppers with everything they’ll want to consider when comparing store brands against private label options.

Product demos, taught by knowledgeable employees, can also help name brand products stand out from crowded store shelves. Demos deliver impactful experiences, with the potential to gain long-term customers and a sustainable boost in sales.

Conclusion

Private label brands aren’t really a new problem—they’ve been challenging established brands for decades, ever since the financial crisis made lower priced generic products a more attractive option to consumers.

As of 2016, private-label goods accounted for about 20% of sales in retail stores throughout the US, leaving plenty of room for competition.

To keep up, independent retailers will need to leverage their physical space better, fighting back with technology, marketing and in-store experiences that consistently speak to the quality and benefits of the brands they sell.

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Also published on Medium.

About The Author

Sherene Funk

Sherene Funk is the author of the contemporary romance Autumn in Your Arms and two small business e-books. She is a voracious reader who owns more books than she can ever read in this lifetime. A graduate of Brigham Young University, she worked in advertising for many years before moving to her current writing position at Rain Retail Software. She researches non-stop to see what successful retailers do and loves to share what she learns with small business owners.

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