Do you know what is private label? Private label products are not new. They’ve been around a long time. In fact, their importance and perception have changed over time. Before, they were known to be commodity products that had lesser quality and were low-priced. However, today, they’re much more than that. Private label brands have evolved and many retailers rely on them.
Nowadays, private label brands and their products have equal or better quality than the recognized brand names. What’s even better is that the products tend to sell for less than the brand names, too. Retailers have started to rely on private labels due to the enhanced gross profit margin advantage.
Most major American retailers own private label products. These include Amazon private label, Target private label, Walmart private labels, and Home Depot private label brands. Food stores and companies have also taken on this approach to increase their bottom line.
These companies are continuously innovating their private label brands and products. They do this in order to create inspiring and compelling brands that can compete with national brands. In the past, private labels lacked trust and equity compared to their competitors. Now, things have changed. The best private labels are starting to look like the national brands that many people are used to.
What Are Private Label Brands?
Private label products stem from private label brands. Retailers produce private label products by third parties. However, they sell the products under their own brand names. The retailer will control everything related to the product(s). This includes the product specs, packaging, price, and more.
Once the products are produced, they’re delivered to the retailer so that they can sell them. Consumers simply assume those products are the company’s own brand.
A majority of consumer product categories have branded and private label product lines. Below are some examples of sectors where private labels are commonly found:
- Personal Care and Grooming: Hairdressers and nail salons will oftentimes sell private label shampoos and nail polishes.
- Clothing: Clothing stores might sell their own clothing lines as well as branded alternatives.
- Food & Beverage: Grocery stores oftentimes sell their own sauces, condiments, and more.
- Pet Accessories and Food: Pet stores will generally sell their toys and food under their own brand.
Amazon Private Label Brands
It’s likely that you’re familiar with Amazon, one of the best marketplace apps. and eCommerce retailers. They’re known to be one of the largest and most successful companies. Some of their success is all thanks to their third-party sellers. Close to 50% of Amazon sales come from third-party sellers. By focusing on Amazon Private Label Brands, they’ve been able to differentiate themselves from their competitors.
Private label brands have helped countless sellers increase their sales. Many businesses use this selling tactic to generate revenue. This is due to the fact that a lot of the old-school private labeling tricks don’t work as well as they once did. This can be a result of Amazon’s growth and how crowded it’s getting. With already fierce competition due to private label dropshipping, it’s only presumed that it will get fiercer.
Companies tend to put private labels on products that they buy off-the-shelf from countries like China. They add their own brands and base the products under their own company. Since suppliers are already manufacturing most of these products, product development isn’t necessary.
AmazonBasics and Pinzon were the first in-house Amazon brands. They continue to sell household goods and have done so since 2009. Over the years, Amazon has increased its focus on creating private labels under these in-house brands.
In 2017, Amazon had 30 private label brands under its belt. However, now, that number is more than 100. Some of them include Echo and Kindle. There are other Amazon private-label brands that you’ve probably never heard of.
Another popular big-box department store and online marketplace to sell products is Target. They take advantage of a classic retailer trick to increase eCommerce sales. That trick involves creating private label brands. In the early 2000s, Target was known for its cheap yet chic clothing. During the recession in 2008 and 2009, Target focused on private label brands.
Mossimo and Merona were the first Target private label brands. Like many other brands, over time they started to look a bit dated. Even more, they didn’t have much brand identity. This was mainly because they had a lot of products over different themes.
Even repositioning is a hard thing for brands to do, it was something Brian Cornell, Target’s CEO wanted to focus on. He planned a large turnaround for Target as a whole by introducing new private label brands.
Target’s private label brands have grown dramatically since the first private label brand, Archer Farms, in 1995. They’ve gone on to introduce brands for home decor items like Room Essentials and electronics like Heyday.
Adding Some Target Private Label Brands
Target was able to quickly realize just how successful their private labels were getting. They proceeded to go all out. Now, Target has 48 private label brands. 10 of the brands are worth a billion dollars.
In the first quarter of 2021, Target secured $1 billion in market share. This was done by changing a couple of details regarding their items. They improved their product quality and got rid of their cheap and plain appearance.
In 2017, Target added a lot of private label brands. These include JoyLab, Goodfellow & Co., A New Day, Project 62, and many more.
Walmart is another retail company that is commonly known by the people. They operate discount department stores, grocery stores, and hypermarkets. Walmart private label brands aren’t new. In fact, the first private label brand for the retailer launched in 1983 and was for dog food. Over time, Walmart introduced private labels for clothing and more.
The retailer has continued to tap into a new niche market. These include consumers that mainly shop online and those with higher incomes. They’ve started selling brands like Modcloth, Moosejaw, Bonobos, and Jet.com to appeal to consumers in these segments.
The Walmart approach differs from a lot of the other big-box retailers, especially when it’s pertaining to private label brands. Their focus is on low prices. Other retailers tend to focus on building new customer bases and creating name recognition.
Most of Walmart’s white-labeled products have a common goal and that is to keep their value-oriented consumers shopping in-store. While there are some non-Walmart brands found in-store, they’re simply strategic investments. These are brands like Modcloth, Jet.com, and Bonobos. Keeping these brands separate from private label brands was Walmart’s goal.
The In-Store Advantage
Amazon is continuously expanding its fulfillment capabilities and putting pressure on its competitors. With their cheap and quick delivery options thanks to Amazon Prime, not many other retailers can compete. This is also because Americans have gotten so used to the fact that they can get fast and free deliveries. However, not all retailers can offer this.
Walmart likes to use its lack of ability to compete with Amazon Prime to its advantage. They do this by focusing on their real estate. Walmart's stores are easily found, unlike Amazon’s newer brick and mortar shop.
Another staple that Walmart likes to focus on is its in-store pickup option. The Walmart in-store experience has been redesigned for consumers. This was their focus in order to accommodate online shoppers that want to pick up their items in-store. The retailer even started offering free next-day shipping for some of their products to customers that are located in certain regions.
The Home Depot Inc. is in the home improvement industry and another big-box retailer. Their vision has been to become a superstore that provides customers with various home improvement items and low prices. The company has also focused on training their staff so they're able to help customers with home repair and improvement questions they might have.
Private Label Brands at Home Depot
As a primarily brick and mortar retailer, Home Depot tends to avoid e-commerce competitors like Amazon. Their consumer focus is on DIY consumers as well as professional contractors. Home Depot added a lot more product offerings to help improve certain home improvement niches. They also started offering products online.
Some of the Home Depot private label brands include Glacier Bay, a plumbing product line.
The Pros and Cons of Private Label Brands
Private label brands have been the focus of many retailers for quite some time now. It’s how retailers can capitalize on popular items and make revenue. Below you’ll get a better understanding of the pros and cons are of private labels.
Pros of Private Labels
The practice of private labeling comes as an advantage to many retailers regardless of their size. Here are some reasons why:
Retailers will often rely on suppliers for their products. Due to this, they also rely on them to react to the market demand. If consumers want new features or lines, suppliers will have to adapt their offerings. In most cases, this can be a slow process.
However, retailers can be more agile when they get private label products manufactured. They can react in a swift manner if they see a change in customer behavior. Retailers can easily communicate with the manufacturer to change or tweak the product as needed.
Retailers are also in charge of the whole supply chain with private labeling. They have the ability to set and control the cost of production so that they can get the highest profitable pricing. Products are made so that they have high margins.
With private labeling, there is also enhanced control of production. The retailer will instruct the manufacturer on every aspect of the private label product. They can choose components, ingredients, and more. Retailers have the power to specify as precisely as they want. This includes altering the product shape or color.
Consumers tend to develop loyalty to the makers or brands of their favorite items. This is opposed to the distributors. With private label brands and products, retailers will have their own packaging, name, and branding.
Cons of Private Labels
There are a lot of pros to private label brands. However, it’s not all good. Here are the cons:
Hard Time Building Brand Loyalty
While the theory of putting your brand on a product seems nice, it can be tough to develop brand loyalty. Private labels typically compete with established brands in certain niches. These established brands have a significant advantage over your private labels. Chances are that they’ll be available in many other stores whereas your products will only be on your shelves. Larger and well-established brands will also have a larger budget for promotion.
Wrapping It Up
Private label brands are an ideal option for offline and online retailers. The private labeling process involves having products manufactured to sell under the retailer's name with its own branding. The principle of it all is that the retailer holds all of the power. They’re able to control pricing, production, branding, and more. However, competing against established manufacturers and brands isn’t always easy.