Slow Economic Recovery Presents Store Brand Challenges and Opportunities

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November 10, 2009

The most severe economic downturn in more than sixty years has created a “perfect storm” for American consumers who have experienced historic losses in personal wealth, home foreclosures and job losses since December 2007.

In “The Maturing US Recession & Implications for Private Brands,” store brand broker Daymon Worldwide Inc. provides perspective on the downturn and its meaning for consumers and Private Brands.

“In a nation where consumer spending accounts for 70 percent of the GDP, and where food is the second largest expense in the family budget behind housing, absolutely private brands are on the front burner of every retailer during this recession,” said Alex Miller, president of Stamford, Conn.-based Daymon.

Overall, consumers lost $11.1 trillion in personal wealth in 2008, recorded a million home foreclosures in the same year and job losses topping the seven million mark since December 2007. “Before the recession, annual losses of 3 percent in U.S. manufacturing employment were considered alarming. Now, some industries have shed over a quarter of their jobs in less than two years,” Daymon said in a company statement.

Believing that the U.S. economy will show GDP growth for Q3 2009, bringing the recession technically to a close, Daymon sees complications to the economic recovery on the consumer side, including persistent unemployment, which is expected to climb from September’s mark of 9.8 percent, and the related effect on median household income, which declined 3.6 percent for 2008 and is predicted to drop more. Higher taxes and higher interest rates also loom, putting more pressure on household incomes.

“As a consequence, consumers will feel as much or more of a squeeze on their incomes during recovery, and perhaps afterwards, as during the recession itself,” said Ron Shirk, Global Research Manager at Daymon, and author of the report.

Looking ahead, continuing financial strains for the economy and consumers mean that private brands will not easily relinquish any of their recessionary gains. Instead, signs point to a post-recession where “learned” shopper behaviors are likely to be extended and may well become entrenched over the long term, according to the report.

In the September issue of Times & Trends, Information Resources Inc. (IRI), reported unit share for store brands grew 1.2 points for the 52 weeks ending in July, reaching 22.8 percent overall and 25.6 percent in grocery.

For store brands, the prospect of a protracted recovery and a post-recession with recession-like traits presents opportunities and challenges, with store brands shaping up to be a focal point of retail strategy and a key differentiator for retailers, according to the Daymon report.

“For private brand retailers and manufacturers, the challenge is to fully grasp this opportunity and deal with the recession fact-set even after the recession,” said Miller. “There is much to be done to meet this challenge. Private brand programs are not monolithic, and the best approaches and solutions will not be either.”

Read These Related Articles:

• IRI Reports Cite Strength of Store Brands
• Resist the Temptation of Easy Money for Long-Term Store Brand Growth
• IRI: Private Label All-Retail Unit Share Grows to 22.8 Percent
• Store Brands Market Share Gains Level, But Likely to Hold
• IRI: Private Label's Strongest Growth is in Commodity Categories With Low Competition and Innovation

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