Private Label Squeezes Out Weaker Brands

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January 3, 2012

Retail and consumer products are entering a new era of growth -- growth that will come at the expense of weaker brands -- as private label continues to gain ground with shoppers.

As 2012 begins, consumers remain value focused and buying patterns largely unchanged from the height of the recession, according to consulting firm, RSM McGladrey. “There have been a number of instances where the consumer has begun to purchase discretionary items they want, rather than need, particularly within the better and luxury categories,” said Jeffrey Edelman, director of retail and consumer products advisory services. “Nevertheless, it would appear as if the frugal mindset is here to stay, evidenced by the growth of private brands.”

As store brands continue to gain inroads with shoppers, strong national brands are expected to dominate at the other end of the spectrum leaving weaker brands out in the cold, based on several identified trends RSM expects to continue into the New Year.

Consumers remain value focused and private label is growing market share. Store brands have gone well beyond commodity items and value priced alternatives to national brands. “Aside from passing along some of the cost advantages over national brands, these help provide uniqueness, differentiation and protection against competitive pricing,” said Edelman, noting that strong store brands are helping to cement customer loyalty and improve the perception of a store.

Licensed brands are also gaining momentum, even as exclusive store brands look outside of their retail homes to grow. Edelman cites Sears’ Craftsman and DieHard and Li & Fung’s stable of licensed products as examples.

Weaker brands will continue to lose out in this environment, particularly as retailers seek to grow profit margins with private label. “Sales per square foot used to be one of the main drivers of profitability. However, gross profits per square foot has become just as, if not more important,” said Edelman. “The latter is generally greater with private or exclusive brands, and responsible for ongoing growth in position within the store. These represent approximately 50 percent of the merchandise mix at Kohl's and JCPenney, and a smaller but growing percentage at department stores. Weaker brands, accordingly, appear to be losing market share at an even faster pace than ever.”

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