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Private Label Booms

Sep 1, 2007

The nation's top retailers are differentiating by using private brands that customers can't find elsewhere. This is clear in a ranking of the nation's top 100 retailers by the National Retail Federation's Stores magazine, and sponsored by business software provider SAP America Inc.

Retailers are ranked by revenue and grouped on a single chart, regardless of the retail segment in which they operate. Not surprisingly, Wal-Mart heads the list with annual 2006 revenues of nearly $348.7 billion, which exceed the combined total of the next five: Home Depot, Kroger, Costco, Target, and Sears.

Differentiation from competitors is what keeps retailers on top, according to the authors. The most successful of them, including Wal-Mart, are increasingly reliant on private brands, the study showed.

"The most successful retailers are constantly reinventing themselves to stay one step ahead of the competition," said NRF. "It's not enough anymore for retailers to carry the same merchandise as their competition," said Susan Reda, Stores Executive Editor. "From their own brand of food to an exclusive line of tools, today's retailers will get ahead by differentiating their merchandise, and offering products that consumers cannot find anywhere else."

Wal-Mart's line of organic options follows that principal. At the same time, the retailer also has hooked its star to green initiatives, such as an increased emphasis on the conservation of energy and materials.

Costco is increasing its private label mix with a new line of food, conceptualized by Martha Stewart. Target and Sears are taking other directions to differentiate. Target is continuing to add more private label foods, while Sears is rolling out its existing Craftsman tools and Kenmore appliances to more Kmart locations.

Once considered poor cousins to manufacturers' brands, early private label products represented an insignificant share of the overall market. But private labels have outperformed manufacturer brands in all but one of the past ten years, according to, "The New Private Label World," by Nirmalya Kumar and Jan-Benedict E.M. Steenkamp.

Store brands are currently present in 95 percent of all consumer packaged goods categories, and they account for twenty percent of sales in supermarkets and mass merchandiser stores. They also have a healthy and growing share of sales in department stores, category killers, specialty stores, and convenience stores. Private label now represents more than twenty percent of sales at Staples. The benefit is not just differentiation of product, but also higher margins.

While private label once competed only on price, these proprietary brands now compete on quality. For example, Consumer Reports magazine ranked Winn-Dixie's chocolate ice cream ahead of Breyers, Wal-Mart's Sam's Choice better than Tide detergent, and Kroger's potato chips better tasting than Ruffles and Pringles. Macy's Hotel Collection by Charter Club sells $1,350 duvets and $275 pillow case sets. Gap's 1969 label retails for twice the price of most Gap jeans, and The Limited launched Seven7 jeans to compete with ones by Calvin Klein, Diesel, and Hugo Boss.

While low income people buy private label products more often than others do, private labels are increasingly seen as a smart buy. In a recent survey, just 29 percent of U.S. consumers agreed that manufacturers' brands are worth a price premium, and just sixteen percent said they believed store brands were not as good as manufacturers' brands.

Topic: Wholesale News

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