Looking to add an edge to your store? Private labeling might be just the ticket.
A private label, also known as a store brand, is a line of products that a retail store runs under its own name, often in addition to other brands the store sells. Store brands most often offer a standard product at a significant discount (called a generic), but can also be distinct products not sold anywhere else. It’s important to note that the retailer isn’t the one who makes the products. Rather, they purchase them from another manufacturer who allows the retailer to put their own label on the item.
Private labels are big business for retail. In 2020, private label brands represented 19.5% of all US retail sales, according to Statista. The Harvard Business Review reports that UK supermarket J. Sainsbury has a house-brand of cola that accounts not just for 65% of total Sainsbury cola sales but a full 15% of cola sales in the UK entirely!
So what brands out there are private labeling and what can you learn from them?
1. Kirkland Signature
Costco’s house brand is one of the most famous private labels in the world. Costco sells a variety of items known to be the same products as the name brand competitors. (For instance, Kirkland’s diapers are made by the same people who make Huggies.) Costco then sells these products in bulk sizes at a discount of at least 20% below the name brands.
Thanks to this price differential alongside the trusted quality of the products, Kirkland actually serves a second purpose for Costco besides direct revenue. “Kirkland acts as a universal club marshal,” said Timothy Campbell, analyst at Kantar Retail. “It keeps suppliers honest.” That is, a top-quality low-priced bulk item helps Costco achieve their goal of offering all top-quality bulk items at a decent price.
2. Trader Joe’s
Trader Joe’s is a store that sells almost exclusively private labeled items. TJ’s takes the approach of offering steep discounts on selection of regular grocery items, like their pastas. However, they also offer products that can only be found at a TJ’s store, like cookie butter or their vast selection of frozen meals. As a result, customers become quite loyal to Trader Joe’s for the items they can’t get anywhere else. (And in fact, it was a Youtube trend for a minute for creators to make videos of themselves trying Trader Joe’s-only products.)
While the classic private-label concept is a store-brand line of “generics” sold alongside other name brand offerings, Morphe is a massive cosmetic company that got its start as an exclusively private label brand. All of their products (mostly makeup brushes and eyeshadow palettes) were manufactured by creators who sold extremely similar products to other brands. When the information became common knowledge, it ended up creating a bit of scandal, and the brand has pivoted more towards creating their own products as well.
Amazon operates more than 100 private labels – but AmazonBasics was the first. It was created as a brand that filled spaces where customers had no brand loyalty and were only driven to purchase by low price. Amazon identified these items using their search and purchase data and began in the battery space. Now they sell a variety of home goods such as curtain rods at an extremely cheap pricepoint. In fact, because of their wealth of data on what similar items are sold for, AmazonBasics can usually sell an item for the cheapest price anywhere.
5. Stone & Beam
Not all of Amazon’s private labels are interested in selling something for the lowest price available in general. Their other brands may pick a competitor to price-cut or offer something exclusively for Amason Prime members. Ultimately, each new label allows Amazon to compete for a particular consumer base.
For example, Stone & Beam, one of Amazon’s three furniture private labels, is a West Elm/Crate & Barrel competitor. The furniture Stone & Beam sells is not the cheapest furniture in the marketplace. Rather they offer similar items to their competitors at a lower price point than the competitors specifically. The brand allows Amazon to directly compete for the middle-class family consumer, a consumer who likely isn’t interested in an AmazonBasics, cheapest of the cheap couch.
The Private Label Take-Aways for Retailers
These brands are successful for reasons – reasons you can emulate.
Choose a niche
Each private label brand chose a specific niche to excel in. AmazonBasics offers the cheapest goods around while Kirkland offers high-quality generics. Trader Joe’s cornered the cheap organic grocery market before consumers even knew they wanted that. In fact, having a niche is so important that Amazon diversified its private label offerings. AmazonBasics could have sold Stone & Beam products, after all, but it made more sense to spin that off since the consumers were two separate markets.
Develop a distinct brand identity
Brand identity is very important for private-labels given that part of the reason a private-label brand is cheaper is usually because the store isn’t spending money on advertising them. (When was the last time you saw a Kirkland paper towels commercial?) Instead, the brand relies on the reputation of their identity to sell their items. What it is that Kirkland Signature, AmazonBasics, etc. do in the marketplace is all well-known to consumers.
Use the data you have
Using the data you have available about the consumers who shop with you is the best way to guide your private label decisions. Amazon, of course, is the prime example of this. (Pun intended.) Each of their private labels is started to address consumer desires they know already exists thanks to their search data. While you may not have quite the wealth of data Amazon does, you still should have plenty to help you identify an unfulfilled desire that your particular consumer base has.
Starting your own private label can increase your bottom line revenue. Many successful retailers have added their own brands just for this purpose. However, it must be done strategically.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.