Private label – an opportunity open even to the smallest

In recent years the own brand, or private label, phenomenon has been making big headlines.
In grocery Aldi and Lidl continue to make huge strides with their combination of a small targeted number of branded products sitting alongside their own private label offerings.

In our own sporting goods industry many of our successful retailers follow a similar model.

Over time Sports Direct, for example, has grown its own label strategy by purchasing distressed brands and then selling them at a discount within the stores thus making a manufacturer to retail margin (as opposed to a manufacturer to wholesale margin).

Decathlon (still the worlds biggest retailer of sporting goods) uses exactly the same strategy but this time has simply pushed its own brands so much over time that they have in their own right become brands.

The trend can be seen right through our trade with the likes of JD Sport, MandM, the Intersport group, DW Sports and others all finding the right mix between the international brands and their own brands to boost margins and to provide a point of difference to the end consumer.

Online retail specialists, such as Wiggle and StartFitness are also getting in on the act

Consumers demand brands for the quality assurance and emotional satisfaction, however it is becoming ever more apparent in the sporting goods market that these brands do not have to be manufacturer brands.

The Decathlon Approach
For twenty years Decathlon followed a single brand policy with great success.

Today, the Decathlon Group has moved on from this approach and created specialised brands each one of them positioned on a precise sporting branch of industry: b’Twin, for example, specialises in mountain bikes and road bikes; Wedze in boardsport on snow, and Kalenji in walking, running and cross-country running.

Together, these “passion-brands” make the Decathlon group one of the first ten world’s manufacturers of the sector behind Quiksilver, Nike, Adidas, Timberland, Columbia, Salomon, The North Face and Patagonia

Interestingly this strategy has also allowed Decathlon to not only compete at the “mass market” end of the market but, by siting these “passion brands” in the areas where the product development teams can embrace the sport (e.g. in the mountain or by the sea) they have been able to create technically excellent products at higher price points with higher margins that can credibly compete against the international sporting goods manufacturers.

The Sports Direct Approach
If we compare the SDI approach with Decathlon the “passion-brand” approach has been developed not by stating from scratch and building up the brand through in house teams but, predominately, by acquisition.

This results in the lines between “international brands” and in-house/private label brands becoming blurred – arguably a good thing as the consumer is often presented with a “branded” product at an exceptional price unaware that the brand is, in fact, owned by SDI and to all intents and purpose is thus a private label.

The challenge and opportunity facing SDI is to develop the higher margin and higher price point end of the business by producing more technically acceptable product. This is easier to achieve if the acquired brands (e.g. Dunlop and Slazenger) have a heritage that allows price points to be pushed, however Decathlon appears to have a distinct R&D advantage over its rival in this area at present.

The Independent Retail opportunity
With this approach of private label business sitting alongside core branded lines set to continue in the near future the question is whether the smaller sports retailers are able to take advantage of this trend.

Clearly there are several areas to explore when considering an own label approach and these factors are often the main barriers to the smaller independent retailer looking at the topic more seriously:

Expertise
Problem: You have no experience at all in dealing with factories, product design, importing etc.
Solution: Use a reputable agent or company that has expertise in this area, a proven track record and can site examples of the work that they have done and provide testimonials from past and current clients.

Minimum Order Quantities (MOQ’s)
Problem: As with any product line MOQ’s will apply based on a variety of factors such as material used, size of factory, type of item etc etc. Often these MOQ’s can be very high compared to the sale opportunity and thus the project cannot proceed.
Solution: Club together with fellow minded retailers and spread the MOQ amongst the members. This results in all the advantages of improved margin, points of difference etc but without the excessive cash flow risk.

Warehouse Space
Problem: small retailers do not often have the storage space to store large quantities of products and are used to operating a “little and often” business model.
Solution: rent some small space for a limited period time using cost effective businesses such as Big Yellow Storage.

Lead Times
Problem: lead times, particularly from the Far East can be as much as 4-6 months depending on factors such as time of year, type of product being manufactured etc.
Solution: Often this issue can simply be solved by improved planning. Once you get into the mindset of long lead times the business can be planned accordingly.

As my own business has begun to address these issues on behalf of clients we have seen for ourselves not only the ease with which many of the issues can be overcome but, more importantly, the additional revenue and margin gains that these businesses have experienced through developing their own brand strategy.

Some clients have progressed from taking generic branded products (such as a basic t-shirt or hoody) and adding some branding and changing the back neck label to trial the idea, whilst others have taken the leap having the confidence to commit to, for example, 1000 sock tri-packs knowing that, based on past sales history, that the stock can be sold.

Whatever your approach it is clear that, when done effectively, the own brand strategy can reap rewards.

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