Private Label By Dr.Hitesh Gaur

Private Label Brands: Encroaching the big brands share November 24, 2008 By: Dr.Hitesh Gaur

I. The Apparel Private Label Paradigm

II. National Apparel Brands Counter Strategy

III. The Future of Apparel Private Labels

IV. Indian Scenerio

Source: adapted from Cotton Inc.

Worldwide Private Label retail sales have passed US$1 trillion

2006 US apparel & shoes retail sales: $358.6 Billion

2006: 45% apparel sales were private label

By 2010, private label merchandise expects to increase by 22% to 55% of total apparel sales

Source: US Dept of Commerce, expand on May 2007 Apparel and Textile News

Consolidation of retailers

Brands sell to same retailers and become a commodity

Retailers need differentiation and better margin

Declining retail prices (women’s apparel prices dropped 2.4% 2007 vs. ‘06)

Globalization of Production

From 1996 to 2006, the average retail price declined a minimum of 9% Source: adapted and expanded from Cotton Inc. winter 2003 Product % Change Retail Channel % Change Total -8.9 Total -8.9 Jeans -5.5 Department -13.7 Slacks -11.7 National Chain -9.0 Shorts -4.9 Specialty -5.8 Sweat Apparel -12.6 Mass merchant -7.5 Shirts -8.1 Off-price -4.2 Sweaters -16.3 Other -11.2 Shirts/Dresses -6.1

Imitate designer brands to reduce R&D costs

Source direct with factories to eliminate middlemen cost

Buy in larger volume to receive lower cost

Source from low cost, duty and/or quota free countries: China, India, Bangladesh, Vietnam, Pakistan, South & Central America, Africa

How do retailers achieve low PL prices?

Generic –very promotional, very low margin, Conway, Walgreen

Fast Value Fashion – knock-off brands, Zara and H &M

Premium Store Brands – Retailer’s own brand offers same or better quality at better price. The most profitable strategy in private label.

Highly competitive - same or better quality at

better prices, average 37% less than national brands

Higher Gross Margins (est. 58 – 68%)

Higher selling price per square foot than other

Private label strategies

Biggest threat to national brands

Brand Loyalty

What is the preferred PL strategy? See Appendix 2

*Sales in billions include all private label & exclusive products Macy’s percentage includes 18% private label and 15% exclusive merchandise Retailer 2006 Total Sales Private Label % to total sales Private Label Sales in USD * JC Penney $19.9 50% $9.95 Kohl’s $15.5 35% $5.42 Wal-Mart $312.4 40% $124.96 Macy’s $27 33% $ 8.9 Target $59.5 32% $19.4

JC Penney’s – a.n.a., Arizona, Ambrielle

Macy’s - INC, Alfani, Style & Co

Wal-Mart - Faded Glory, George

Target - Mossimo, Circo

Kohl’s - Urban Pipeline, Sonoma, Apt 9

Combined effort, a win-win strategy:

American Living, Simply Vera, Isaac Mizrahi

One time exclusive deal – H & M, Target

Blending in with Premium brands - INC, Arizona

Marriage with a celebrity name – Sarah Jessica Parker, Hilary Duff

Develop unique products and stay ahead as a trend leader

Create own stores

Develop a compelling marketing strategy

Increase brand loyalty

Combine effort by offering exclusive lines. I.e, Simply Vera, American Living, Liz & Co

Create one shot exclusive deliveries and SKUS

Evaluate sourcing strategy and production cost

Maintain net price (minimal promotions & discounts)

Improve forecasting and turn around time

Becoming national premium lifestyle brands: INC, Alfani, Arizona

Branching out to create specialty chain business: George apparel stores, Wal-Mart, UK

Increasing depth of multi dimensional merchandising product mix (Tony Hawk mens, boys, footwear and etc)

Spin off PL brands (Aeropostale)

Cannibalize weaker PL brands

PROS

Exclusivity & differentiation

Bring customer loyalty

Better margin

Better control in deliveries

Brand equity

Freedom in pricing strategy

Increase bargaining power with both national brands and PL factories

CONS

Inventory risk

Higher R&D expense

Higher marketing expense

No markdown or return allowance from branded suppliers

If product fails, will create negative image

Quality control, complex production & import issues

KOHL’S

New Launches– Simply Vera by Vera Wang, Elle Apparel, Food Network Kitchen estimated growth rate 6-7% for 2 nd half of 2007

Tony Hawk, board-sports inspired, a hot category

JC PENNEY

American Living by Ralph Lauren 2008

C7P – Chip & Pepper Denim 2007

Liz & Co

Arizona - $1 billion lifestyle premium brand

MACY’S

INC, Alfani, Style & Co, Martha Stewart, Field Gear, Epic Threads

WAL-MART *

George - $3 billion men’s urban fashion

Faded Glory - $3 billion lifestyle premium brand

*Wal-Mart figures represent worldwide sales

To differentiate

To gain and maintain consumer loyalty

To achieve higher gross margin

To compete with national brands

I. Retailers believe private brands are their strategy:

II. National brands should: What This Means

Change mind set and realize that Private Labels are

competing brands

Innovate and stay as market leaders to beat PL

Stay focused on target audience

Increase and market brand imagery to gain and maintain

customer loyalty

Partner with retailers to produce exclusive brands,

SKUS, one-time offers or lines

Price competitively and streamline expenses

III. Future of private labels:

Private brands will continue to play an important part of the assortment to their growth strategy

Become national lifestyle premium brands

Deploy a multi-layer strategy in brand, price and quality

Cannibalize weaker private and national brands

What This Means

Average price gap 37% based on quality equivalent categories Average price gap 21% based on national brand’s quality is perceived to be less than private label brands. Private Label Brands Retail $ Gross Margin National Brands Retail $ Gross Margin Price Difference betw. Brands INC (Macy’s) Dresses $79-129.00 GM 60-69% BCBG Dresses $158-178 GM 48-56% 37% Alfani (Macy’s) Men’s Polo $34.50-42.0 GM 58-68% Nautica Men’s Polo $45-55 GM 50-54% 30-39% Faded Glory (Wal-Mart) Denim $10.77-14.42 GM 38-54% Levi’s Denim For Wal-Mart $19.68 GM 45-48% 37% Sonoma (Kohl's) Menswear $ 16-28.00 GM 60-62% Dickie’s, Shady’s & etc $16 – 40.00 GM 40 – 48% 20 –25%

06/06/09