Retail Private Label Sourcing: Key to Thriving in a Down Economy?

At the various events I've attended this spring, I've had the chance to speak to probably half a dozen different sourcing professionals who work for retailers in various segments of the market (e.g., food, general merchandise, electronics, etc.) One trend I asked everyone about was whether or not private label goods were picking up steam, considering that they are often less expensive than better known brands. In all cases, the answer was a resounding yes, which confirms the findings of this Wall Street Journal article (subscription required) which suggests that "as consumers cut back on spending, grocery-store data and analyst research have begun to indicate that private-label products are gaining market share in the packaged-food industry ... Inroads by private-label goods -- which are cheaper store-named or generic products -- are generally a cause for concern for branded consumer product companies, because they eat into their sales and brand positions."

But even private label good aren't as cheap as they used to be. The story notes that "commodity prices have plagued the branded-food makers, forcing them to raise prices. But private-label names are facing the same input-price pressures, and in some cases have had to raise prices at an even faster clip than their larger, branded competitors." Still, commodity inflation or not, private label products represent a tremendous opportunity for sourcing teams to take on a more strategic role for the company. The price compression that retail sourcing organizations can achieve for private label items (from food products to bottled water to apparel) is often significant. I've personally seen as much as 50% savings in some categories over the years, and I suspect that retailers continue to see significant results (especially those who separate out fluctuating commodity prices from the value-added components of the items they're buying to enable the most competition in the sourcing process).

- Jason Busch

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