Advantages and disadvantages of private labels - Essay Example

Advantages and Disadvantages of Private Labels (Product Development) Compared to National Brands in the Merchandise Assortment. A private label may be defined as a label that is unique to a specific retailer. According to Levy Weitz's definition in Retailing Environment, "Private-label brands, also called store brands, are products developed by a retailer and available for sale only from that retailer (2004)." There are many categories of private labels such as, store brands, store sub-brands, umbrella branding, individual brands and exclusive brands In order to fully discuss private labels, an original company, Macy's, has been used as an example in this essay. I would like to propose several ideas related to private labels that can help improve Macy's profitability. Macy's was founded by Mr. Rowland Hussey Macy in 1851 and established on Broadway in New York City. In 1896 the store was acquired by Mr. Isidor Strauss and underwent a large expansion during the 1920's and 30's (http://en.wikipedia.org/wiki/Macy's). Today, it is perhaps as well known for its annual Thanksgiving Day Parade, as its chain of large American department stores. Its flagship store is located in New York City, and currently holds the record for largest department store building. R.H. Macy & Co. merged with Federated Department Stores on 19th December, 1994. Federated merged its Abraham & Straus/Jordan Marsh division with "Macy's East". Federated acquired Woodward & Lothrop/John Wannamaker in 1995. In 1996 Federated purchased and dissolved Broadway Stores and incorporated it into Macy's West. The year 2001 saw the acquisition of the Liberty House chain which had departments and stores in Hawaii and Guam. It was converted into Macy's West. Bon-Macy's (Pacific Northwest) and Burdines-Macy's (Florida) were soon named as Macy's Northwest and Macy's Florida respectively. And Macy's Central Division included the Memphis and Atlanta Macy's became a part of Macy's central division. In 2005, Macy's acquired May Department stores and retained its brand name to be sold at the Macy's store. Thus, May became a private brand for Macy's. This was an important merger for Macy's since Famous-Barr, Filene's, Foley's, Hecht's, The Jones Store, Kaufmann's, L.S. Ayres, Meier & Frank, Robinsons-May, and Strawbridge's were all included in this acquisition. Later the same year Macy's announced that Marshall Field's would be acquired by Macy's and would become the company's North Division. Federated Department Stores has thus successfully eliminated much of its competition by buying them out and converting them to the Macy's nameplate. By 9th September 2006, Macy's will have approximately 850 stores in United States(http://en.wikipedia.org/wiki/Macy's) . The CEO and Chairman of the store is Terry J. Lundgren and the CFO is Karen M. Hoguet. The vice president of Corporate Communications and External Affairs is James A. Sluzewski (http://www.hoover.com). Macy's has seven divisions, the names of which are provided below; Macy's East Macy's Florida Macy's Midwest Macy's North Macy's Northwest Macy's South Macy's West The top competitors for Macy's are Dillards, Inc (DDS), J.C. Penny Corporation and Saks Incorporated (SKS). The company has a number of subsidiaries and affiliates; namely After Hours Formalwear, Bloomingdale's, Inc., David's Bridal, Inc., and the various regional divisions of Macy's. The company had 232,000 employees in the year 2006 and had a growth rate of 43.30% and (http://biz.yahoo.com/ic/12/12493.html). The annual revenue of the store is 2.5 billion U.S. dollars (http://www.fashioncareerexpo.com/show_co_profile_and_jobs.cfmemployer_id=87&show_id=11). Historically, private labels were inexpensive copies of original designer clothes, often a season or two behind runway fashion. In addition, most of the private labels had a homely feeling to them. However, this is not the case anymore. Trends have drastically changed in the past few years. Whereas private labels were once sold at the back section of departmental stores, premium shelf space is now allocated for them. In store catalogs, private labels have layouts right beside the designer ones. In addition, private labels, which were once bought strictly by adults (mostly middle aged people), are now targeting youth. Thus, department stores are making the styles of their private labels more hip and trendy. Research is being done to develop the product offering for a specific demographic. Yet another benefit in this regard is that the private label can operate and function separately from the mother store (Lauro, 2002). Private labels are also a great way to expand the customer base and to retain revenue, which would otherwise be taken by lower priced discount stores such as, Target and Wal-Mart. They are cheaper than designer brands but have similar quality, while they have the benefit of better quality control than discount store brands (retailer controlled manufacturing vs. vendor controlled manufacturing). Thus, this is a way for Macy's to mass customize its product offering and compete with other stores by using a lower pricing strategy. According to Levy Weitz, (2004) there are many advantages and disadvantages for a company to have its own label. Among the advantages mentioned in his 1983 studies are: the retailer has control over the brand, there is little and/or no competition (and that too can be maintained), huge amounts of savings can be generated, and the quality & standard of the product can be maintained. The disadvantages include huge amounts of effort as well as time required by the retailer to launch and maintain its own brand, the private label. Use of private labels at stores is on the rise. Statistics state that 45% of all goods sold in European superstores are private labels, whereas the ratio for America is 25% (http://en.wikipedia.org/wiki/Private_label). In this paper, I will talk about private labels in terms of Macy's. Private labels are a hallmark for the store as they are considered "an important part of the shopping experience at Macy's. Macy's has a number of private brands.A list of these brands are as follows: (http://www.fds.com/pressroom/macys/private_brands/) Alfani American Rag Baby Greendog Charter Club First Impressions Baby Greendog Hotel Collection INC Material London Style & Co. Tasso Elba The Celler Tools of the Trade The brand name that will be taken into consideration is called First Impressions. It is a line of clothing designed especially for babies (from 0 to 24 month) (http://www.fds.com/pressroom/macys/private_brands/First_Impressions/Fall06factsheet.pdf). The success of this private label derives from the fact that it consists of simple, yet classic, time honored designs. These are called classic and time-honoured, as fashion trends in designing for small children do not change at such a rapid pace as do those for adults. In addition, various requirements have to be taken under consideration when designing clothing for infants (such as; comfort, softness of fabric, possiblity of allergic reaction to fabric, weather/season, easy to wear, stainlessness of the fabric material etc). Therefore, all of these factors give designers a small amount of space in which they have to design their clothing. That is the reason behind why clothing 'trends' for chidren have remained relatively similar over the years. The price ranges for First Impressions starts at around $20 and goes up to approximately $40. Thus, this is a perfect label for mothers who want the best style for their children but at very reasonable prices. All of the clothing items come with special accessories such as a soft satin hanger. It should be noted that this is still a relatively new private label for Macy's and the items in the line will be available at all of the 850 Macy's stores as well as online starting from Fall of 2006. Macy's is on the right track by acquiring small to medium sized companies and selling product offerings of those companies in the form of private labels. However, one still feels the private labels of Macy's are lagging behind the fashion trends. I often find clothing items to be a season behind the runway fashion trends. Therefore, the foremost challenge being faced by Macy's is to keep its products in accordance to recent fashion trends while keeping the price rates at the lowest possible level. This is best done through their private label brands. Only then will Macy's be able to compete with lower priced retail discount stores such as Wal-Mart and Target. The trend of acquiring small brand names and incorporating them into department stores in the form of private labels is a strategy that is picking up steam. Thus, Macy's is now facing the challenge of other department stores catching up to this trend. One of the leading competitors in this regard would be J.C. Penny. Another aspect that needs to be taken into consideration is that even though this is an era of mass marketing, most consumers prefer customized or personalized products. No one wants to go to a meeting or a party and see another person wearing the exact same outfit. Everyone wants to be different or unique. Therefore, Macy's should find a way to mass customize its product offerings. One way to do that is to define market niches. For instance, if clothing accessories for women are a market then its niche might be the work clothes for women. In the 1980's most women preferred the 'power suit'. However, today women no longer want to have to wear the power suit to work every day. They want to have choices on what to wear to the office. Some women want to show their feminine side in the boardroom and wear softer colors, whereas the younger women may want to wear hip, trendier clothes. Women who have to juggle both children & work are mostly pressed for time. They want clothes that don't require ironing and/or care. Therefore, designing clothes for these three sets of women will enable Macy's to mass customize its clothing department for the workingwoman. An important opportunity that Macy's should not miss out on is globalization. One of the biggest exports of America is its culture. And as customers around the world look for American things to buy and since Macy's is an All American Departmental Store, it would be a perfect fit for customers around the world to experience a piece of America in the form of Macy's. With Wal-Mart already beginning to open retail outlets around the world, it won't be long before other retailers catch up. That is why it is important for Macy's to be one of the first to establish itself in the global market. Even if the establishment of an entire retail store is not possible for Macy's, what can be done is that private labels can be outsourced to some local retailer (under certain stipulations and conditions) and thus, plant the seed for Macy's to establish itself in the global market. Another factor to point out is that most of Macy's products are made in America. Though this is may be beneficial to the US economy, there are many American companies (e.g. Nike) that outsource their manufacturing processes. Another alternative is for Macy's to set-up its own manufacturing plants in countries where the labor wages are low, especially for its private labels. This will automatically cut costs and help Macy's compete with retailers, such as Wal-Mart, K-Mart and Target, on the basis of price. Today, Macys has become an American institution, as it is part of both American culture and history. Therefore, it is imperative that Macy's move with the trends and transitions of the rest of the country; by staying abreast of popular culture and styles. In addition, the company has a lucrative potential by marketing its "All American Image" in a more profound manner. As mentioned before, a number of retail giants such as Wal-Mart and Carre Four have already penetrated into international markets. Business history has proven that when infiltrating an international market, the 'pioneering companies' may not do as well as the ones that follow immediately after them. Hence, the growth potential (such as Macy's) and the timings for a retail outlet to go 'global' are just right. Therefore, it is imperative that Macy's jumps at the chance and expands as competition in retail business is high and some other company will take the leap instead. The other two important factors to consider are that Macy's needs to mass customize its products as people around the world have different requirements. And secondly the pricing of Macy's needs to be such that other retail outlets do not take a chunk of market share through a lower price strategy. Though a number of challenges are present for Macy's, with it are also opportunities. It is entirely dependent upon how Macy's sees it. Works Cited Marketing Terms Dictionary - American Marketing Association - www.marketingpower.com http://www.marketingpower.com/mg-dictionary-view2532.php Accessed September 1, 2006 Private Label vs. National Brands by Stuart Daw http://www.heritage-coffee.com/PrivateLabelvs.NationalBrands.htm Accessed September 1, 2006 Company Profile and Jobs: Macy's Merchandising Group http://www.fashioncareerexpo.com/show_co_profile_and_jobs.cfmemployer_id=87&show_id=11 Accessed September 1, 2006 The Hoover Company http://www.hoover.com Accessed September 1, 2006 Taipei Times - archives http://www.taipeitimes.com/News/bizfocus/archives/2002/12/01/185516 Accessed September 1, 2006 Who's in, who's out: Macy's picks what to wear DSN Retailing Today - Find Articles http://www.findarticles.com/p/articles/mi_m0FNP/is_21_44/ai_n15863659 Accessed September 1, 2006 Macy's Parade History http://www.nycvisit.com/content/index.cfmpagePkey=803 Accessed September 1, 2006 Macy's - Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Macy's Accessed September 1, 2006 Private label - Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Private_label Accessed September 1, 2006 Read More