Features, NPD

Private Label Revolution: The Second Wave

RR Private LabelPrivate label has always been around, but the quality and breadth of items available today are a far cry from the Brand-X macaroni and cheese in plain white boxes in the value sections of 1970s supermarkets. In fact, today we’re entering the second wave of private label where big-name retailers are investing more and more in bringing their own labels to market, which customers are growing to love. Before the rise of the internet 20 years ago, it was much more difficult for new, unknown brands to gain visibility with consumers. They had to win over retailers for a spot on their shelves or go out on their own to design, manufacture, and distribute their own goods and services as a direct-to-consumer (DTC), private retailer.

The difference now is that consumers do trust the internet as a place to shop. Consumers have come to embrace the benefits of e-commerce, enjoying instant price comparisons and access to extensive product research and reviews. This, along with the influence of social media, has contributed to changing shopping behaviors like diminished brand loyalty and value-driven purchase motivators.

Retailers’ focus is now on positioning private label as premium brands synonymous with quality and value, to compete with “name” brands. The challenge is to create brands with distinctive personalities that appeal to consumers’ desire for experience. For example, look no further than Costco, whose private label Kirkland Signature brand draws loyal shoppers not just for price reasons, but because customers have grown to rely on its quality.

Who’s Buying Private Label? What the Data Shows

Taking a look at our Retail Tracking Service point-of-sale data, we found that private label is making up an increasingly substantial chunk of total channel sales in the technology, accessories, housewares, and apparel industries.

Who buys private label, and is there such a thing as a typical private label consumer? To answer this question, we turned to Checkout E-commerce Tracking, which measures the entire e-commerce retail landscape, including marketplaces, DTC entities, top industry-specific retailers, and emerging players. Studying our longitudinal panel of over three million online shoppers, we focused on four popular, online-born DTC private label players as our lens of study: Warby Parker, Casper, Mack Weldon and Bonobos. In order to gain insight into online buyers of private label products, we looked at online shoppers who shopped at these private label brands in 2017 to understand buyer demographics and to follow their purchase behavior.

Private Label Shopper Demographics and Behavior

Surprisingly, three out of the four DTC private label brands we studied under-indexed among the 18-24 age segment (all brands except Warby Parker). All four of the retailers over-indexed among the 25-34 segment, and one of the retailers (Mack Weldon) actually over-indexed with shoppers over 45 years old—a group that was born well before the inception of e-commerce. This suggests that DTC private label brands that hope to launch in the digital space can be successful, regardless of their target age group.

Spend

While many online DTC private labels are bought by a tiny sliver of total e- commerce buyers, analysis from Checkout E-commerce Tracking suggests that online DTC private label buyers are a small but mighty group. In 2017, buyers from all four of the brands studied spent approximately double what the average online apparel buyer spent in 2017.

To sum up our Checkout findings, our research shows that online-born DTC private labels such as Warby Parker tend to cater to a segment of premium consumers who are high category spenders, well educated, and affluent—between 25 and 44 years of age. We also found online private label shoppers have a high propensity to cross-shop at other online private label shops, even across industries and price points. This suggests the broader adoption of online DTC private label brands by consumers—and its continued acceleration.

Retailers should commit themselves to their own brands, and shift their thinking from private label as only a value-oriented product around cost, to an opportunity to win over that premium shopper with a transformative shopping experience and unique product. Focusing both on low-priced private label and adding value with quality, retailers will soon see that people are willing to pay for a quality, innovative product with personality.

Manufacturers, also, can no doubt learn from the behavior of this DTC private label online segment of shoppers. Maybe they’re losing share of wallet from the DTC brands in this study. How many of their customers also buy these brands, and how can they win them back?

Bottom Line: Reimagine Private Label

With lower barriers to entry into the marketplace, consumer receptivity, and online as a viable distribution channel, we have the perfect DTC storm. The scene is set for reimagined private label to emerge as a significant disruptor, forcing traditional retailers to respond and step up their own product game, competing on creating unique products instead of on pricing.

Consumers expect exceptional products—regardless of the label. These products must meet a need, while also introducing shoppers to new and innovative experiences. Private-brand products that cater to these needs are finding themselves well positioned to drive sales and loyalty. Will you ride the wave, or get left behind?

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