Private-label Products

In today’s hotly competitive retail marketplace, private-label products let catalogers set themselves apart from other merchants.

“You can gain a competitive advantage if you’re smart about your product development,” asserts Karen Scott, founder of One Step Ahead and Leaps and Bounds, two catalogs of children’s merchandise.

For Scott, that meant coming up with some new and original product concepts and getting them to market before the big retail chains.

“The mass merchants have entered our market,” she says. “They’ve learned to copy goods and sell them cheaply. By designing some of our own products, it gives us back our competitive edge.”

Textiles and home merchandise consultant Karin Miller of Miller Merchandising, Long Beach, CA, concurs that private label can be a competitive hook for catalogers. “The most obvious benefit is the ability to leverage customer knowledge to develop products that will sell,” says Miller.

Why Private Label is Worth Exploring

While it’s a great coup to develop your own products for competitive reasons, consultant Jack Schmid says the No. 1 benefit catalogers gain from adding private-label goods is better margins. “If you can find a way to add 10 points of margin, you’re going to have a big success in that product line,” says Schmid, chairman and founder of J. Schmid & Associates in Shawnee Mission, KS.

Take pet-supply cataloger Doctors Foster & Smith. Schmid says: “They were a $5 million business in the 1980s. One of the things that was a significant breakthrough for them was the private-label program, which helped them add 10 to 20 points of margin to their product lines. It was so successful, that the line grew and grew. They even have their own [pet] pharmacy now. Today, that company does more than $100 million in sales.”

Scott says that for her catalogs, pricing and margin advantages have been among the other key benefits of selling private-label products. “By manufacturing your own products or having them made for you, you have more control over your costs, and therefore your pricing, too,” she explains.

Another benefit, Scott says, is that private label supports a catalog’s brand positioning. “Having hard-to-find or unique merchandise sets you apart — and this is especially [important] for a cataloger,” she says.

One Step Ahead’s and Leaps and Bounds’ merchandise is 25-percent to 30-percent private label — sometimes up to 35 percent in the spring and summer, due to the popularity of certain apparel items featured then, she explains. Nearly its entire private-label line is in the soft goods (apparel and related items) area.

Miller adds, “Selling products under a private label promotes and builds the catalog brand rather than that of the product supplier, thereby promoting the catalog itself and creating a more personal relationship with the customer.”

Schmid concurs that using private label will enhance your existing brand. “For one, if it’s done right, private label can turn you into a brand that people can trust,” he says. “Catalogers like Lands’ End and L.L. Bean are the epitome of brand.”

Plus, he adds, “You become the one they turn to when they need that product. It’s like going to Lands’ End for dress shirts that fit and are a good value. You know their private-label products are always reliable.”

And speaking of value, that’s a third benefit to private labeling: a pricing advantage. Says Schmid, “You can provide quality products at a good price, because you have more control over the product costs.”

Two Big Caveats: Quantities and Quality

While there’s a lot of promise in selling private-label products, it doesn’t mean it’s an area of business to jump into without careful thought and planning.

“The major downside to private-label programs is that minimum-order quantities may be higher than they are for branded goods,” says Miller. For this reason, some catalogers start with private-label packaging on existing products and then start developing the products themselves after they prove the concept, she notes.

In fact, if you’re a small cataloger (e.g., $5 million to $10 million in sales), you may have trouble getting into private label. “You may not have the clout or the volume to establish the vendor relationships you’ll need,” explains Schmid.

Scott admits that the minimum-order quandary surfaces periodically. “You can find yourself ordering a lot more than you might need for a season.” Scott says she is looking at different ways of dealing with the problem. For example, the company Web site has played a large role in helping it sell overstocks.

Quality control is another critical issue cited by Scott. Regularly testing products is the key to maintaining quality levels, she notes.

In an effort to maintain control over quality, Schmid advises catalogers, “Go to the original sources of products whenever possible.” Often, he says, “You’ll see people going through multiple layers of vendors to get their products, and you don’t want to do that. It’ll hurt your margins, it can hurt your quality control, and it can cause other problems. Go to the manufacturing plant directly so you can control the process. Don’t just hand off the process to someone else.”

Best Practices

When it comes to supply side functions for your private-label merchandise operation — such as manufacturing, sourcing and product testing — there are three keys to success: controlling the sources, controlling the quality and eliminating as many middle people as possible, says Schmid.

Developing a reliable supply chain that can produce brand-consistent goods across multiple product lines can be a challenge, especially when dealing with more than one vendor. “It’s important to build internal resources to communicate the brand parameters to the vendors, and then to continuously monitor their performance,” Miller says.

Scott stresses this point even further: “Sourcing is an incredibly complex undertaking.” One Step Ahead’s answer has been to contract with a sourcing agent to handle the details of its private-label manufacturing.

“We funnel most of our buying through that agent,” Scott says. “They also do the factory quality-control sampling. We tend to outsource most of the sourcing of our private-label merchandise. We brainstorm the ideas in-house and then take it outside to have it produced. This works for us, because we know our market and our customers best but don’t have all of the in-house capacity for manufacturing.”

Schmid says one tactic for testing the private-label waters may be to start by taking some bestsellers and manufacturing them offshore — without putting your name or logo on them. The next phase would be to put your company’s name and logo on some of those items and brand them as a part of your private-label line.

Says Schmid, “Private labeling and branding aren’t exactly brothers, but they’re like first cousins. They can work hand in hand.”

Sourcing Strategies

Karen Scott, founder of One Step Ahead and Leaps and Bounds, catalogs for babies and children, offers the following tips:
- Avoid manufacturers that also sell to your direct competitors.
- Find merchandising experts to help you, and be sure they have the manufacturing capabilities you need.
- If you have an idea that’s novel, patent it if possible. Says Scott, “It pays to have solid legal advice regarding whether a new product design does or doesn’t infringe on an existing patent. Sometimes we’ve found it easier to simply license a current patent than try to design around it.”

Private-label products can help improve margins, says Karen Scott, founder of Leaps and Bounds and One Step Ahead catalogs.

Up to 35 percent of the items sold in the One Step Ahead catalog are private-label.