3 minutes
Private labels a growth driver for department stores
Since the Covid-19 crisis, when tourist customers became scarcer, department stores all over the world have been relying to a much greater extent on their own brands. Between 2019 and 2022, the share of business generated by department stores’ private labels increased on average from 9% to 16% of their total sales, according to a study by the International Association of Department Stores (IADS), a body that brings together 11 groups worldwide*. This increase has been notably due to increased demand by consumers who are “abandoning national brands in favour of cheaper private label brands,” said IADS.
For department stores, some of which have been hugely challenged during the pandemic, developing and growing their own brands is a way to improve profitability. “El Corte Inglés reduced the total number of labels with the ambition of transforming them into brands (Sfera and UNIT in the young fashion segment are good examples), El Palacio de Hierro launched a five-year plan combining brand recognition plans and an operational reorganisation, while Galeries Lafayette and Manor doubled down on targeting specific categories (for instance, the home decoration category, or single-product segments such as cashmere or men’s shirts),” said IADS.
Like the labels they distribute, department stores faced product availability pressure in 2022, notably due to delivery delays. By March 2022, 70% of stores had received their Spring/Summer collections, compared to 90% in 2019. For the following season, an organisational overhaul took place: materials were pre-booked earlier, and sourcing dependence on China was reduced, in favour of countries in South-East Asia (whose sourcing revenue grew 6%) and the Europe-Mediterranean basin region, although nearshoring from there was up only by 1.5%. “Given the rise in the cost of materials, higher product costs obviously raise the question of retail price points, and how much consumers are ready to pay for these brands,” noted IADS in its study.
Some department stores have started repositioning their private labels in the high-end segment. “In order to maintain viable margins, private label retail prices have increased in line with overall price inflation. However, this has opened a debate about going upmarket in order to justify a new price point. Across the board, motivations differ: some department stores see it as a way to compete with international brands, while others are pre-empting the high-quality essentials segment,” said IADS.
Price is therefore no longer a main lever for private labels in their relationship with customers, and in fact “IADS members’ private labels with the highest gross margins are those that sell best,” stated the study.
Finally, department store groups are attempting to engage more fully with sustainability. They are increasing the share of sustainable products in their collections, and are keen to become more transparent. “In Europe, constant and complex changes in regulation add costly difficulties to the compliance process,” noted IADS, underlining that “continued CSR efforts create additional and major added value for private labels, in terms of notoriety and power of attraction to a clientèle that is increasingly sensitive to these subjects.”
Could the share of business generated by private labels still grow in the years to come? Yes, if department stores will continue to invest in them, because, according to IADS, it is proven that private labels generate greater competitive and financial advantage compared to other commercial models found in department stores.
* The members are Centro Beco (Venezuela), Beijing Hualian Group (China), Breuninger (Germany), El Corte Inglés (Spain), El Palacio de Hierro (Mexico), Galeries Lafayette (France), Lifestyle International Holding (Hong Kong), Magasin du Nord (Denmark), Manor (Switzerland), The Mall (Thailand) and SM Store (Philippines).
Copyright © 2024 FashionNetwork.com All rights reserved.
