Surge in Retailers’ Private Labels a Challenge to Licensing’s Creativity

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Every retailer’s holy grail is to carry well-priced, exclusive goods that consumers desire – and that they can’t find anywhere else. It’s a proven formula for building traffic and margins, and one that – in an increasing number of cases – has driven them toward developing and selling more private label lines.

For some in licensing, private label has been of increasing concern as they see the amount of shelf space they’re competing for dwindling. For others, it’s an opportunity for a DTR agreement involving a celebrity or lifestyle brand that serves the retailer’s goal – but without the time and expense of building a brand on their own from scratch.

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Hyvee F&F brand boutiques

In the meantime, the modern shopping and communications environment is challenging all previous assumptions. “Retailers are looking at the data and it tells them that Millennials and consumers in general are less interested in national brands than maybe their predecessors were,” says Beanstalk’s Michael Stone. “The Millennial consumer also is interested in a brand story, and through social media retailers can now tell that story about their own brands.”

For the licensing community, it’s seen most often in apparel and accessories, but also in areas such as grocery, HBA and consumer electronics, among others.

Longstanding DTRs Affected, Too

Even some longstanding DTRs have been affected. For example, Iconix Brand Group has three of its brands – Danskin, Starter and Ocean Pacific – being displaced at Walmart, which is ending the long-term licensing deals. Additionally, the 20-year DTR agreement between Cherokee and Target ended in January as the mass merchant prepared to launch upwards of a dozen of its own brands.

Indeed sales of private brands at the big retailers – Walmart, B.J.’s Wholesale Club, Costco, Dollar General, Target and others – grew 4.6% in 2016 compared to a 1.1% increase for national brands, according to the Private Label Manufacturers’ Association.

In creating their own brands or entering into DTR agreements that stand as defacto private labels, retailers are relying on their own design and supply chain management skills that once were the province of outside manufacturers. It’s a skill set they’ve been developing over the past few decades, but seems to many to have crested in the past 18 months.

Of course, through the years there have been cyclical increases in the private label business, with retailers attracted by margins fatter than those for national brands that were also being sold elsewhere. But those cycles have periodically been short-circuited when a line or two didn’t sell, and the retailer had to eat all the costs of markdown and clearance sales. At that point, national brands offered by outside suppliers seem like a safer path.

A Slew of New Private Labels

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Target’s Cat & Jack brand

Traditional brick-and-mortar retailers are also looking at e-commerce competitors such as Amazon, which has assembled its own roster of more than 20 private label brands, including several that debuted in November – Goodsport, Rebel Canyon and Peak Velocity for activewear and Rivet and Stone for furniture. Even Walmart’s Jet.com e-commerce site introduced its own private label – Uniquely J – for items like coffee and toilet paper. Indeed in footwear, where many retailers once carried 5-6 licensed brands, they have since reduced the assortment to 1-2 as they add their own private brands, with fashion labels taking a hit, says SG Companies’ Elisa Gangl.

But it is Target that has captured the most attention. After scrapping the Cherokee DTR, Target launched its Cat and Jack children’s apparel and accessories brand in 2017, which company executives say is on pace to garner $2 billion in sales this year. It further extended its private label roster with Pillowfort (children’s bedding and throw pillows) JoyLab (activewear), Project 62 (home décor and furniture), Goodfellow & Co. (menswear) and A New Day (women’s dresses, shoes).

Of course, there will always be room for a hot license as both a traffic- and sales-generator. “I think the evolution of licensing is going to be that these private brands take some share, but retailers can’t ignore that licensing is still important in terms of driving traffic,” says Hybrid Apparel’s Derrick Baca. “Are there going to be big licensing sections any more? Maybe not for a little while and you can see that the sections have shrunk, but as these private brands have grown, so do other opportunities.”

Some Creative Approaches

Hyrbrid Apparel's Love Tribe / Rugrats

Hybrid Apparel’s Love Tribe / Rugrats

Some are creatively addressing the changing landscape. For example, Hybrid spent upwards of nine months developing the Love Tribe brand with Macy’s, which carries the apparel in more than 200 stores. Love Tribe is matched with licensed IP from companies such as Nickelodeon and Peanuts.

“The days when mass merchants would roll with a design that had already been sold in specialty and mid-tier retailers are gone,” says Changes’ Will Thompson, whose company developed distinct Walking Dead apparel designs for mass, mid-tier and specialty retailers. “They want their own designs and they want the same type of service that will give to specialty retailers.”

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Dick’s Sporting Goods – Calia by Carrie Underwood

Those unique designs are also a sign that the days of private brands being limited to low-priced goods in select categories also may be nearing an end. Dick’s Sporting Goods announced earlier this year that it is paring back the number of national brands it carries, going deeper with fewer brands, and raising the prominence of its owned brands – Walter Hagen, Top Flite and Field & Stream – and DTR lines such as country signer Carrie Underwood’s  Calia athleisure collection. While Dick’s overall same-store sales declined 0.9% in Q3 ended Sept. 30, those for private-label goods rose by a “double-digits” percentage, CEO Edward Stack told analysts.

Similarly, Target EVP-Chief Merchandising Officer Mark Tritton says that company’s private labels will provide “a benefit to traffic and sales in all of our categories over time.”

Yet despite growing number of retailer’s private brands, licensors remain confident that proprietary IP still has an upper hand.

“Where licensing has the upper hand is it takes a lot of time to build brand recognition, trust and value that comes with a trademark,” says a licensing executive at a major publisher. “A retailer can build their own brand or go from zero to 60 with a licensed trademark that already has built-in awareness with consumers.”

Among other moves:

  • Grocery chains are expanding into proprietary fashion apparel. The German chain Lidl in September launched an 84-piece womenswear collection with model Heidi Klum – “Esmara by Heidi Klum: Heidi in the City.” A second collection is due this month. Lidl currently has 17 stores across four states, including nine in North Carolina. Lidl’s move came nearly a year after 246-store Midwest grocery chain Hy-Vee deployed Tesco’s F&F fashion label for apparel boutiques that are being installed in its stores. Hy-Vee is operating the boutiques and Tesco is supplying the apparel. Tesco has merchandised the F&F label for apparel in its stores in the UK. The F&F apparel and boutiques have been installed in 14 Hy-Vee stores across three states since debuting with a 3,300-sq.-ft. display at a Lakeville, Minn. location in fall 2016. Meanwhile, Kroger last month said that it will sell a new private label apparel brand at 300 of its Fred Meyer and Kroger Marketplace stores starting in fall 2018. Kroger has sold clothing at Fred Meyer and Marketplace locations before, but the new strategy is part of effort to add more profitable store brands throughout the chains, says a Kroger spokeswoman.
  • Changes is weighing fashioning its internally developed brands – Hous, Z! and Pet Project –as potential private brands for retailers, says Thompson. But it is proceeding with caution. After positioning Hous as an electronic dance music (EDM) t-shirt brand several years ago and having it given away free by disc jockeys at EDM concerts, Changes launched a program with a major retailer. The t-shirts were popular at concerts,  but retail sales were short of forecast. “I think we assumed people from the EDM world wanted a brand that would unite them,” says Thompson. “We misjudged it because I think people in the EDM world want to be very individualistic and don’t want to look the same.”
  • Crafts retailer Michaels Stores is building out its sourcing business following its acquisition last year of distributor Lamrite West. Michaels has set up a 100-person staff with operations in China, Dallas and Hong Kong to support a direct-sourcing business that includes delivering licensed products under the Martha Stewart, Disney and David Tutera brands, the assortments of which will expand in 2018, CEO Carl Rubin said.

Contacts:

Beanstalk, Michael Stone, Chairman, Michael.stone@beanstalk.com

Changes, Will Thompson, VP, 718-441-6464, wthompson@changesonline.com

Cherokee Global Brands, Henry Stupp, CEO, 818-908-9868, henrys@cherokeeusa.com x200Dick’s Sporting Goods, Edward Stack, CEO, 724-273-3400

Hybrid Apparel Group, Derrick Baca, EVP Global Licensing, 714- 947-8347, dbaca@hybridapparel.com

Hy-Vee, Jeremy Gosch, EVP Strategy and Chief Merchandising Officer, 515-267-2800

Iconix, John Haugh, CEO, 212-730-0030, jhaugh@iconixbrands.com

Kroger, Robert Clark, SVP Merchandising, 513-762-4000, Robert.clark@kroger.com

Lidl, Ryan McDonnell, Commercial Dir., +44 370 444 1234

SG Companies, Elisa Gangl, VP Licensing and Marketing, 201-342-1200 x1869, elisag@thesgcompanies.com