Retailers Embrace Private Labels to Boost Sales
Once a narrow retail niche, private label products from flat-panel TVs and PC monitors to GPS devices and cables are seeing wider distribution at national chains, said industry officials. Growing interest in the category at Best Buy, Circuit City, Target, Wal-Mart and others stems largely from the emergence of a cadre of original design manufacturers that can supply products, industry officials said.
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Alliances with ODMs let retailers deal directly with factories, enlarging margins on entry-level goods that private labels’ mainstay, officials said. “Private label products are singularly focused to help address specific product needs,” said Fernando Silva, director of private label at Best Buy. The chain designs and develops products based on discussions with customers and store staffs, providing “products that give customers choice, that are unique while differentiating us and building customer loyalty,” Silva said.
Best Buy began its private label push with the Insignia brand a few years ago, soon after opening an office in China. Since then it has widened the effort to include Init (carrying cases, wall mounts), Rocketfish (wireless rear speakers and wireless keyboards), Dynex (LCD TVs, monitors) and Geek Squad (cables and flash drives). The chain sometimes uses private label gear to fill gaps in product categories, Silva said. The Dynex and Insignia brands were used on Black Friday to sell LCD TVs, often with $50 pricing gaps. “Shoppers often look for the proverbial ‘good, better, best’ ranking of product in light of features and price point,” Silva said. “The Dynex and Insignia brands serve this purpose in our environment.”
Supplying differentiated products prompted distributor Ingram Micro to extend its V7 brand of private label GPS, LCD TV, monitors and picture frames into the U.S. market after a 10-year run in Europe, said Jeffrey Friedrichs, senior manager of global marketing and North American sales. Ingram is selling its V7 22W PC monitor ($249-$269) through Walmart.com, Staples.com, and others, and, through Fry’s Electronics, introduced its V7 Nav730 and Nav740 GPS products ($250). The Nav740, with a 4.3-inch screen, replaces the Nav700 ($179), whose 4-inch display didn’t catch on among LCD suppliers, said Friedrichs. Ingram may a GPS product with a 4.8-inch screen in 2008, if a deal can be forged with a display supplier, he said. Ingram also expects to offer 19W and 22W LCD TVs and it recently shipped a 24W PC monitor, he said.
Ingram Micro is promoting private label services that let a retailer enter the business while a distributor handles the logistics, Friedrichs said. Ingram is aiming V7 products and private label services at retailers and value-added resellers and will sell them outside Europe and the U.S. in Brazil, Canada, China, Mexico, Singapore and other markets. In 2004 Ingram formed an internal group to set strategy for expanding distribution of the V7 products, Friedrichs said.
Retailers have fielded private label products for years, often when technology has been “in flux,” Friedrichs said. ODMs’ arrival produced a “commoditization,” lowering barriers to entry by retailers, he said.
Private labels seem to compete for shelf space with other brands -- Circuitcity.com Thursday promoted its Elements brand 42W plasma TV with 720p resolution at $749 -- conflict is scant, industry officials said. A cure for friction has been retailers’ locating private label goods so as not to compete directly with vendors, said Rey Roque, vice president of marketing at Westinghouse Digital, a supplier to Best Buy.
Not all retailers are ready to add private label goods. Nebraska Furniture Mart has weighed such plans, particularly through the NATM Buying Group, but shelved them, said Mark Shaw, CE division merchandise manager. “For us to do a private label brand, I'd have to set aside money for an escrow account for service and warranty,” Shaw said. “There’s a lot to it and I don’t think Nebraska Furniture Mart is prepared to do a private label brand. If I was buying a table lamp, I might. But if I'm buying a TV, how much am I really going to save, if anything? Nebraska Furniture Mart is certainly not going to establish a national brand.”
Many retailers fear being stuck with goods not covered by price protection plans suppliers typically provide. “When you get stuck is when the price comes down on tier one brands,” said Rob Lathers, a product manager at TigerDirect.com. “You might end with product that’s over- featured and under-priced,” he said, noting that TigerDirect has no plans to enter the private-label fray.