Private Label : the key in retail strategy

Private label will continue to increase its presence in DIY retailing throughout Europe. In those countries that have the highest concentration of retail multiples there will be more incentive to develop private label. Private label will give the retailers more of a point of differential compared with their competitors. In addition it will give the retailers a greater share of the margin from goods sold. Consequently as markets become more price sensitive, private label becomes more important. In markets that are heavily dominated by brands, such as power tools, private label has an opportunity to continue to develop market share – via both private label products, particularly in those countries where private label tends to be well accepted, and fantasy branding. Fantasy brands can play a part in these markets by appearing to have the same qualities as the proprietary brands but actually being store's own fantasy labels. In those markets where private label development is currently high, particularly the UK, and also to an extent France, the growth of private label for the future will be curtailed. Consumers will always demand a choice and private label will reach a ceiling in these particular markets.

For private label to continue to develop in DIY retailing, the retailers need to compete not only on price, by providing a similar product at a cheaper price, but also by introducing more product innovation and new product developments into private label ranges. For private label to become more of a reason for consumers to visit the store, the ranges need to offer superior facets compared with those on offer in the branded merchandise. For example, in paints, new colour assortments could be one aspect for potential development, as well as different pot sizes and in-store mixing facilities. In areas such as dedicated materials, private label merchandise could offer exclusive colours, exclusive shapes and sizes and special features. In the semi-finished products sector, private label is already highly developed. This has come about because of the lower levels of branded merchandise in this sector and the high level of new product development that have characterised the sector. Private label goods are expected to continue to grow strongly even in those markets where penetration is already high.

For the future private label will play an increasingly important part for retailers in generating the right image for their stores and creating additional reasons for consumers to shop in those retail outlets.

The impact of private label sales has been limited to several of the largest global markets. The majority of private label sales originate with the manufacturers, invariably trying to increase their vertical integration by expanding into retail. Generally, private label penetration of the toys & games market is limited to the cheaper price end, particularly pocket money toys.

Retailers are more reluctant to enter private label product development. The highly seasonal nature of the toys & games market and the volatile life cycle of products have been major factors.

The main growth area in this market has been the production of private label generic lines by retailers, designed to compete with multinational brands. Only a handful of the larger retailers sell private label toys, examples being soft/plush toys featured in Wal-Mart, Zellers and Toys R Us.

Another factor which has held back private label product development is the lack of international or domestic manufacturers and retailers with sufficient expertise and capital. The toys & games market remains highly fragmented with a limited number of global players.

In terms of private label sales in major markets, Japan and the US had the highest proportion of sales with 3.8% and 3.6%, respectively in 1998 and both up on 1994. Private label sales are increasing in value terms in all major markets albeit from a very small base.

In Western European markets, private label toys were found to be few. Consumers in Western European markets are more brand conscious and are prepared to pay high prices for quality. As such, demand for cheaper non-branded toys remains low. There is an increasing tendency for the manufacturers/distributor to buy cheap products (mainly from Asia) and relabel them under their own private label brand name.

Conversely, private label sales became increasingly popular in the UK. Retailers, such as Woolworths and The Early Learning Centre have produced extensive generic brands, most notably in the pre-school/infant subsector. In many of these markets, private label toys are made up mostly of cheap outdoor toys such as rackets and balls.

In Eastern Europe, private label continues to be limited due to the underdeveloped retail structure of the region. In what is essentially a stagnant market, there is little to encourage private label development among manufacturers and retailers.

In this region, and other emerging regions, there is some hope for private label toys as there is demand for reasonably priced goods. However, it is likely to be towards the end of the forecast period before private label sales reach the levels seen in Western Europe.

In Latin America, private label is not available although well developed in other retail sectors by major supermarket chains. The main toy chains in the region sell only branded products.

In the Japanese market, private label toys and games have remained low, partly because of the market being highly susceptible to new trends. Private label manufacturers are generally unable to keep up with new trends or technology. Additionally, many toys in the traditional sector are licensed products tied to a limited number of companies. Outside of Japan, the same is true of the Asian market. Private label products cannot be found in the Chinese or Taiwanese markets.

The market for private label video games is non-existent, and is likely to remain so in view of the strength and importance of the branded image in this sector.