House brands have been a mainstay of the major retailer’s profit strategy for decades. Typically, they have been a small but reliable segment, allowing stores to service more customers by offering lower-priced goods to a customer who might otherwise go elsewhere. But as margins are further squeezed by increasing competition, and with today’s unpredictable market, we have seen greater incidence of retailers turning to house brands to secure a margin at any cost.
Now, there is nothing wrong with chasing margin. Who wouldn’t? And there is certainly nothing wrong with a house brand…up to a point. But where the strategy falls apart and ultimately fails is when a loyal, regular consumer goes to their major retailer for brands they know should be there, only to find a generic label has replaced them. Essentially, the retailer has taken away the consumer’s choice and are dictating to them to buy their own brands. Curiously, this strategy is considered one of the reasons electronic retailer Dick Smith has gone into receivership.
In chronicling the collapse of Dick Smith, The Sydney Morning Herald’s Elizabeth King noted that:
… “With all retailers, the key to success is having the product that customers want and are prepared to pay for, without resorting to heavy discounting.
The decision more than a year ago to move towards generic house brand electronic goods didn’t sit well with customers but it was a strategy that wasn’t cheap to implement.
One of the biggest competitors in the consumer electronics space is Harvey Norman. Its chairman, Gerry Harvey, questions this strategy.”
“We virtually don’t do any of that sort of stuff. I think there is room for some of that but if you are out there trying to establish a brand name with your company, you are better off doing it with other brand names as your partner…When you go to house brands, you are basically looking for margin and mostly looking at inferior products and you are mostly trying to sell it as being superior product, which it mostly isn’t.”
As it’s true for household goods, so it is for fashion.
By focusing on price point as the hook for the consumer, the retailer’s overall brand is devalued. For the most part, a house brand is usually seen in the eyes of a consumer as a cheaper product. It is perceived to be all about margin, and the smart consumer knows this. In essence, they do not have the credibility like some of the traditional great loved brands do, simply because there is no story behind it. Think of the customer loyalty to many brands such as Sportscraft, Sportsgirl or Country Road, and let’s not forget the luxury brands like Chanel, Armani, Dior et al. In the eye of the consumer, whether it’s groceries or shirts, house brands for the most part can have a stigma attached.
In the supermarket world, the first battleground was in the grocery aisle – as the decades pass, the tide has shifted from the producer to the retailer, in part due to the extraordinary market power of the supermarket duopoly and a simple fact they realised years ago: grocery retailers aren’t really in the grocery business, they’re partially in the real estate business, with the shelves being their bricks and mortar. Large producers used to compete for space with their branded competitors; today they’re as likely to compete with the supermarket’s own product for a prominent space on the shelves.
Back to apparel and interestingly, one apparel business that has partially evolved from a house brand model is the New Zealand-based EziBuy, owned by Woolworths. The company has been highly successful with a house brand model but in recent times EziBuy in addition to their house brand model has established ‘The Brand Store’, encompassing non-house brands, realising the importance of having brands for their customers and the purchasing power they can add to a business.
Like everything it’s all about balance. While margin is important, so are your key customers and their purchasing decisions. Never underestimate the power of turnover either which brands can bring.
Essentially, retailers should never underestimate a consumer’s loyalty to the brands they know, love and trust, as electronics giant Dick Smith has discovered.
About the Author:
Phoebes Garland is a Features Writer for Exposed Online & co-owns Garland & Garland Fashion with Robert Garland, a leading fashion agency based in Sydney. Phoebes also owns Fashion Initiative, an online fashion destination covering business of fashion, luxury and events.
Described as a” Power Agent” by Ragtrader Magazine. Between the two of them, Phoebes & Robert Garland have over 50 years sales experience in fashion, publishing and advertising. Phoebes is on the Advisory Board for Fashion Design Studio (Sydney TAFE) in 2015 and is an industry mentor to designers with industry body Australian Fashion Chamber. Garland & Garland Fashion is a respected leading boutique fashion sales & consulting agency based in Sydney and they are regularly sought for comment from various media and the fashion industry on business fashion topics, fashion and issues.