Brand Evolution

The terminology for retailer-owned brands has evolved over the years, as have the brands’ premises and promises. Many in the retail industry stopped at “private label” and still use that term as a catch-all, even as retailers have deliberately evolved out of it. To retailers; however, it’s not just wordplay, and “private label” and even “private brand” no longer fully describe the options they intend to exercise.

The term “private label” in particular feels anachronistic at a time when better-than-national-brand formulations and packaging upgrades are the price of entry (and by-the-way, not necessarily at entry-level prices), and as direct-to-retail deals such as Cost Plus’ recent partnership with Bed Bath & Beyond and Sears’ groundbreaking decision to sell Craftsman tools in Ace Hardware, gain momentum.

It’s the latter examples that mark a major branding shift that’s been over thirty years in the making– an evolutionary leap that has retailer brands not just diversifying within controlled environments, but migrating, monetizing and multiplying. We’re calling these new brand beasts “prolifics” and we expect them to roam Earth and ether for many years to come.

Canadian retailer Loblaw’s arguably started all this back in the ’90s when it first made its President’s Choice private label available to US retailers. Since then, many other international retailers such as the UK’s Boots and Spain’s Mango have done the same, the former selling its products in Target’s beauty department and the latter opening shop-in-shops within J.C. Penney – different ways of expanding their US footprint without hanging lots of shingles. However, it’s one thing for a retailer to sell products in non-competing expansion markets, but quite another to turn the competition into a customer.

Out of the Ooze

This is a far cry from generics which crawled onto land in the 1970’s with a singular ambition to simply survive. It wasn’t long though before store brands began to seek a slightly better existence by developing traits that mimicked higher life forms. Private labels audaciously aped national brands in appearance, but without attempting to improve upon them in quality. Once this tactic proved successful, retailers went from imitative to innovative – they shifted out of survival mode and into fashioning a world entirely of their own making.

Even as “private label” remained the catch-all term among some non-retailers, retailers themselves adopted private brand as their preferred term as they upgraded their products’ quality and, in some cases, developed multi-tier private brand propositions. They pounded their chests and shouted, “It’s more than a label!”

Since then, retailers have managed to control their environments to the maximum degree, eliminating disturbances or variances that could cause their brands stress; in some cases driving threats to their brands’ survival to extinction.

Have IP, will Migrate

Among retailers, “owned brand” fast replaced all of the previous terms as the full expression of this viability. They own the physical and virtual environment, they own the brands, and they have learned how to use complex tools (including in-house brand teams comprised of experts who were hired away from national brand companies), so why not stand tall? Costco’s Kirkland, Target’s Up & Up and Kmart’s Smart Sense are examples of owned brands that retailers have evolved into multi-category lifestyle brands, complete with prime placement, multi-channel marketing support and entrenched or evolving-to-entrenched customer loyalty.

Retailers’ new preference for “owned brand” speaks to a mindshift toward intellectual property ownership. That mindshift is the origin of the prolific brand species. Some retailers have gone so far as to create intellectual property entities to house their brands with the expressed intent of making them available to other retailers. Others, such as World Market, are simply making their retailer-to-retailer deals on a case-by-case basis.

Sleeping with the Frenemy

In 2008, Safeway formed the Better Living Brands Alliance with the mission to “provide health and wellness food and beverage solutions via two proven multi-category brands.” In 2009, the company began selling its two brands, O Organics and Eating Right, to other retailers including Price Chopper, Hy-Vee and, this year, Brookshire Brothers. O Organics has surpassed $400 million in annual sales, making it a top-selling organic brand. If turning former competitors into customers smacks a bit of sleeping with the enemy, what a lucrative enemy it is!

We’ve mentioned in previous posts Sears Holding’s chairman, Eddie Lampert’s, creation in 2006 of a $1.8 billion entity to house the Craftsman, Kenmore and DieHard brands. This year, Sears also made Craftsman tools available to Ace Hardware, turning Ace into its customer. On the wholesale side, Sears also licensed the DieHard brand to Schumacher Electric, allowing Schumacher to sell DieHard brand power accessories, including battery chargers, jump starters and inverters, to retailers in the US, Puerto Rico and Mexico.

Both Safeway and Sears Holdings have clearly stated their brand propagation and proliferation plans but this is only the beginning. Although retailers have by no means fully populated their own environments; the prolific brand DNA structures have been built, which will give more retailers the courage and incentive to venture outside of their dwellings sooner than later.

Natural Selection

By exchanging goods among themselves, retailers are guaranteed space on additional shelves and a high return on their growing brand marketing investments. Furthermore, once the deals are struck and the announcements made, all retailers involved will be invested in the arrangement, further mitigating risk and ensuring some measure of continuity.

The ultimate effects are hard to gauge, but what undoubtedly will happen is that certain retailers will prefer working with one another and will form solid connections. Because of some retailers’ enormous influence, distribution networks and scale, the brands they take prolific will become even more formidable competitors to national brands and indelible in shoppers’ minds.

Having a secure network of retailers that can sell goods to one another also means that other brands will be squeezed out, of course. As retailers continue to stretch their categories’ limits, private branding will expand into new categories and, as retailers become comfortable exercising their prolific brand options, that squeeze will tighten.

So, if prolific branding is the next phase of the retail evolution, which retailers are poised for a prolific play? Which national and licensed brands have the most to lose and which categories? Will a sort of hybridization occur, where retailers cut out unaffiliated companies altogether in some product categories, preferring to deal only with each other?

We’ll continue to observe and track the migrations and variations as survival of the fittest – or at least, the most prolific – marches on!

Lisa CarverComment