By Paul Sherratt of Solutions for Sport
In recent years the own brand phenomenon has been making headlines. In the grocery trade, Aldi and Lidl continue to make huge strides with their combination of a number of small, targeted branded products sitting alongside their own private label offerings.
In the sporting goods industry, many successful retailers follow a similar model. Sports Direct has grown its own label business by purchasing distressed brands and selling them at a discount in-store and online, thus making a manufacturer to retail margin, as opposed to a manufacturer to wholesale margin.
Decathlon uses the same strategy, pushing its private labels so much that they have become brands in their own right. The trend can be seen throughout our trade, with the likes of JD Sports, MandM Direct and Intersport all finding the right mix of international brands and private labels to boost margins and provide a point of difference to the end consumer.
For 20 years Decathlon followed a single brand policy with great success. Today the company has moved on from this approach and created specialised brands, each one of them positioned on a precise sporting branch.
This has allowed it to not only compete in the mass market, but by siting these ‘passion brands’ in areas where the product development teams can embrace the sport – in the mountains or by the sea, for example – it has been able to create technically excellent products with higher price points and margins that can compete with the international sporting goods manufacturers.
If we compare the Sports Direct approach with Decathlon, the passion brand approach has been developed not by starting from scratch and building the brand in-house, but predominately by acquisition.
This results in the lines between international brands and private labels becoming blurred – arguably a good thing, as the consumer is often presented with a branded product at an exceptional price unaware it is, in fact, owned by Sports Direct and, to all intents and purposes, is actually a private label.
As the trend for private label products sitting alongside core branded lines looks set to continue, the question is whether smaller sports retailers are able to take advantage of this opportunity. There are several key areas to explore when considering an own label approach:
Lack of expertise
• Problem: you have no experience of dealing with factories, product design, importing, etc.
• Solution: use a reputable company that has expertise in this area, a proven track record and can provide examples of the work it has done, along with testimonials from past and current clients.
Minimum order quantities
• Problem: MOQs are based on a variety of factors, such as material used, size of factory and type of item. Often they can be high, compared to the sale opportunity and thus the project cannot proceed.
• Solution: get together with like-minded retailers and spread the MOQ requirement. This results in all the advantages of improved margin and points of difference, but without the excessive cash flow risk.
• Problem: small retailers often do not have the space to store large quantities of products and are used to operating a ‘little and often’ business model.
• Solution: rent some space for a limited period using cost-effective businesses such as The Big Yellow Self Storage Company.
• Problem: lead times, particularly from the Far East, can be as much as four-six months, depending on factors such as time of year and type of product being manufactured.
• Solution: often this issue can be resolved by improved planning. Once you get into the mindset of long lead times, the business can be planned accordingly.
As my own business has begun to address these issues on behalf of clients, we have seen for ourselves not only the ease with which many of the issues can be overcome but, more importantly, the additional revenue and margin gains these companies have experienced through developing an own brand range.
Some clients have progressed from taking generic products to adding some branding and changing the back neck label to trial the idea, while others have committed to 1,000 sock tri-packs knowing that, based on past sales history, the stock can be sold.
Whatever your approach, it’s clear that, when done effectively, the own brand strategy can reap rewards.