Most Recent Articles In Trends and AnalysisMost Recent Articles In Trends and Analysis
- Sears, Kmart, American Apparel Among Least Engaged Brands
- Outerwear, Embellishments Shine for Buyers in Paris
- Retail Sales Up for Week
For decades, department stores have seen inexpensive private-label duds as traffic drivers and profit centers — but now, a group of UBS analysts is arguing, that gravy train of anonymous goods is ending.
“While we believe higher-price private-label apparel will continue to attract certain consumer segments, our research has led us to conclude that the competitive advantage of inexpensive private-label apparel brands is diminishing quickly,” said a group of eight UBS analysts in a new 104-page report.
The analysts define inexpensive private labels as goods with “insufficient investment made on product design and brand building” and that have historically imitated leading brands, following fashion trends.
Although such brands used to have a clear price advantage, UBS said “the pricing of the ‘cheap fashion’ brands [such as H&M, Zara, Uniqlo and Forever 21] and the higher penetration of off-price retailers are so competitive that increasingly numbers of consumers are finding private-label apparel offered by department stores less appealing, both from a pricing and style perspective.”
UBS points to Kohl’s Corp. as the poster child for the private-label trend. Kohl’s is refocusing on national brands after boosting private labels goods to 52 percent of sales last year, from just 42 percent in 2008, according to the report.
“The company has realized it no longer has a strong enough merchandise portfolio, after years of shifting to private brands and consumers increasingly telling Kohl’s they want strong national brands,” said UBS, which has a “buy” rating on Kohl’s shares. “We expect other major private-label retailers to eventually come to the same conclusion as Kohl’s — which we believe will significantly change the business of traditional middlemen such as [Li & Fung] as the retailers change their investment strategy.”
UBS has a “sell” rating on J.C. Penney Co. Inc.’s stock and noted the retailer, by reemphasizing private-label goods such as St. John’s Bay, is returning to the strategy that saw the same-store-sales trend down, before former chief executive officer Ron Johnson unsuccessfully tried to reinvent the firm.
Department stores turned to private labels, in part, because they offered better profit margins than goods bought from branded wholesalers. According to UBS, the move toward more private-label goods “pressured national brands to invest more in brand building or be eliminated.”
Now, with years of care, attention and marketing dollars devoted to national brands, the margin equation might have been reset. UBS estimated that a private label synthetic fabric T-shirt that retails for $15 will net the retailer a margin of $10.55, while the sale of a $23 branded T-shirt will net the store a margin of $12.87.