The retail industry is going through dramatic changes due to changing consumer preferences like unified commerce and seamless shopping experiences, emerging new business models like business to home and the sharing economy, and transformational competitors like Amazon and Sephora (to name two).
Retailers are looking for new ways to compete, increase margins, and secure customer loyalty.
One of the ways retailers can tackle these challenges is by increasing the number of private label products in their assortment.
Stats related to the private label trend
Research reported by CBInsights indicates that “retailers earn 25–30% higher gross margins on private labels versus manufacturer brands.”
Furthermore, the changing zeitgeist also seems to be in favor of private label products. Forbes reported that “70% of millennial women see store brands as having excellent quality, while 80% of all shoppers believe that private label brands are equal to or better than national brands in terms of quality and packaging.”
What is a private-label product?
So, what is a private label product? It is a product manufactured by a third-party manufacturer or a contract manufacturer and sold under a retailer’s brand name. The retailer can specify everything about the product – what goes in it, how it is packaged, what the packaging looks like, and how it is advertised. Private label products can be found in almost all consumer product categories.
What makes the private label sourcing process special?
Since the retailer owns the private label brand, private label products provide a competitive sourcing opportunity because multiple contract manufacturers can produce the product. In the case of a branded product, the brand is owned by the consumer packaged goods (CPG) company, and therefore competitive sourcing (from a retailer’s perspective) is not an option; the process is a contract negotiation.
Additionally, branded products are available at many retailers. CPG companies and GS1 standards provide product data that a retailer can download. It is not as simple the case of private label products, because the product is owned by the retailer, is unique, and therefore is not available from generic sources.
Automation of the source-to-contract process
The opportunity lies in combining the competitive sourcing process with a structured and automated way to communicate the required specifications to the supplier, while at the same time collecting all the relevant product data from the supplier. The product data might be used to help with an award decision, for the actual procurement process in the retailer’s backend system, and to collect a full product dataset for the product information management system. The process should be highly automated to make it as easy, fast, and efficient as possible to increase adoption, gain speed, lower administrative costs, and increase the number of private label products in the assortment without any headcount increase.
If you are a retailer with a private label assortment, take a look at SAP Ariba Strategic Sourcing Suite – an end-to-end integrated strategic sourcing solution for GFR and GNFR categories. Visit our Website for more information.