The apparel industry is leading the way in re-establishing the benefits and strategic rationale of seperating product innovation, manufacturing and supply from core retailing activity. Large dominant retailers who once obsessed about lowest-cost sourcing and discount-focused retail formats are returning to their roots. These forward-looking retailers are concluding that they have allocated too much time, resource, and investment in squeezing vendors and sourcing private labels and are starting to show signs of a new direction: enhanced retail customer experiences.
It's important to remember how we got here. As retailer power increased through consolidation and concentration in market after market, they used their newfound influence to extract price concessions and private label deals with strong branded product makers. Afraid to turn their backs on such seductive volume promises, the brands focused on driving down costs. Overseas contract manufacturing companies had a heyday with all the new manufacturing, and increasingly retailer-direct, buyers looking for low-cost alternatives. For a while, the game played out to Wall Street's enthusiastic reception. Mega-player volumes spiked, earnings soared, smaller competitors often sank. But lost in the shuffle was the consumer. And consumers buy excitement and lifestyle enhancements - not earnings expectations.
Evidence is mounting that the pendulum is swinging back.
Take JC Penny for example. The retailer has abandoned significant portions of private label activity managed internally at the retialer in favor of a Ralph Lauren relationship. While the "American Living" line will be exclusive, RL will have extensive control - as branded players used to have - over product design, material selection, sourcing, supply, pricing, positioning, and advertising.
Macy's is also getting in on the act. With their own private store-sourced labels accounting for over 70% of sales in many popular apparel categories, the company is striking new deals with an innovative wholesaler based in China (Li & Fung). The wholesaler is buying up a treasure trove of 'sleeper brands' and marrying them with the company's lowest-cost global supply chain capabilities. End result? Macy's will be exiting a significant portion of their role as internal private label sourcer in favor of mid-range branded vendor offerings.
It is critical that branded product makers leverage this new window of opportunity
to encourage and support their retail channel partners to refocus on retailing. Consumers are increasingly responsive to non-commoditized retail options, and are making it clear that uninpsired price-only formats are a niche - not the norm. Let's see how this plays out in apparel - and other sectors.