Macy’s Inc.’s Private-Label Branding: Pros & Cons Coursework

Retailers need to think like a brand and act like a retailer.

—Richard J. George, PhD, Professor of Food

Marketing, Haub School of Business, Saint Joseph’s University

Private labels are taking on the national brands. Putting pride aside, specialty retailers, supermarkets, and chains are creating high margin, high-quality consumer goods and experiences that are enticing growing numbers of loyal and profitable customers. This gives retailers more control over what happens at the point of sale—they can design not only their planograms but also their presentation of products in a way that competes directly with national category leaders. Private label brands like Macy’s have good business in the market, but they face a dilemma when it comes to positioning their product. This essay aims to bring out the strategic issues Macy’s has been facing and a solution to the stated problem.

“Private labels require that the organization have the skills to identify trends before their customer is ready, interpret those trends for their customer, and bring them to market in time and at the right price. Additionally, the organization absorbs the entire financial risk of the assortment, elevating the requirement for a flexible and efficient supply chain to the same importance as the trend management capability. Federated has invested an enormous amount of time and money to develop, enhance and sustain these skills. Both in terms of flexible supply and trend management, the organization has technology, processes and people dedicated to being excellent in these mission critical capabilities.” – Don Delzell, Partner, Retail Advantage¹

Macy’s was founded in 1858 by Rowland Hussey Macy, a Quaker businessman whose religion dominated the island at that time. Macy’s Inc. (NYSE) generated net revenues of nearly $27 billion in women’s, men’s, and children’s apparel, and accessories, cosmetics, home furnishings and other consumer goods in 2006. Today, its two main department store brands are mid-tier Macy’s and upscale Bloomingdale’s. In 2003, the company strategically converted all of its regional store nameplates to the Macy’s brand (except for the Bloomingdale’s stores).

Macy’s today sells various branded goods along with their private label products, especially in apparels and soft line home furnishing. Their strategy lies in merchandising of the private label products in a similar fashion as the branded products, so that the customer is enticed by their value proposition. They ensure that vertical differentiation of national brands does not work. But such techniques are short-lived. The case poses the question whether Macy’s should position their labels openly against big brand names. The essay is to ascertain if Macy’s should brand its private label products? We believe it should.

The issues stated in the case are as follows:

• Macy’s sell both private as well as national brands in their stores. As a result, the customer goes for the brand which is better known for they are sure about the product quality.
• Too many labels. Macy’s has a basket of private labels like Alfani, Charter Club, INC, Hotel Collection, American Rag, Green Dog, Tools of the Trade as well as many others. Handling all these labels together becomes difficult.
• They do not have any advertising done separately for their labels, but they employ certain techniques like
• Placing of the goods next to the private labels. This ensures that the customers looking for a price advantage over the the nationa;l brands are lured. This strategy works as long as the only differential is price. But this strategy lowers the brand value of the label.
• Naming them in the fashion of high end designer signatures. But in later stage when the customer realizes that this is just another private label imitating the labeling of a designer brand its credibility reduces to a great extent. This depletes the trust in the brand.
• Aggressive advertising of certain labels like INC. though INC as a label gets its share of exposure; the other labels dwell in the shadow.

Success in private-label branding boils down to a retailer’s ability to build a brand and control and manage it on a local level to create relationships with consumers. The challenge is to provide consumers with unique experiences that are as good as those of the national brands and their competitors. This becomes easier when less of the retailer’s budget is needed to support the introduction and marketing of traditional consumer brands. Thus the strategies that Macy’s should employ are as follows:

• Macy’s need to merchandise their private labels and national brands available in their stores differently. Their display should indicate a clear demarcation so that the brand can be identified by the customer before it is purchased. A Financial Times article² explains that “store brands are no longer copying the competition. They are setting their own style trends. The ugly ducklings of the supermarket shelves are growing into swans.”
• Too many labels are a problem with Macy’s. So they should consolidate their brands in one/two labels. Preferably two labels so that they can position one as a value proposition brand and the other as a higher-end product. This will make it easier for the management to market the labels properly.
• They should do away with the clandestine techniques to display their labels as it makes the brand non-existent. “As audiences for network television diminish, advertisers are coming to believe that one of their best opportunities to reach consumers is in the store—at the point of sale,” according to a Financial Times article.³ This promises well for retailers who ultimately have control over the point of sale. Macy’s as a retailer already has this advantage.
• With fewer labels to market, advertising can be concentrated on all the brands rather than only one brand. Moreover, according to Conn (2005)⁴ only by adding quantity to their labels does not show an innovative private label branding. By creating unique brand experiences for consumers Macy’s can truly innovative brands that encourage repeat purchases like Starbucks, Whole Foods Market, and Trader Joe’s have created. So the idea is brand creation.
• According to Kurt Salmon Associates (KSA)⁵ “Acting vertical” implies “striking strong and mutually beneficial working relationships with manufacturers.” They highlighted three required capabilities for success:
  • Working with consumers to co-create demand. This includes more extensive quality control of their products as well as more frequent testing of the entire consumer experience through continuous feedback process.
  • Delivering a great consumer experience in the store.
  • Tailoring supply chains: Macy’s need to analyze their performance by measuring “net realized margin,” taking into account the total profitability of getting products from the factory to the store, including their selling price. Today, many only focus on lowering transportation and logistic costs.

The feasibility of the above strategies is not hurdles as they are all tried and tested formulas of retailers. They are easy to implement but just require proper strategizing and marketing mix. Consumers may try a brand once because they’re curious. But repeat purchase occurs when it becomes a trusted brand. A new brand can survive only if the marketing mix is innovative. True innovation occurs only when retailers approach private labeling from a branding perspective and create unique experiences that build another level of relationship with their consumers. To achieve success, Macy’s need to shift their focus beyond the label and build brands in a broader sense. One retailer strategically using private labeling to build upon its relationship with consumers is Wal-Mart. ⁶

As consumers grow more used to seeing private brands, they are accepting the idea of retailers developing exclusive, premium brands of a quality that is as good as, or better than, that of the national brands. Building a successful private-label brand is an investment in a retailer’s future. The process extends far beyond the label itself, involving a deep understanding of the whole brand experience. In other words, it’s not just about creating a package. National brands have extremely high visibility. People trust them, and have for years.

Reference:

Macy’s website. Web.

Gary Silverman, “Retailers pack new punch in battle with the brands,” Financial Times. 2004.

Bauer, R.A. (1960) ‘Consumer Behavior as Risk Taking’ in R.S. Hancock, ed. Dynamic Marketing for a Changing World. Boston, American Marketing Assn.

Berlinski, P. (1997) Wal-Mart Sets New Paradigm for Private Label Success’, Private Label.

Conn, C. (2005) “Innovation in Private-Label Branding”, Design Management Review Vol. 16 No. 2.

“Wal-Mart: Private labels on parade,” Datamonitor, 2003.

Anderson, G. (2006) BrainTrust Advice 2006: ‘Told You So, Macy’s. Web.

Macy’s Inc. (2007). Web.

Ryan, T. (2008) Apparel Retailers Must Act Vertical. Web.

Don Denzell (2008). Web.

Footnotes

1. Don Denzell. Web.
2. Gary Silverman, “Retailers pack new punch in battle with the brands,” Financial Times, 2004.
3. Gary Silverman, “Retailers pack new punch in battle with the brands,” Financial Times, 2004.
4. Charlie Conn, “Innovation in Private-Label Branding”, Design Management Review Vol. 16 No. 2, 2005.
5. Tom Ryan, Apparel Retailers Must Act Vertical, 2008. Web.
6. “Wal-Mart: Private labels on parade,” Datamonitor, 2003.