The Battle Against Private Label

Wal-Mart is in an incredible position.  While it maintains itself as the top retailer in the U.S., even the recession and its dampening effects on consumer spending couldn’t shake the retail behemoth.  Wal-Mart was still able to emerge on-top, as many consumers looking for a cheaper alternative chose to save their money by shopping there.  As a result, companies have no choice but to sell their products through the retailer, no matter how little margin they are able to achieve.  And remember that this is even more the case during the economic recession.

But Wal-Mart pulled a fast one on its multitude of partners and distributors.  It began to introduce private label items.  And these were not just generic versions of soda, cheese, milk, and fruit snacks, but private label items began popping up in departments all over the store.  Now, you name it, there’s a Wal-Mart brand in fashion, office supplies, automotive products, wines, and even cell phone services.  And all of these labels are in the store juxtaposed to comparable products, at a lower price point.  During the recession, of course consumers are going to be encouraged to be more price sensitive, and Wal-Mart was able to leverage this fundamental consumer shift in order to push sales its line of private label brands.

And it is important to note that Wal-Mart is not the only retailer that has done this.  Target has a healthy family of private-label brands, as well as grocery stores, who have been doing private labels since long before the recession.

However, the fundamental change took place when these private labels began to cut into sales of the better-known, trusted brands all over the store.  And some companies were unprepared for this.  Sales began to erode due to the private-label brands, causing a dilemma with companies who have to distribute through Wal-Mart.  One one hand, they cannot threaten to pull out of Wal-Mart, the largest retailer in the world.  But on the other hand, they do not have the leverage to convince Wal-Mart to stop pushing its private-label brands, since the retailer has control over its own building and distribution centers.

I found myself musing during my next trip to Wal-Mart, trying to guess which seemingly ‘generic’ brands were obviously private-label, though cleverly named something other than ‘Wal-Mart brand’ to be able to compete with specialized product categories, and was amazed at what I saw.  I saw Charmin Paper Towels, priced normally, then the private label, sitting next to them, then another line of Charmin paper towels next to the private label, priced even lower than the Wal-Mart brand!

It looks like the answer for some companies is creating a product line that competes directly with these private labels, adopting the ‘if you can’t beat them, join them’ attitude.  The brand was written in a mix of English and Spanish, attempting to appeal to an apparently price-sensitive demographic that they must have concluded is drawn more toward private label items.  But it was an interesting attempt at leveraging a well-known, trusted brand name, offering a lower price point, and hoping to capture back some of that lost market share.  I’m curious to see if this is just a passing fad, or if it escalates into something more.  Let the battle against private label begin!

By Eric Wiggins