The private-label debate
Is this increasing industry trend good for your business?
I doubt any of you are surprised that the number of private-label products showing up in the marketplace is rapidly growing. Many of you are starting to show and sell your very own private-labeled faucets, bath accessories and other popular showroom sell items.
Certainly all the “big boys,” including the “big boxes,” are going that way. They keep a nice mix of many of the well-known brands, but have learned that by having their own private-label products they can protect (even grow) their gross profit margins and more importantly keep these products from being “showroomed” and bought on the Internet.
This activity is not only for the very large players, but smaller showroom businesses can take advantage of this relatively new phenomenon as well.
First, let’s define what a brand is. A brand is a name, logo, slogan and/or design scheme associated with a company, product and/or service. Brand recognition and other reactions by potential customers are created by the use of the product or service and through influence of advertising, design and media commentary.
A brand often includes a logo, fonts, color schemes, symbols and sound which may be developed to represent implicit values, ideas and even personality. As well, a brand is the collective consumer perception of a company, product or service that is uniquely your own. A brand is the philosophy that changes the minds of customers. It needs uniqueness, positioning and in today’s fast changing business environment it needs social media in addition to all the other methods used to communicate a brand.
If I say “Golden Arches” you immediately should think of McDonalds. Do you know the Nike logo? You should. These folks have spent a ton of money for a number of years trying hard to imbed their brands in your mind.
In my opinion a good brand allows your customer to define who you are, what you stand for, what you offer and how you make them feel. It also can simply make you stand out, define you and attract the attention of your prospects (noncustomers who you hope to turn into customers).
Product vs. brand
Products are created in manufacturing plants and then the brand is created in the minds of the individual. Brands are then put on products to sell to people who have heard of the brand. An example would be the fact all shoes are created pretty much in the same way, obviously with different styles and quality. Once a Nike or adidas logo is on it, it changes the brand. Both Nike and adidas probably are made in the same foreign factories.
Now, let’s look at showroom products. There are a number of very recognizable brand names being shown and sold in your showrooms: Kohler, American Standard, TOTO, Elkay, Delta, Moen, Grohe, Jacuzzi and numerous others. Almost every homeowner gearing up to build a new home or do a remodel will be familiar with these names. These companies have been around for a long time and spend a lot of money getting their names out in front of the buying public (trades also).
In addition to these better-known names there are hundreds of brand names/manufacturers that are not as well-known. Unless prospective clients spend an inordinate amount of time doing homework, shopping, etc., they most likely won’t be familiar with these names. My apology for saying that, but I believe it’s true.
It’s a proven fact well-known brand names are the best sellers on the Internet. Just for the heck of it, I logged on to Amazon and went to “two-handle lav faucets.” There were more than 1,500 different items shown and more than 60 different brand names. I only recognized about half the names. How many were private-label names?
Now we can take it a step even further. In addition to the many fine showroom products that have been around for quite awhile, there are private-label products being brought in. These products might be for only one company, or possibly a group of companies (i.e. members of a buying group).
The big boys get involved
When Home Depot and Lowe’s first opened their doors, the major plumbing wholesaler vendors (Kohler, American Standard, Delta, Moen, etc.) refused to sell to them direct. As the “big boxes” grew they became too important a player and the manufacturers had to start selling to them. Wholesalers weren’t happy, but it was part of the evolution of how products were moving from the manufacturer to the homeowner.
Now that these two giant boxes have become major sellers of decorative plumbing products, they have come out with their own in-house brand names for these products. Home Depot markets Pegasus and Glacier Bay and Lowe’s shows and sells Aqua Source. Nobody else has these brands. Do their homeowners and do-it-yourself customers care what name is on the product? Yes, some do, but many are mainly concerned with the price and know the big box will be there for warranty issues and problems.
For instance, industry giant Ferguson has gone to its own in-house brands. ProFlo is the brand for the trades and Mirabelle in the showrooms.
I also know several other large wholesalers have already brought in their own private-label lines or are currently seriously looking at doing it. I called a dozen owner/managers of showrooms and asked them what they were doing. Several haven’t gone the private-label route yet, but are talking with their vendor partners about having a semi-exclusive product made for them.
A number of the folks I talked with are members of luxury product buying groups. These buying groups are coming out with private-label lines exclusively for their members.
One of these buying groups is Forte, which recently rolled out its Ammora private-label line. Forte began with three different styles and several different finishes. More are on the drawing board. I asked, “Why a private-label line?” Their answer was, “Survival!” It’s intended to help protect themselves from the really big players and the Internet, plus they will have more control over their margins. Only Forte members will be allowed to buy the Ammora line, and members don’t cross over in selling markets thus making it an “exclusive” in their market area.
These private-label lines come with insurance, brochures, specs, warranty, etc., and meet all the various codes.
If you can obtain the styling, finishes, quality and have an exclusive product, it sounds like going to private labels could/should be a good thing.
So far, faucets and bath accessories have been the main products going to the private label. However, I was told several other products (tubs, furniture, knobs and pulls, lavs and other fixtures) are being looked into.
A private-label opinion
In my humble opinion manufacturers have caused this to happen because so many sold their products to almost everyone in every marketplace. There was very little selectivity or exclusivity. Consequently these beautiful, well-made products have been prostituted on the price side. The old saying that “no matter how cheap you’re willing to sell it, there will always be someone who will sell it for less” is so true! When everyone is selling the same very similar products and services, the only differentiation becomes price. For years I’ve complained about the low margins being realized in showroom sales. They’re too darned low!
One way to try and protect and even raise those margins is by showing and selling products no one else in your marketplace has. Of course, learning the all-important selling skills I continue to talk about also will help.
Here’s an example of good selling skills we used at our company. We worked hard and spent a lot of money promoting all the well-known brands. When a prospect came in, we were almost always able to talk them into buying a lesser-known brand — one that afforded us a greater profit margin. You are the expert. Prospects buy from you! They trust you, have confidence in you and they will allow you to steer them to products that you want to sell them. This takes practice and skill, but it works.
A number of showrooms across America are reducing the number of lines they show. They’re getting rid of lines that have been prostituted and going with the lesser-known, more unique and more exclusive lines that will allow them to be more profitable. They are making the conscious decision to sell less but make more on what they do sell.
I endorse this strategy. Big doesn’t make good. Being very profitable does!