Going Private To Become More Public

The adage “everything old is new again” never gets old in the retail business.

So it should come as little surprise that JC Penney continues to trumpet its return to an emphasis on private brands as the key to its long-term revival.

The previous private-label momentum at Penney’s ushered in by Allen Questrom ultimately stagnated during Mike Ullman’s first turn with the retailer, leading to the ill-fated decision to bring in Ron Johnson and his swift private-label axe.

Immediate Gains

Ken Mangone, the veteran Penney’s private brands chief cut by Johnson then reinstated by Ullman, said in a recent Fortune interview that Penney’s was on track with its house brand re-development despite the stall of the retailer’s recent same-store rebound.

Leading with private-label can bring immediate gains to gross margin, but it also presents an expensive marketing challenge to build and sustain meaningful equity among consumers.

Analysts note that Penney’s re-emphasis on private-label seems contrary to efforts at rivals Macy’s and Kohl’s to mitigate their reliance on private brands to protect their turf.

Retailers are constantly tinkering with their balance of private labels and widely distributed national brands, which typically provide the fuel for traffic and the reference points for private-label alternatives.

National brands, and the trust they convey, have reasserted themselves in recent years. But most consumers still like to shop high and buy low, lending added potential to well-developed private brands.

True house brands present marketing hurdles compared to controlled brands licensed exclusively by retailers. Controlled brands carry a fee but provide, in theory, plenty of pre-loaded demand. Retailers get to keep all profits from true private brands, but they also must do all the heavy lifting to create demand.

Brand Identity

Playing for private-label margin without a commitment to steady brand-differentiating investment can muffle a house brand’s identity and leave a retailer vulnerable.

Even the best-developed private brands won’t save a retailer from weak overall strategy and execution. Otherwise, Sears wouldn’t have turned to farming out some of the strongest house brands in retail history to generate low-cost revenue. Brands such as Craftsman and Kenmore prove, however, that house brands can transcend their private-label origins to become top of mind in the general marketplace. 

Time And Money

Indeed, private brands succeed when they become very public. That can take lots of time and money, luxuries many of today’s retailers, especially JC Penney, don’t have.

Private-label merchandising is an important facet of retail survival, but branding balance and consistent execution are even more important. 

As promising as private-label strategy looks when it’s new, it can get old fast if you are not careful.