Retail business is tough. Companies come and go all the time. I have almost 11 years of experience in this industry ( one day I will write a tell all book on some of the great stuff people don't know about- behind the door at Federated/Macy's corporate CAT fight, for example ) and I can tell you that margin is razor thin.
The stores carry these merchandise to gain name recognition. So Macy's can say we have Levi's, come shop with us!
Your basic better margin departments are usually the home stores and men's ties. In either case, margin is either fat enough or discount is not necessary to move the inventory.
Department store often depend on mark-down money from the vendor to make its department goal. Not getting mark-down money is bad for the department stores. This is one reason why stores tend to develop their private label merchandise. In this arena, margin is often good to begin with. Since it is exclusive, they do not need to discount the goods when competition does to match price.
Private label is a much bigger portion of a business for any store than branded merchandise. The more low end store you go to, the more private label it does.
The trend in private label is a way of survival.
Bigger department stores which have enough volume will do things on their own. Smaller department stores will band together and use a buying service.
This same rule applies to any retailing concept. In AMZN's case, carrying branded merchandise will never be enough. In fact, I doubt very much that AMZN will ever see green. If AMZN wants to be the Walmart of online, then they better start doing private label.
Obviously private label is limited to certain areas. You can not have private label records or books for example. But given this, AMZN will have to grow to other areas of private label if it wants to be the department store online.
Let's use your example for study purpose. AMZN carries XYZ computer. XYZ has an exclusive agreement with them either private label or not but is treated as private label since its exclusivity. DELL carries their branded merchandise on DELL's page. Here are the things to consider:
What is the price spread between XYZ and DELL? Is the price so significant that people will want to buy XYZ and not buying a branded computer?
What if the price between DELL and XYZ makes little difference, then how competitive XYZ can be?
Going back to the previous post where I mentioned "middleman". Let's use CPQ as an example. CPQ price may have a significant difference than XYZ because CPQ goes through a retail channel. Now CPQ wants to sell online. It can drop its price because it eliminates the middleman. Is XYZ price still competitive with the now lower CPQ online price? And if the price difference is so minor, why would branded not win out the less branded?
Keep the above thought and let's end this conversation in a full circle.
In any department store, branded is always more expensive than the private label. Why? if your XYZ jeans is priced the same as your Calvin's, for example, nobody wants to buy your XYZ. So the stores deliberately price their private label significantly under the branded counterpart.
The big question is how AMZN is going to keep itself competitive with pricing structure in competing head to head on branded merchandise and competing private label against branded? |
