Bed, Bath & Beyond (NASDAQ: BBBY) CEO Mark Tritton is a private label savant. Prior to heading BBBY, Tritton served as Target’s (NYSE: TGT) chief merchandising officer and oversaw the launch of more than 30 private labels in two and a half years. Before that, he worked at Nordstrom Product Group (NYSE: JWN) , where he managed more than 50 private label brands across both physical and digital channels.
Now he’s using those decades of experience to launch at least eight private label brands at BBBY over the next several months. The first, Nestwell, is set to launch later this month and will feature bedding and bath products. The company then plans to relaunch bath brand Haven in April and debut Simply Essential, which will focus on household products.
Investors have harped on Bed, Bath & Beyond’s lack of private label penetration for some time. Only 10% of BBBY sales stem from private labels, which trails industry leaders like Target that generate a third of its sales from higher margin private labels.
Walmart and Target have been two of the most successful private label launchers in recent history. Each of the retail giants have no fewer than 10 in-house brands that generate $1 billion in sales annually, with Target’s most recent, All in Motion, getting to the $1 billion mark in its first calendar year.
Tritton seeks to replicate the wild success he had launching private brands at Target, but private label operations haven’t worked everywhere. The activist investors that are currently trying to take over Kohl’s have cited its private label launch failures as a primary problem area. A similar story occurred at JCPenney. There were obviously other issues including poor inventory management and an inability to create online presence or generate sales from online channels, but the fact that both turnaround campaigns are calling for more private label operations indicates its importance in today’s retail landscape.
This is the inverse of brands moving toward direct-to-consumer channels. As retailers lose out on legacy brands, they are seeking to replace them in two ways primarily: private label and concession-style sales with other brands. There is rapid change occurring right now, and with favorable leases available to brands, 2021 is a year of brick-and-mortar expansion and experimentation. This week, Nike announced it has cut ties with another list of retailers including DSW, Urban Outfitters (I found this one very surprising, more here) and Macy’s in its quest for more DTC sales.
At the same time, Nike is piloting a drop-ship program with Foot Locker to provide access to inventory beyond its stores and warehouses. While Nike couldn’t be more clear about its belief that DTC will dominate from here out, it also understands that innovative partnerships with its most important retail accounts are still crucial. Drop shipping is a great strategy for retailers to extend their product offerings, eliminate inventory risks, reduce shipping costs and manage profit margins. While the margin potential is lower than traditional inventory models, it does eliminate the risk of obsolete inventory and markdowns due to lower than forecasted demand.
Final Thoughts. The battle between brands and retailers is not new, but it’s more acute than ever because of the options each side has. For brands, it’s never been easier to own and operate sales channels both online and IRL. Shopify, ShipBob and other e-commerce technology providers paired with logistics partners gives brands of all sizes the ability to create formidable online sales channels. At the same time, commercial vacancies have rarely been higher and lease negotiations favor the lessee.
For retailers, there’s never been more digitally native brands seeking out offline homes than there are right now. And giants like Target, Walmart and Amazon have proven that consumers are willing to purchase and even be very loyal to private label brands.
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