From Galeries Lafayette to Falabella: how department stores rely on private labels

It is part of the strategy of many department stores to rely on private labels, but the business model is constantly changing, which is why the International Association of Department Stores (IADS) conducts an annual survey of the situation among its members. In the latest survey, it found that private labels are navigating between successful pandemic-driven strategies and supply chain constraints.

On average, IADS members' private labels were able increase their turnover share from 9 percent of the company's total business in 2019 to 11 percent in 2021. This is due to a combination of factors: First, price-conscious consumers switched from international or national brands to private labels in the wake of the Covid pandemic. In addition, strategies implemented in recent years to make this part of the business more profitable and efficient have borne fruit.

Less is more

Successful strategies included, for example, consolidating the range of private labels and focusing on one brand per category (such as Beco) or even bundling different product categories under one umbrella brand (such as Manor or Magasin du Nord).

Private labels can also be used to build customer loyalty, as they enhance the store name. This is why for some IADS members, up to 50 percent of their private label customers are members of their loyalty programmes.

“This is why, whether it’s towards fashion and sustainability (Galeries Lafayette), high quality (Breuninger) or targeting a specific customer group (luxury customers in the case of El Palacio de Hierro), members defined clear brand values to position their Private Labels, in accordance with their corporate brand strategy,” states the IADS.

This has led to a review and optimisation in terms of more agility, for example by separating collection structuring (merchandising) from its commercial display in stores. This resulted in private labels, which in the past were developed and presented by the same isolated teams, now being presented to the department stores' buying teams on par with international and national brands.

However, one solution or strategy does not fit all department stores. All members mentioned three problem areas: distribution efficiency, pursuing sustainability efforts and attracting younger customers.

Distribution efficiency, sustainability efforts and younger customers

“The store design and visual merchandising are instrumental to enhancing and elevating the brand message but they require important financial investments, potentially coming as a conflict at a moment when department stores also need to focus on digital growth, including for their private label business, and finance it,” the IADS sums up the first point.

As for sustainability efforts, apart from higher costs and sourcing difficulties, there are also problems with communication, as different certifications can be confusing and not relevant in the long run. IADS points to own-store certification labelling such as Galeries Lafayette's Go for Good as an “efficient and worthy investment to convey a simple and impactful message”. 

Last but not least, the average private label customer, at around 50 years of age, is older than the average department store customer. Online-only categories and fashion that fulfils a specific niche (like maternity wear, occasion wear and plus sizes, for example) should prove successful. So should the communication about private via social media, newsletters, advertising campaigns and influencers.

“In short, private labels are increasingly treated as brands per se, and not category commodities like they used to be,” sums up the IADS.

Supply chain bottlenecks remain challenging

The current supply chain disruptions imply a fast rethink of the planning and sourcing with adjustments in organisations: earlier product developments coming with a new buying calendar, nearshoring sourcing to balance the rise of transportation costs, pre-booking of materials, ordering of higher quantities to get better prices and anticipated orders.

“As the supply chain issues are evolving quickly and are far from finished, members are also elaborating tactics to mitigate margin loss and increase the retail prices in the seamless possible way,” states the IADS.