Research Report: 5 Critical Success Factors For Private Label Retailers

In the present economy, even as retailers are compelled to find ways to improve sourcing operations, redesign supply chain processes, and reduce cost of goods sold, private label retailing is showing signs of continued advancement. Aberdeen data shows that reducing costs (58%) and enhancing sourcing operations (44%) have emerged as the top two strategic focus areas for improving margins in the current economy, according to retailers that are selling private label goods. This research brief outlines the evolution of private label merchandising strategies not only to attain margin gains, but also to enhance the retail supply chain via higher adoption of compliance, trading partner collaboration, and supplier risk management related business capabilities. Aberdeen will also detail some key Best-in- Class private label retail capabilities and enablers to improve overall sourcing, procurement, and supply chain operations.

In the present economic conditions, the retail demand-supply network is undergoing increasing levels of complexity in terms of costs and margin. Our data indicates that retailers selling private label products in their stores and channels are achieving 1.14 times higher year-over-year improvement in gross margin return on inventory investment (GMROII) compared to retailers that sell branded products (Figure 1). GMROII is a key metric in retail that determines the retailer's income on every dollar spent on inventory. It is also the product of inventory turnover rate and gross margin percent.