New Deloitte Study on Private Label Sourcing: Part I

Editor’s Note: This the first of a two-part feature.

Rising and increasingly volatile costs dominate retailers’ top challenges sourcing private label goods, while changes in consumer behavior fueled by mobility and online shopping are driving the strategic importance of private label sourcing, according to a new Deloitte study, Private Label Sourcing: Strategies to Differentiate and Defend.

“Rapid population growth, skewed to developing regions, is increasing demand on raw material sources while providing new markets for low-cost labor,” said Michael Daher, principal and Retail Sourcing Practice leader, Deloitte Consulting LLP. “Additionally, online, mobile and social channels continue to disrupt the retail landscape. As low-cost online competitors continue to expand across more categories, private label provides an opportunity for retailers to defend their marketshare by offering products that are exclusive to their banner. But it’s not the ‘copy and paste’ private label we grew up with—these are innovative private label brands that require more sophisticated sourcing capabilities.”

Deloitte’s Private Label Sourcing Study – one of the largest and most comprehensive to date – analyzed responses from more than 260 executives from apparel, general merchandise and grocery retailers to uncover shifts in market trends and private label sourcing practices.

The survey asked respondents to rank their top market pressures. Respondents indicated that raw material cost increases and volatility were considered the top market pressures, followed by rising labor wages and fuel price volatility. Raw materials, production labor costs and transportation costs account for 80 to 84 percent of total respondents’ average product costs.

Retailers’ current response strategies do not appear to directly mitigate such pressures. Roughly 7 in 10 respondents indicate that their organization’s response strategy is currently focused on enhancing quality assurance programs (71 percent), engaging in advanced planning/scheduling with vendors (70 percent) and enhancing ethical sourcing capabilities (69 percent).

Next Installment: retailers are adopting new strategic responses that correspond more closely to the acute cost of pressure.

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