The Amazing Upside and Scary Downside of Private Label Deals
Private label deals and retail collaborations can be a great way to develop a new channel and generate additional sales for your business. Private label and retail collaborations involve offering an exclusive variation of a product or product line to an individual (typically larger) retailer.
Private Label Deals
Private label deals involve designing and producing a product for a retailer to sell under its own brand. Your brand will not be associated with the products and so you will not receive any of the positive or negative perceptions associated with the relationship.
A variation on the private label approach is to produce a version of your products under a one-off brand or label that has no prior presence. This is a brand name that you are not invested in building up, but gives you separation from your marquee brand in order to reach a different kind of market. This may be useful if you are offering a lower-priced version of your products and don't want to undermine the equity you have built in your core brand.
The distinction with a retail collaboration is that you will share product branding with the retailer, or the product will be presented under your brand name as an exclusive to that retailer. In terms of labeling, this may be structured as “your brand for x retailer”, or you may simply have both of your logos on the product. You may receive some guidance from the retailer in terms of a price point, margin or feature set. However, you are still primarily responsible for the design and production of the products.
There is also the concept of a brand collaboration, in which two brands combine aspects of their design DNA, typically in an exclusive version of a product. The dynamics of this type of relationship will depend largely on the relative size of the two brands, the goals of the collaboration, and whether either has a strong retail presence. The distinction can get a little muddy when you are talking about partnerships with retailers who are vertically integrated and produce their own merchandise.
The Pros of Private Label and Retail Collaborations
A retail collaboration can be particularly beneficial in helping to build your brand by introducing you to a much broader audience. our e-commerce business did a partnership with the Honest Company a couple of years ago in which we did a co-branded collection of lunch boxes. This helped us gain exposure to a huge new audience as well as giving us credibility with larger retailers who also carry Honest Company products.
Similar to a distribution order, private label deals and retail collaborations necessarily involve large orders, since you will have to meet Factory minimums for any individual product design. Also, like distribution, you will generally not have to the warehouse these products as most retailers will take delivery directly from the factory.
You will also typically see a higher margin than your average distribution sale, without the risks of wholesale since you will have received a purchase order from the company. So, short of them going out of business, you are looking at a relatively safe bet in terms of an increase to your bottom line.
Selling to a mass audience magnifies the effects of small changes in price, product features, and packaging, allowing you to gain new insights on your product line and brand positioning. This, in turn, can lead to new Innovations in the way you might develop your product line for a broader audience.
The Cons of Private Label and Retail Collaborations
Distraction from your Core Objective
Getting too involved in private label deals can become a distraction from your core brand. On the other hand, if you are seeing strong financial benefits from this approach, you may find that over the long-term there is more profit to be made by being adaptive to the needs of specific retailers. Many people have built successful businesses that started with one vision but evolved into being more of an outsourced design solution for retailers looking to grow their in-house brands with exclusive products.
Typically you will only have a purchase order to before proceeding with manufacturing, requiring you to finance the run before you will be paid by the retailer. Fortunately, a purchase order from a reputable retailer does have value to many lenders, however, you will likely pay a higher interest charge due to the increased risks involved.
How to Get Started with Private Label Deals
If you see an opportunity to adapt this model to your business, it is best to approach a specific retailer with a well-defined offer and package that is tailored to their specific customer. Do your research and make sure you have a good understanding of how they are positioning their brand and speak to how this collaboration can help them meet their strategic objectives.
Depending on what you sell, you may not need to have a physical version of the product, but you should be able to clearly communicate how the product will look and work using visual mockups. You’ll also need to have solid pricing and volume discounts worked out. Know how much room you have to maneuver if you get into a negotiation with a retailer.
Once you have a package worked out, you can pitch it to different retailers. You can even retain the general structure of the package and sell different variations to different retailers, assuming there is no conflict.
Private label deals and retail collaboration deals can change the nature of your business over the long term. Depending on your goals, they may simply be a great way to generate extra cash flow or a way of evolving your business beyond a competitive brand landscape and into design and supply chain management for larger more established brands.