The Media Hype of Private Labeling

Interesting how the mass media can heighten visibility of trade issues.

This summer’s product recalls by Mattel increased interest in private labeling. Occurring shortly after issues with pet food, toothpaste and tires, many questioned if private labeling is a wise decision for distributors. A number of trade publications including TED, Home Channel News, MDM and Industrial Distribution began coverage of private labeling.

As many know, we’ve been conducting industry research and writing on the topic for almost a year. Unfortunately, for manufacturers, we can report that the issue is not going away, but fortunately, it may not be the tsunami that some predict (but there is another larger giant lurking).

Yes, liability should be a major concern for distributors (we wrote about this in July), but much of the product being private labeled for electrical distribution is not electrified and, perhaps more importantly, 60-70% of products in the electrical industry are imported. If “all” imported product carries additional liability 1) we may not be able to obtain product and 2) costs would increase significantly.

In considering the consumer issues that occurred earlier this year, consider that all involved some type of chemicals and all either affected children or pets…emotional issues for all of us. While electrical can lead to fires, and further consequences, until an incident occurs, contractor demand for price and distributor interest in gross margin will drive sourcing solutions. If we presume that all products from China are tainted, where will many manufacturers source/manufacturer products?

Private labeling will continue to be an industry opportunity, and challenge. We’ve recently conducted research with independent sales agents who are on the front lines of the issue are literally being squeezed by distributors and manufacturers on the issue. An article expressing the rep viewpoint appeared in the September issue of Electrical Wholesaling.

We also capsulated the issue for NEMA in an article for September’s ElectroIndustry and presented on the state of private labeling at IDEA’s Electro E-Biz Forum (download presentation).

Private labeling is not going away, nor will it take over the industry. It may make brands more competitive; driving the need for improved product development, better marketing and demand generation; and motivate manufacturers to pursue point-of-sale information for purposes other than sales compensation.

This “new” sourcing solution represents opportunities and challenges for those who decide to pursue it, as well as unique partnering opportunities, and challenges, for those who commit to name brands.

The question becomes … what is the right strategy for you? What do you need to remain competitive and drive your sales and profits?

Oh, and Mattel acknowledged some culpability for the product recalls!