Private Label, Generics and the Games People Play

Just some things we’re hearing in the marketplace that are doing a good job of eroding margin for many…

While much has been discussed about private labeling and some chains continue to pursue this, some things to consider:

• HD Supply has just launched two private label brands, Seasons and Seasons Gold, which are lines focused on kitchen and bath fixtures and ceiling fans (we guess there needs to be some way to make the remaining residential business somewhat profitable – or reduce the loss!). The company also launched a line for their White Cap group under the Brigade name, which is tools and hardware primarily for contractors and professionals.
• Another chain imports products for its corporate group and resells to its branches, making a very healthy margin. The branches then have the opportunity to make another 35% on top of a reduced acquisition price.We’re hearing of some distributors of competitors taking business at less than 5% for the bill of materials, receiving the business, then, at the submittal stage, presenting alternative products (which have a lower acquisition cost which is not passed on) and sometimes substituting lower quality products.
• Some larger regionals who compete against Rexel have “complained” about Rexel’s private label price advantages and are undertaking initiatives to seek comparable pricing from suppliers, search for sourcing alternatives as “generics” and, at least at this point, say they will only consider their own private labeling initiative as a last resort.

In the airline industry, when a company “leads” price increases others typically follow. This is called “market leadership”. In the electrical industry we seem to have a desire to have a race to the bottom. Why?