E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
The web is helping merchants with private label programs share accurate data with manufacturers and speed products to market.
As retailing competition rises, many retailers turn up the pressure on their private label programs to differentiate their merchandise from the competition’s, exert their own control over styles and squeeze out higher profit margins.
“Products are changing faster in the retail market so retailers have to get the products faster,” says Paula Rosenblum, a former retailer and now managing director of research and advisory firm RSR Research LLC. “But first they have to figure out how to make products faster and cheaper while maintaining levels of quality. One good way is to collaborate on product design with private label manufacturers.”
As retailers turn to private label programs they take on more responsibility for sharing accurate product design data with suppliers and ensuring that all those at the retailer and manufacturer involved with the program are working with the same information.
The stakes are high. By feeding accurate product design and ordering data to suppliers-and by receiving and analyzing accurate information from suppliers on what they’re actually producing and how they’re producing it-retailers can greatly increase their chances of receiving products that will please their customers and increase revenue and profits. But interruptions in the sharing of that information, or the transfer of incomplete or inaccurate information on product design or production processes can leave the retailer with products that won’t sell-or worse, with defective products that result in safety recalls that could cost millions of dollars in getting products back and in government fines-and a damaged brand to boot.
“Some retailers think that increasing the volume of private label products is a golden ticket to increased revenue,” says Kieran Forsey, senior vice president of private label programs for Agentrics LLC, provider of web-based technology and related services for helping retailers source products and collaborate with suppliers on product design, production and shipment. “But that also increases their liability for producing merchandise because you have to think through how to manage a community around the production of private label products.”
The good news for merchants charged with running private label programs, experts say, is that technology in the last two or three years has stepped up to the challenge. Today’s technologies include the ability to process large volumes of data, doing it in ways that help merchandise and supply chain managers dive into details to get key products into distribution centers and stores on time, experts say.
Collaborating in private label design and manufacturing programs-where several departments within a retailer must share among themselves and with suppliers information on market demand projections, product design concepts, production specifications, purchase orders, invoices and ship notices-is more efficient and accessible with web-based applications that grant all parties browser access to a central database. “At the forefront of all this is web-based technology,” Rosenblum says.
In addition to web browser access to a central application, the wider deployment of web technology-enabled service oriented architecture-which is designed to integrate disparate software applications and databases-is making it easier and more efficient for retailers to integrate private label management systems with multiple applications involved in product design, sourcing and inventory management, Rosenblum adds.
As that technology has matured in recent years, it has enabled more and earlier collaboration in product design and management-a trend that’s coinciding with a greater willingness by merchants and their suppliers to share information and produce the desired products, experts say.
“As Internet technology continues to evolve with bigger data pipes, and with the realization by retailers that they need to collaborate with suppliers and gain efficiency in order to stay in business and be competitive, we see greater collaboration in product design and development earlier in the processes,” says Chris Sellers, CEO of Agentrics.
A two-year study RSR released in February found that web-enabled product lifecycle management systems, which cover private label product management, have helped reduce the average time it takes to design new products and bring them to market. The percent of retailers taking 12-18 months shrank to 16% from 33%, while the percent taking 6-12 months increased to 47% from 28%.
At U.K.-based department store chain Marks & Spencer, for example, web-based private label management technology has drastically cut the time it takes merchandise managers, supply chain managers and others to find and act on the information they need to execute the flow of products in its grocery category, from conception and design to delivery and reception in distribution centers and stores, says Helene Roberts, the retailer’s head of packaging.
Marks & Spencer, the retail chain and e-commerce brand operated by Marks and Spencer plc, has more than 500 department stores in the U.K. and a global presence with more than 200 stores operated by overseas franchisees. It sells on the web at MarksandSpencer.com.
Among its wide range of products from apparel and home furnishings to books, flowers and wine, Marks & Spencer operates a private label program comprised of about 6,000 SKUs across its key grocery categories of flowers, wine and household products-many of which are reintroduced several times a year in new versions along with multiple new product launches.
Marks & Spencer manages its grocery private label program with the web-based GenNovation product lifecycle management system from Agentrics. “The GenNovation system has cut processing time to find and sort data from days to hours-or in some cases minutes,” Roberts says. “It has transformed our ability to manage complex information related to suppliers, product and packaging sourcing, and origin of ingredients.”
The GenNovation system runs on the retailer’s web servers and is shared with suppliers, who can enter data on their purchase order acknowledgments and production schedules directly through the web interface.
The system also addresses some of the pressing issues facing retailers, including safety recalls and efforts to cut overall production costs while promoting a more socially and environmentally responsible image. Although suppliers’ factories must still be physically inspected by retailers’ agents, the web-based GenNovation system enables agents as well as vendors to enter product and work safety-related compliance reports online, where retail executives can monitor compliance from a central location. When product recalls occur, retail managers can search the GenNovation system to locate the source of problem materials. “They can also identify other products sourced from a particular vendor or country that might be at risk,” Forsey says.