The coronavirus pandemic has had different impacts on US household consumption. One of the most notable is the growing appeal for the store’s own brand offerings (i.e. products created to be sold as a store product, such as Trader Joe’s “Joe O’s” cereal or Kroger’s “Simple Truth” range) and DNVB, Digital Native Vertical Brand.
The American consumer had to spend more intelligently during the health crisis and turned to the brands of distributors that, often for equal quality, allow to spend less.
But the American customer was also hungry for discoveries and that’s why he became interested in DNVB and its stores.
Because they are more affordable than branded products, the stigma once associated with buying branded food in stores has long since evaporated. Moreover, the fact that stores are desperately seeking to offer this type of product has led many researchers to predict that branded products from distributors will only grow and occupy even more space in stores. Growth represents a shift in purchasing behaviour that began a few years ago but was exacerbated by the economic events resulting from COVID-19.
A report by Deloitte notes that distributor brands mean higher profits because they offer “25 to 30% higher margins” than traditional brands. The report also indicates that private label products have “exceeded by three times the growth of their traditional counterparts since 2015”.
Similarly, after establishing their brand and their online clientele, DNVB often develop by interfering in physical retail. Fast-growing companies like Warby Parker and Bonobos have successfully moved to physical stores, blending the digital and physical worlds to create consistent shopping experiences on the web, their apps and the physical store.
Physical stores add key elements to the digital brand buying experience, giving customers the opportunity to see and physically touch products, and to interact face-to-face with brand representatives and vendors. At the forefront of in-store technology and experiential retail, DNVB generally uses these locations to strengthen their brand promise and stature as innovators.
But the crisis has also increased the risks of investing in the physical store and many partnerships have begun to flourish between retailers and DNVB.
These brands that develop their own products
1 – Target
One of the main reasons for Target’s success is the increase in sales of its own brands, which achieve more attractive margins than those it sells to third parties. Target already has 48 own brands.
Over the past five years, Target has launched 30 own brands, women’s clothing brands such as Auden and Colsie, home collections, baby and children’s collections such as Cloud Island and Pillowfort. Ten of these brands generated $1 billion or more in sales last year, and four reached the $2 billion threshold. Clothing sales, for example, increased by more than 10%.
Clothing is not the only brand strategy that Target develops. In late 2019, the retailer launched its new Good & Gather grocery line, which aimed to provide healthier, more affordable food. The company said that so far this launch has been a success. Currently, 650 items are available under this private label, but Target plans to launch a total of 2,000 by the end of 2021.
Target focused on creating new and distinct brands that are recognized by consumers. This, combined with the fact that private brands are cheaper than third-party products, has helped the company increase its profits while trying to differentiate itself from other players like Amazon and Walmart.
2 – Amazon
In 2009, Amazon quietly started offering batteries under AmazonBasics, its own brand. Today, Amazon has approximately 400 retail brands for 243,000 products. Amazon also has hundreds of partner brands Amazon Exclusives through its Amazon Accelerator (“Our Brands”) and Amazon Launchpad programs.
For merchants, Amazon’s portfolio of private and partner brands presents significant competition in search results, as Amazon gives a lot of space to its own products – “presented by our brands” or “top rated by our brands” – compared to sponsored advertisements and organic research. However, tracking Amazon brands is an opportunity for merchants to learn from the largest online merchant.
3 – Bed Bath and Beyond
Bed Bath & Beyond, the big box retailer in which customers can find everything they want for their home, is moving forward quickly in its plan to launch at least eight own brands, as part of its broader three-year transformation strategy.
In May 2021, Bed Bath and Beyond launched Simply Essential its latest brand. 1200 different products in the categories bed, bathroom, interior decoration, storage and organization, and kitchen and dining room at very competitive prices. The entire range costs less than $200, with basic kitchen items, such as ladles or spoons, starting at $1.
Distributor brands were an area of activity in which Bed Bath & Beyond had relatively little penetration, which investors had previously criticized. The intention of the distributor is to increase its penetration of the private brand, from 10% to at least 30% of its sales during the first three years. And for that, the store hired Mark Tritton as CEO in November 2019. He was responsible for the launch of 30 brands at Target before or the management of 50 distributor brands through physical and digital channels for Nordstrom Product Group. A recruitment in the form of a real message for the future of Bed Bath and Beyond: more own brands.
4 – Zara
After its success with perfumes, Zara launches its first beauty line on May 12.
Unlike other fashion brands that are adding to the cosmetics market, such as Topshop or H&M, Zara’s beauty line offers a vast selection for eyes, lips, face and nails, all with refills.
Although this is not the first time the company has launched outside the fashion industry, Zara’s new beauty products are the brand’s first complete collection. And customers will not lack color options: the launch includes highly pigmented products for eyes, lips, face and nails in over 130 shades.
The products – which include a nourishing jelly lip oil, a refillable black eyeliner, makeup brushes and a huge choice of 39 nail polish – have been created for all skin tones, all sexes and all ages. Nothing has been tested on animals.
Priced from USD 8 to USD 26 (starting at USD 5 for reloads), ZARA Beauty was released on May 12 on Zara’s website. The virtual test service was tested at the official launch.
5 – The DNVB
In response to the curiosity and desire to find new products from US customers, many store chains are beginning to adopt an investment or partnership strategy with DNVB.
The idea is simple: use the online reputation of these brands to attract customers in physical stores.
For example, Target now sells previously exclusively online brands such as Casper, Harry’s, Barkbox, Quip and Native. These brands all have an aesthetic that is immediately recognizable by online shoppers.
They are attractive players to Target as the cost of advertising on Facebook and Google increases and online growth slows down. Digital brands need new outlets to increase brand awareness and drive customer acquisition. They also need cash flow: Target invested $70 million in Casper in 2017.
Retailers like Target, as well as Walmart and Nordstrom, are rewriting merchandising rules to accommodate fashionable DNVB. Partnership rather than acquisition.
Winky Lux, Harry’s, Quip are on sale in stores. These items – razors, toothbrushes, deodorants – must be purchased regularly, which means a constant flow of data on their performance in store. And as GIC companies like P&G and Unilever monitor the booming digital brands to see who’s worth acquiring, success in Target stores and other mass retailers is a clear indicator of performance and long-term.
When Quip started selling its electric toothbrush starter packs at Target stores, the brand worked to bring Target customers back to the Quip site, where they could sign up for automatic brush head refills. Thus, at Target, Quip customers receive a code that allows them to register their brush online and create an account. To order more brush heads, they must subscribe to Quip.