EOB #17: Store Brands

We’re in cusp season: the gap when we transition between Target Circle Week and Amazon Prime Day. And (extremely Carrie Bradshaw voice) in this brief respite from the summer’s most chaotic sales, I can’t help but wonder… how did big box stores flip the obsession with status on its head, converting consumers from label-obsessed to store brand fanatics?

Label Obsessed Youth

My first distinct memory of store brands was in elementary school, reading Ramona and Her Father, the fourth installment of Beverly Cleary’s Ramona Quimby series. For those of you not up on your RQ series lore, 8-year-old Ramona’s father loses his job and the family is very stressed about money. In an effort to pinch pennies, they switch to store brand groceries, including discount cat food that their cat (fittingly named Picky-picky) refuses to eat. After days of turning his nose up at the discount food, Picky-picky is so hungry he eats the family’s special Halloween jack-o-lantern in the middle of the night.

There were a lot of life lessons to be learned from this book around class and gender roles, but the lesson my little brain took away was that store brand food is only to be purchased under extreme financial duress and is so bad even a cat won’t eat it.

This aversion to the “wrong” brands (and, by extension, store brands) seems to have been a shared generational experience, at least among suburban tweens and teens. Millennial culture was defined by labels. The perfect outfit was a MadLibs of Von Dutch, Abercrombie, Coach, and Ed Hardy — the more prominent and sparkly the logo, the better. Quiet luxury was a concept we fundamentally rejected.

As kids with little purchasing power or control over our social status, one of the easiest ways to signal our belonging and stay at least at the middle of the social pack was to have the “right” brands in every area of our lives. Clothes were an obvious and important category, but other consumables mattered too.

Three recessions in roughly ten years (1980, 1981-1982, 1990-1991) and incredibly high interest rates in the late 80s (ask your parents about their 18% mortgage rate!) made the economic boom of the mid-to-late 90s hit with even more power. This surge in wealth showed up in every area of the cultural zeitgeist, from preppy style gaining in popularity through brands like J.Crew¹ and Abercrombie to the Cola Wars hitting a fever pitch with campaigns like Pepsi Stuff and the Spice Girls’ “Generation Next” music video-esque ad. The message was clear: the brands you associate with define you.

Janky Generics

Before we dig into how store brands achieved their current status, let’s go back a few decades.

What we know as store brands today are mostly “private label” or “owned brands.” They are created specifically for a retailer or group of retailers, often with cute names and cheery packaging. Private labels have existed for over a hundred years but until recently they had focused on simply beating the price of brand names at any cost. Little, if any, thought was put into the branding itself.

In the 1970s some stores introduced no-name generic products - no brand, no color, no design — as a low-cost alternative to typical grocery brands (and in some cases, even to their own pre-existing store brands). In some stores these generic products were also separated from the standard products, housed in their own dystopian aisle.

While the concept of generics was appealing to many consumers, the products themselves were inconsistent in quality. One of the few products that did do consistently well was BEER, but generally, generics were seen as a last resort.

This reputation for low quality combined combined with more promotions by national brands that made consumers feel they could get a good deal with sales and coupons eventually killed generics. But their slightly pricier counterparts with more consistent quality remained: private-label store brands.

Building True (Store) Brands

So, how did we go from BEER to the Birkland (a Kirkland-branded faux Birkin² )?³

Over the last 35 years, several stores have turned their private labels from a tactic to win the most frugal shopper’s money to owned brands that are respected — even coveted. When I think of the most successful players in this space, one parent company stands out: Target.

With over 40 owned brands accounting for over a third of their inventory⁴ , Target has morphed from a big box store to a lifestyle brand collective. Here are the 4 ways they crush the store brand game:

1. Have some level of exclusivity.

   One of the fastest ways to build intrigue and demand is through exclusivity. But you don’t have to recreate the Hermes Game to capitalize on this trend. Costco requires a membership to shop their iconic Kirkland brand products.

   Target releases relatively small amounts⁵ of inventory in more frequent “drops.” While several products, like socks or black leggings, are evergreen, most at least change colorways between collection. This strategy was most evident in past collaborations with major labels, like Hunter Boots and Lilly Pulitzer, but exists even with merchandise that’s fully under their owned brands.

   Target’s brick and mortar stores are also not as ubiquitous as we costal elites might assume. There are actually less than 2,000 stores, with many clustered in the suburbs of metro areas, creating vast Target deserts that can only be serviced via their online store. Target also has yet to successfully expand internationally. While they briefly attempted to open in Canada, that ended after a few years.

   

   The metaphorical and literal whitespace in the market.

2. Always a dupe, never a knock-off. The world is dupe-obsessed, and Target delivers. From Lululemon Align dupes to the entire Madewell line being duped by Universal Threads, Target identifies core trends and favorite brands, then makes their version. They’ve expanded beyond the visual dupe of clothing and furniture and are now getting into scent dupes with soaps, candles, and fragrances that have high-end smell-a-likes.

   The key difference between a dupe and a knock-off is that a dupe feels heavily inspired or like a “duplicate” without veering into cheap, cheesy, or literal copyright infringement. A knock-off is typically all 3: sub-standard material, look a little “off,” and tries to pass as the actual product and brand it’s replicating.

3. Make you feel like you really got a deal. On a related note, one of the reasons dupes are so popular right now is that they feel like such a deal. The same quality at a lower price. This is, after all, the entire premise of the store brand!

   Target not only routinely prices their products at about 50% lower than the brand names they mimic. And because the margins are much wider, Target can routinely discount these pieces even further, as we saw with offers like 30% off clothing during Target Circle Days.

   Target also backs their owned brand with a generous return window of 1 year, above and beyond their standard of 90 days for all national brands purchased at Target.

4. Niched down to a specific target. Remember above when I mentioned Target’s nearly 50 house brands? They are incredibly niche, which means they can easily target their exact buyer. They truly develop into a fully thought out label with an asthetic and product line that most Target customers could describe in a few words.

This very specific strategy for each owned brand makes the customer feel seen and understood, building loyalty. If I purchase a few snacks from the Favorite Day line and love them, I’ll not only come back to repurchase, but I’ll be more willing to take a risk on a new food that’s offered by the same label. And by including a “Target brands” filter online, as well as owned brand landing pages, the store subtley cues consumers to think of their brands first, rather than scroll through pages of products from a variety of vendors.

TL;DR? Store brands are only as good as the effort put into them. But if you treat them like true stand-alone national brands, they can become just as desirable — and profitable.

Would love to hear from you on the brands doing private label right – and who could be doing better. As always, my inbox is open.

Links

My Kirkland brand (favorite) things right now.

• Reading: Piglet by Lottie Hazell —> Kirkland brand Bridget Jones

• Listening: “Massachuesetts” by Jensen McRae —> Kirkland brand Maggie Rogers singing about your Kirkland brand ex-boyfriend

• Watching: America’s Sweethearts: Dallas Cowboys Cheerleaders —> Kirkland brand UT Cheer & Pom making a Sam’s Club brand (derogatory) salary.

1  Peak Millennial culture was the 1998 J.Crew catalogue featuring the cast of Dawson’s Creek

2  Technically a Kelly, not a Birkin, but the point - and the name - stand. (There’s also a Goya/Goyard card holder that is just… 🤌)

3  Over the 90s and 00s there was a large shift in the public view of store brands and generics. There are a lot of reasons, but to name a few: Instagram made the look of something more important than the brand. As long as it was aesthetic, it was cool. Amazon normalized buying no-name brands. Cusp Gen X’ers and older Millennials grew up in the downturn of the 80s, came into the workforce during the Great Recession, and now are dealing with post-Covid inflation. At each stage of our lives it has became more and more acceptable to display frugality. (A great example in entertainment is the boom in DIY flipper shows on HGTV and reality shows like Extreme Couponing.) The cummulative, long-term results of the 1984 Wax-Hatchman act, that spurred generic drug development and sales in the US, including the “savings surge” in the 2010s when the generic substitution rate reached 86% across US pharmacies. The rise of dupe culture, the surge in Costco’s popularity during the pandemic, the prevalence of international drop-shipping due to the de minimis rule, the growing trend of enshitification, save-splurge 2000s magazine articles, etc. etc. etc. It literally goes so deep!!

4  This number seems exceedingly low to me when you consider that the all clothing, shoes, bedding, and furniture are owned brands, as well as a large portion of food, household goods, and sporting goods. The two categories they’re only minimally invested in are entertainment/tech products and cosmetics. They do say that their owned inventory is >33% of their gross margins.

5  Relative to the millions of people who shop their stores. We’re not talking a limited run of 100, but they try to keep inventory turns tight.