Store Brands, Without the Store

Brandweek, June 19, 2000 by Elaine Underwood

They're barely established as brands, but that's not stopping e-tailers from going private label.

When Kevin Appelbaum was a brand manager at Procter & Gamble, few things were more galling than discovering his closest retail accounts selling suspiciously familiar looking bottles of azure-colored dishing-washing liquid. "I'd see a Dawn-like, blue-liquid private label that was priced 50% below mine and it was infuriating to me," said Appelbaum.

But that was 10 years ago and much has changed. Today, Appelbaum is founder/CEO of the upscale cooking and entertaining site, Tavolo, and as such he directs a burgeoning private label program.

Planned in the tight span of 16 weeks and launched simultaneously with the Tavolo Web site in August 1999, Appelbaum believes Tavolo products will be integral to building a viable e-commerce business. Furthermore, he claims that his customers, who are already putting their faith in Tavolo as a dependable online retailer, have been just as quick to trust Tavolo flavored olive oils, gourmet vinegars and fancy bread mixes.

While supermarkets and department stores in the brick-and-mortar world can take years before they venture into private label merchandise, e-tailers--in a development that echoes the rapid emergence of the medium itself--are developing private label programs as they approach the starting gate. That would seem to contradict the notion that a successful private label brand must be able to leverage an established retail equity, but perhaps that's just another of the rules being rewritten by the burgeoning segment.

"The Internet does everything at an accelerated pace," said eToys vp-merchandising Jane Saltzman, who managed private label programs at Macy's and Imaginarium prior to joining the e-tailer. "One year on the Internet is like dog years.

Given this, it stands to reason that it will recast old-world private label practices. Look no further than brand titan Procter & Gamble's Reflect.com. This custom cosmetics Web site is nothing more than a private label specialty retailer, selling only Reflect products, much the same way that the Body Shop only sells Body Shop merchandise.

Internet brands are just beginning to build familiarity and reputation, let alone trust. But private label beckons to online entities as diverse as eToys, eStyle, Drugstore.com, Pets.com, the jewelry retailer Ashford.com and Furniture.com. For some, private label's meatier margins look to be one potential route to profitability, increasingly sought by investors since the recent dot-com collapse. Others cite private label as a way to source unique merchandise, providing a point of difference in their cluttered category.

Given the vaporous dimensions of an online storefront, shipping an object with its brand name attached literally gives substance to an Internet brand or, at the very least, serves as a tangible reminder as it sits on a kitchen or bathroom shelf. "These products can reinforce the reputation of a retail brand, especially an Internet retailer," said Liz Leonard, retail analyst at Gomez Advisors, Lincoln, Mass., which measures and compares consumer attitudes about online brands. "But if the e-tailer goes chintzy or cheap, there will be trouble."

Private label brands so proliferate in the outside world, where sales topped $43 billion in 1998, according to the Private Label Manufacturers Association, that most consumers make few distinctions between retailer or national brands. In a Gallup study conducted for PLMA, 75% of consumers defined store brands as simply brands, rating them on similar levels for product quality, satisfaction and performance as national brands.

This acceptance has made Tavolo-branded comestibles the top-selling brand on the site, although it doesn't hurt that the Tavolo brand shows up first on pop-up menus and photos of those products abound throughout the site. Some of today's most consumer-tested, lifestyle-brands to varying degrees make private label their stock in trade--the aspirational Tiffany, the good-life purveyors Williams-Sonoma and Restoration Hardware and the urban classic Banana Republic, to name a few.

Drugstore.com, which launched its private label assortment of vitamins and over-the-counter drugs months after it went live in February 1999, got into store brands at the behest of its customers, said Chris McClain, director of merchandising. "We kept getting requests for private label and the Equate brand, which is Wal-Mart's private label," said McClain, who worked at Wal-Mart prior to joining Drugstore.com. "We were initially surprised when a lot of people came to our site and did searches under "private label" and "store brand, but a lot of consumers are looking for that."

Who was Drugstore.com to deny them? Armed with a bland yet comprehensive category-encompassing name, Drugstore.com could not be more of a commodity brand name and seem like less of a candidate for private label. In the brick-and-mortar world, most retailers developed national-brand-worthy packaging for their lines a decade ago. Yet on its Web site, where customers can scroll through hundreds of national brands, Drugstore.com, in its deliberately low-key packaging, sells as well as any national in any category, asserted McClain. The site even does a respectable business in promotional items, selling logoed T-shirts to 35,000 of the 1 million consumers who have shopped its site.