Discounters blanket soft home with private label - home furnishings - Discount Store News Annual Discount Industry Report; Part 2: Merchandising and Productivity

Discount Store News, August 2, 1993

The war is on. Having wrested control of the home fashions industry from the staggering department store, discounters are now setting their sights on each other. Discounters and discount specialty store now account for about half of all domestics products sold in the United States. The exception is window treatments, which, because of consumer preference for custom-made products, still find their way to market through small specialty stores.

In an industry now estimated at about $16 billion, flat from a year ago, discounters accounted for $6 billion in sales, warehouse clubs another $1.2 billion and discount specialty retailers a further $1.4 billion, based on DSN's State of the Industry Report Part 2. Discount outlets therefore commanded about 54% of the market.

In bedding, bath products, tabletop, and many other sub-categories, discounters are clearly dominant. And in this era of relative price parity, they are also stepping up their fashion image to become more competitive; with stabilized pricing, the consumer has to be given some reason to choose one store over another.

All of these factors have led to an extremely rapid rollout of several key trends. The first and most important is a move to private label coordinated goods. Target and Kmart were the first into this area in the late 1980s, and have refined their approaches ever since. Now Wal-Mart, with its American Residence collections, has entered the private label fray, while regional players like Fred Meyer, Caldor and Venture have weighted in with their own PL collections.

Private label is important to discounters for several reasons, not least because it gives each one distinctive products its competitors can't have. And no one has leveraged this approach better than Target, which now offers a domestics department most resembling JCPenney. Private labels like Furio, Windsor & Browne, Estates, and Merona now dominate Target's assortment, and have given Target total control over its color and design presentation. "We don't show them anymore, they show us," one vendor said. Target now develops its own color story each year (as does Kmart), then contracts with major mills to produce products in those colors.

Private label has given Target a clear advantage in the home furnishings business: Unlike its competitors, who are more dependent on the color and design selections of their major vendors, Target offers its shoppers a fully coordinated selection throughout the store. A customer can purchase bedding, towels, table settings, plates, cups, lamps, and dozens of other products and have them all match.

Additionally, the company is freed from competing head-to-head on price. If Wal-Mart decides that it will have the lowest price on an item, it will have the lowest price, if only by a penny. Target recently dropped its No. 1 pattern, from J.P. Stevens' Graphix collection, because Wal-Mart added it to its selection.

Another key advantage to private label is that the strategy allows both retailer and manufacturer to better plan and predict production and sales. The vendor can often plan production during down cycles while the retailer gets a slightly lower price and often can carry less inventory.

As the major discounters have emphasized private label, warehouse clubs and specialty discounters seem to be accentuating branded products, possibly as a point of differentiation. Bed Bath & Beyond carries upstairs brands almost exclusively, while the clubs often stock a succession of designer patterns, offering each for only a short time. Clubs devote very little space to the category, but generally offer a mixture of high-ticket goods, like comforters, quilts and carpets, that are generally non-continuous at significant savings, while also stocking low-end towels, washcloths and other products in large packs for the business customer. The result is that while clubs may not devote a lot of space to the category, they are highly productive.

The home fashions market is not expected to increase significantly in the coming year; however, the market share of discount outlets will. Having turned categories like towels and sheets into commodities, the larger chains will continue to experiment with new categories, like quilts and down comforters, that retain strong margins and attract new, affluent customers, mainly alienated department store shoppers, to their stores. New prototypes from Caldor, Bradlees, ShopKo and Wal-Mart have all accentuated window treatments, the one major category in which discounters have been less than successful.

Those same prototypes, as well as others from Venture, Ames, Target and others, have also hinted at changes in the category. Discounters have traditionally attempted to sell home fashions from fixtures better suited to hardware and toys; the latest prototypes feature expensive but productive custom fixturing, full bed displays, angeled fixturing, extensive cross-merchandising, and other approaches aimed at building sales in existing stores. These same approaches have been very effective in the apparel department; discounters are hoping that the investment will pay off in domestics as well.