'Quasi-brands' resurrect CE profits - consumer electronics

Discount Store News, March 7, 1994

Private label and store brand consumer electronics are back at major discounters and mass merchants after plummeting in flames in the mid-'80s ... but with a new twist.

Under enormous pressure from superpowers like Best Bu~ and Circuit City, which have eliminated whatever price advantage discounters enjoyed in the branded arena, retailers like Kmart, Ward and Wal-Mart are trying a new approach to private label to inject profits back into a category that too oftem survives on single-digit margins. A decade ago, private label was all the rage, with major retailers like Sears, Ward and Silo marketing a significant wedge of their mix under store-owned brands, generally a jumble of letters meant to suggest to consumers that these were high-tech items. Major brands like Panasonic, Sony and RCA fought back with extensive advertising campaigns, and the PL push failed dramatically.

Many feel the problem was in choosing names that meant nothing whatsoever to consumers. A no-name T-shirt is one thing; a no-name VCR or TV is quite another. Sears, recognizing consumers had turned against private label, unveiled Brand Central in the late '80s, and Ward simultaneously introduced Electric Avenue, both heavily branded approaches to the CE business which retained a sprinkling of private label products.

Fast-forward to the mid-'90s. CompetitiwN among the superstores today is brutal, and the consumer has been conditioned by ever-more-frequent sales to wait for the low price, or take retailers up on the "beat any price" guarantee virtually all of them offer. At discount stores, selections of higher-end goods have been pared as televisions and VCRs languish on the shelf.

Enter the "quasi-brand." According to Ron Fleisher, formerly at top merchant with Target, Newmark & Lewis and Silo, the trick to running a profitable CE business lies in adjusting the mix to reflect a hierarchy of four levels of branded presence: the super brands, which are priced higher due tw heavy advertising, promotions and other costs; quasi-brands that no longer actually operate as a national brand but which retain a consumer franchise of sorts; store brands with the retailer's name attached; and no-name or generic products. "The smartest thing to do, I think, is to mix the first teo," Fleisher said. "You need the top brands to show you're in the business, but the quasi-brands deliver a distinct value to consumers."

An example of a national brand plus quasi-brand strategy includes Ward, the first to try this approach a few years ago, with the Admiral and BelL & Howell brand names.

Kmart has made a similar commitment to a quasi-brand with the Philco logo. The Philco program includes diverse products, but concentrates on areas that either have no real brand presence, such as videotape rewinders, or where the entry leveL price point is totally unprofitable (19-in. TVs, headphone-only tape players). The bright blue packaging is coordinated throughout the department, rasising the profile of the new brand.

According to Brian Sharoff, president of the Private Label Manufacturers Association, the largest pricate label trade group in the United States, Kmart's strategy makes a lot of sense, following similar trends in other product categories. "The impact of top brand names is wearing out somewhat," he said. "And in a loT of product areas, like clock radios, there's really no top of the line; the product is the product. If you can resurrect a brand name that still registers with the consumer, so much the better."

Kmart's program, which is supplied by various factories in the Far East that provide other branded products, delivers sharp price points on a wide selection of goods, and adds a branded presence to what were strictly commodity products. At the same time it borrows from strategies that have been used by other retailers in other departments. Wal-Mart's purchase of the rights to the Popular Mechanics name resulted in a line of hardware items and, more recently, a line of audio and video accessories.

Target struck gold with the adoption of the Merona label, which moved from apparel to home fashions to housewares. Kmart's Philco could easily be extended to small electrics. The chain did the same with Focal, its film brand which has branched into videotapes and photo accessories.

Wal-Mart has been the only chain to attempt the store brand (vs. private label) approach, and on only one CE sku--a tree-pack of Wal-Mart brand videotape. However, Wal-Mart managers took enough notice of that sku's performance that it ranked fifth in videotape brands in their mentions in DSN's annual Top Brands research last year. Kmart managers tabbed Focal third among photo brands.

Also trending upward are an increasing number of stealth brands, products branded with one company's logo, but produced by an entirely different vendor under a licensing agreement. Koss, Memorex, Kodak and other popular brands are Now available in various product categories that may have little or nothing to do with the original company (Kodak Crayons come to mind).