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Deloitte Study Shows Costs Of Goods Hurting Private Label Sourcing

June 26, 2013
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Higher costs and an increasingly volatile cost structure as pressuring retailers and their private label sourcing efforts, a new study from Deloitte says.

The survey, titled “Private Label Sourcing: Strategies to Differentiate and Defend,” analyzed responses from more than 260 executives from grocery, apparel and general merchandise relations. The biggest concern cited was risks from rising costs of goods sold, ahead of product innovation pressures, supply chain risks, and tax consequences.

In addition, consumer behavior changes related to mobile and online shopping use are driving the strategic importance of private label sourcing, the study showed.

“As low-cost online competitors continue to expand across more categories, private label provides an opportunity for retailers to defend their market share by offering products that are exclusive to their banner,” Deloitte Principal Michael Daher said in a release reporting the study.

The study said retailers looking to drive differentiation should be asking:

  • Are we strategically positioned to react and take advantage of market pressures?
  • Are we actively managing our value chain strategy?
  • Does our supply footprint consider both emerging sources of supply and our planned retail footprint?
  • Are we operating our governance models positioning us to enable our sourcing strategy?
  • Do we have the right talent skills to meet market pressures?
  • Do we need to refine our processes or invest in enabling technologies to get the most of our sourcing organization?

“It’s not the ‘copy and paste’ private label we grew up with,” Daher said. “These are innovative private label brands that require more sophisticated sourcing capabilities.”

Retailers said their top current strategies are focused on enhancing quality assurance programs, engaging in advanced planning scheduling with vendors and enhancing ethical sourcing capabilities.

Their top emerging strategies, though, related to the cost of pressures – diversifying their source of supply, re-shoring production to domestic vendors, and consolidating vendors.

“Re-shoring to local markets is becoming an increasingly attractive option for retailers,” Daher said. “For retailers in sub-sectors such as apparel … cost pressures may incentivize vendor consolidation.”

China, Mexico and Canada were listed as the countries most used for supply sourcing. However, Southeast Asian countries such as India, Vietnam, Cambodia and the Philippines were listed as increasingly attractive sourcing alternatives to China, particularly for apparel and softlines.

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