How to Start a Private Label: A Chat with Sarah Ferrence of Mod. Merchant

Sarah helps her clients drive sales and profitability through strategic planning, merchandising, buying, and private label consulting services.

We recently had a chat with Sarah about the changes that we’re all experiencing in retail, and how merchants can use private labeling to differentiate and thrive.

Let’s dive in!

The right retail mindset for staying competitive

We started off our discussion by talking about current retail landscape and what merchants should do to thrive.

“The brick and mortar environment is really challenging, mostly because the retail industry is deep in these uncharted waters right now, and there are a lot of unknowns for physical stores,” says Sarah.

“Merchants need to stay hungry, and go after modern retail mindsets and business opportunities.There are a lot of potential possibilities for brick and mortar. And those who are struggling aren’t embracing this kind of new market and mindset. But if you’re willing to go after it, there’s unlimited opportunities to grow your business.”

Staying relevant through private labels

“Retailers remain relevant by being brand and customer-focused,” explains Sarah.

“It’s analyzing and understanding what your brand means to your customer, and the relationship they have with each other. Why does your customer love your brand? What makes it unique in their eyes? How can you continue to best serve your customers? Answer those questions, then focus on carving out your niche in the way that aligns both to your brand and also honors your customer.”

She continues, “The evolution of this idea is having your own label. Through a private label, you’re both offering your customer product that is personalized to their wants and needs, but also exclusive to your brick and mortar store.”

Benefits of having a private label

According to Sarah, there are 3 main benefits to having your own label. They include:

Better margins – Private brands frequently deliver higher gross margins (meaning more profitability for you.)

You’re in the driver’s seat – You are in total control of all aspects of the brand — from manufacturing, product mix and supply chain, through pricing and marketing.

You can showcase what you’re all about – Private brands can be used as a channel to showcase your business’s core values in a way that will resonate with, and serve, your customer.

How to start your own label

So far we’ve discussed the benefits of having a private label. The question, how do you start one?

According to Sarah, you can start off by doing three things:

a. Look at your store’s data

“First and foremost, you want to look at what is performing in your own brick and mortar store,” she advises. “So analyze your sales to understand what your customer is reacting to and what they’re purchasing. And on the flip side, be aware of what they’re not purchasing.”

This is a great starting point to figure out who your customer is and what they’re reacting to.”

b. Figure out your place in the market

Next, Sarah says, “You want to make sure you’re looking at market trends and understanding how are things evolving in the market. Then determine where you land on the fashion pyramid.”

c. Look at your competitors

“And I think also, there’s a time and place to look at your competition. You don’t want to be blind about that by any means, but you also want to make sure that you’re being open to the fact that your competition’s customer is not necessarily the same as your customer.”

Defining your product categories

“Once you have your research performed, your trend analysis performed, and your competitive analysis performed, then you should start understanding gaps in the market and where you can fill back into,” adds Sarah.

“[This means] defining the product categories that you feel like would be a good fit for your business and customers, and then developing around that.

You also want to make sure that you’re giving the customer the opportunity to find your brand, so you don’t want to launch with one or two pieces. You want to have a small collection and really give the customer the opportunity to find your brand in your store.”

“So from that point, when you have an idea of what you want your assortment to look like, that’s when you can begin the sourcing process, the costing process, and the designing process of getting your private brand off the ground.”

Marketing and positioning your brand

As for how to market your brand, Sarah says you should “definitely call out what sets your products apart. What makes them different?”

“Really look at it from a value position versus a price position,” she adds.

“A lot of times price can be really tough to beat, especially in the Amazon world. So it’s important that you pivot the opposite direction and find a different approach to differentiate yourself and showcase the value that you’re offering your customer with your private brand. That could be the style, it could be the quality, it could be the overall experience that they’re having when they’re shopping with you.”

“The bottom line: focus on how you can remain competitive by offering value to your customer instead of a margin-draining, rock-bottom price.”

Examples of retailers with amazing private labels

Looking for inspiration to help jump start your label? Sarah shares some of her favorites…

Kohl’s and LC Lauren Conrad

“The first one that came to mind for me was Kohl’s and their Lauren Conrad brand. The partnership there has been really strong since it originated because both partners were really clear on who the customer is that they were trying to reach.”

“Kohl’s had a gap in their private brand portfolio, and they knew they wanted to reach a younger customer. And Lauren had a really clear picture of her brand and customer’s needs.”

Trader Joe’s

“Trader Joe’s is another one. They are so customer-focused. They know what their customer likes and they go after it.”

“Their customers aren’t afraid of interesting and different food options and flavors, and they build their brand around that. They’ll take a really basic item, and turn it into something special by leveraging a trendy food flavor.”

“For example, there’s matcha green tea Greek yogurt. So they’re kind of mixing those two ideas together. And in turn, they’ve really developed some pretty cult classic items. That makes them a destination for their customers.”

Final words

As for final pieces of advice, Sarah emphasizes the need to start with a clear strategy.

“I think a lot of times people get really excited to get into the fun part of designing and creating, but it’s important for you to go back and make sure you’re crystal-clear on your customer. Also be clear on your budget and what you can afford. Do the homework on costing. Do the homework on quality. And make sure that you’re building a strategy that’s going to be sustainable for you in the future.”