NEW YORK, United States — “Brand” is something on which leading fashion labels, department stores, and specialty retailers are intensely focused. Every piece that’s produced and placed on the racks needs to carry and convey a brand message that’s true to the company’s “DNA.” But what’s rarely disclosed is how much some of these companies rely on external suppliers to produce — and even design — their collections. In fashion, this is called “private label” and it happens at every level of the business, from mass to luxury.
“You know those Common Projects sneakers that everyone has? That sole and shape was not developed custom by that brand,” explained an industry veteran, who spoke on condition of anonymity because of the sensitive nature of the topic. “Ten other brands have used it. It’s expensive to make that portion of the shoe. And nobody is going to notice.”
Because “nobody is going to notice,” some young brands even take on private label clients to supplement their intake while establishing their own labels. When Greenpoint, Brooklyn-based Alexander Keith and Adam Travis launched their affordable menswear label General Assembly in 2010, their plan was to provide indie boutiques with modern and easy-to-wear silhouettes they had trouble finding in the market. Keith and Travis quickly established solid supplier connections and were able to manufacture and deliver goods in a speedy fashion.
But as General Assembly gained momentum, several retailers began asking the duo to create the same silhouettes, not with General Assembly’s label, but with their own. Keith is loath to call it “white label,” the general term for making generic product that can be customised and branded to make it appear as if another company has made it. “We call it custom, or private, label.”
At first, the company was servicing only indie boutiques, like Need Supply, in Richmond, Virginia. “When we originally began doing this kind of work, we assumed that the bigger guys already had this stuff taken care of.” But soon enough, the likes of Urban Outfitters came calling. While large specialty retailers have their own design and development teams, as well as relationships with factories, the company’s merchandisers often rely on white-label outfits.
There are plenty of reasons why a retailer will go to someone like General Assembly to create a run of items. For one, it’s more profitable than buying from a “national” label — say, Levi’s or Vans, which are both also sold at Urban Outfitters. It also allows for quicker turnaround than what in-house design and development teams can manage. That’s because, unlike in-house teams, which are paid to create new things, Keith uses the same CAD (computer-aided design) templates again and again. “We are able to prefabricate and re-colour really quickly,” he said. And if a merchandiser wants to experiment with a new colour or print, Keith can produce smaller runs of product than a factory might require from a big company.
As the potential for more private-label partnerships became clear, Keith and Travis renamed their firm The Supply System. They continue to design General Assembly and two other in-house labels, along with private-label collections for retailers. And while private label only makes up 20 percent of the current business, Keith forecasts that number will rise to 40 percent within two years.
Of course, this business model is not new. The private label system has been used by department stores, specialty retailers and discounters for as long as any of these retailers have existed.
One of the world’s largest suppliers of private label goods is Li & Fung, a $20 billion global sourcing firm that supplies a staggering 40 percent of all apparel sold in the US (and, itself, works with a loosely knit, but tightly coordinated global network of over 15,000 partners). The company works with retailers in three basic ways. Li & Fung can act as a buying agent, contracted to support with sourcing everything from textiles to factories. But, in this case, the retailer takes care of development and design. Li & Fung also operates a true private label business, taking care of both supply chain and design. (Target’s Go! International collections, for instance, were developed by a team at Li & Fung in collaboration with the fashion designer whose name appears on the label. Target, after approving the designs, bought the collection from Li & Fung.) The company also operates a licensing business (the smallest part of the business, generating an estimated $3.5 billion of a total $20.7 billion in revenue in 2013). Li & Fung currently owns international licenses for brands as diverse as Tommy Hilfiger and Disney. This year, the licensing business is set to be spun off as its own company, Global Brands Group, to be listed on the Hong Kong stock exchange.
For specialty retailers like Urban Outfitters and Gap, which have great internal design teams, the advantage of private label boils down to speed and efficiency. But for department stores and discount retailers, private label’s appeal has always amounted to one thing: profits.
“It’s less expensive and the profits are much higher,” said the industry veteran. “The department stores, they don’t really make much money off of the brands.” For instance, a dress from Aqua, Bloomingdale’s in-house contemporary label, generates much higher profit margins than a number by Marc by Marc Jacobs. The same is true for Macy’s Bar III line.
In the luxury market, private label works in a surprisingly similar way. Ultra-luxury designer Tom Ford, who, in 2006, signed a private-label deal with Ermenegildo Zegna to produce his collection suits, is an outspoken proponent of the model.
“I could have started with my own office, and I know all the factories and I could go to this factory to get my jacket and that factory to get my shirts, but I needed to go fast. I had worked with Zegna [on] both Gucci and YSL, and Zegna was the only partner which had the ability to make everything from suits, shirts, ties, sportswear, all of it, all at once,” Ford told BoF in 2013. “We develop all of our own fabrics. That’s very important for our customer. They don’t want to come to us and spend $5,000 on a men’s suit and see that exact same fabric in someone else’s line,” the designer continued. “And we control our distribution. They handle the manufacturing and the shipping. It’s our showroom, and our staff, our merchandising team, and we decide where we are sold.”
For a label like Tom Ford, a form of private label was the right option. But what is the future of the model? A report published last November by global financial services company UBS suggested that while “higher-price private label will continue to certain consumer segments,” inexpensive private label brands are losing their appeal. Indeed, major fast-fashion retailers such as H&M and Zara — who typically operate their own supply chain — don’t need to seek out private-label manufacturers to create on-trend items quickly. They can do it on their own, which is even cheaper than private label, and means they can charge consumers less. What’s more, UBS recommends that stores like Kohl’s, JC Penney and Target rely more on “national brands,” suggesting that buying into name brands is worth the increased cost if it generates more sales.
Does that mean companies like The Supply System are barking up the wrong tree by pursuing their private label business? Probably not. Given how complicated the current fashion system is, merchandisers from Urban Outfitters will continue to need last-minute items, even if they start buying more units from name brands. And for some start-ups, having both a wholesale business and a private label business can help with both cash flow and building a good reputation with suppliers and retailers. But there’s no doubt that this benefit comes with the added responsibility, and potential distraction, of simultaneously running two very different businesses and serving very different clients.