Private Label Clothing During a Recession

During a recession, basic economics state that a slowing economy will lead to less disposable income for the average consumer. With shrinking disposable income, prevailing economic theory is that consumers will cut back on normal extravagant items and spend on goods of necessity; oil for their car, cheap food and health-care products for the family, and heating/air-conditioning for homes are all examples of goods the average individual will continue to purchase regardless of fluctuations in disposable income. Given its obvious absence from this exclusive list, the retail sector has relatively large exposure to any recession. While individuals need things like clothing or food, none of us actually need a particular style or brand, no matter how often young children complain to their parents. Taking an example like retail clothing, it should seem pretty obvious that during the current recession, people cutting their spending (which are most of North Americans) will purchase cheap, non-branded shirts and pants. Thus, private label clothing will thrive during a declining economy. That simple! Great, we’re done here.

Or are we? A recent Reuters article made mention of the fact that private labels are suffering a great deal from the current recession. As a result, brands are beginning to seize a greater percentage of floor space in department stores then beforehand. To steal a line from a popular TV show character, “what in the deuce is happening?”

There happens to be two forces at work here, both representing the typical usual suspects in any retailing transaction; consumers and retailers. Consumers don’t exactly behave the way that normal economic theory dictates that they would during a recession. Instead of what most people assume—that the average individual would spend less on each item of clothing for example—the average individual is instead cutting back on the quantity of what they are buying instead of purchasing cheaper clothing. With shrinking disposable income, the critical nature behind every single purchase purchase becomes magnified. Customers are now thinking “if this is my only purchase, I want it to be something special”. The type of clothing which would satisfy this thought process is most certainly NOT a generic private label piece of clothing. It is for this reason that one should expect recognized high-end brand names like Burberry, Canada Goose, Christian Audiger and even Prada or Gucci to continue to perform despite the harsh realities of the North America economy. These brands, and others like them, are instantly recognizable and carry a strong cache with the general public. That, of course, does not mean premium brands are positioned to succeed during these economic times. While it may sometimes be true, it is a foolish leap to assume that premium and instantly recognizable are always one and the same in the retailing world.

The other part of the equation is the retailers themselves. The basis for giving floor space to private label brands was their relatively high margins compared to normal premium brands. With discounts and sales pervasive across the retailing industry, this competitive advantage is shrinking giving retailers little reason to feature private labels as predominantly as before.
It is important to realize the true effect that the recession has on private labels and recognizable brands respectively; private labels are not necessarily counter cyclical, and brand names are not necessarily pro-cyclical. By understanding that these pre-conceived notions don’t always apply, retailers can better prepare themselves to effectively manage through a recession.



SOURCE: http://in.reuters.com/article/businessNews/idINIndia-37521320090119?pageNumber=3&virtualBrandChannel=0