What: The private label business is a source of profitability and customer loyalty.

Why it is important: Poaching executives is not enough, it requires an impeccable sense of timing, vision and strategy.

Retailers seeking a turnaround often focus on operational efficiency and merchandise improvements, with a particular emphasis on developing private labels. This strategy has been key for major retailers like Macy’s, J.C. Penney, and Kohl’s to grow sales and attract new customers. Target stands out as a successful model in this area, boasting nearly 50 private brands across various categories, with several generating over $1 billion in annual sales.

Target's success in private label merchandising has led competitors like Macy’s and Bed Bath & Beyond to recruit talent from Target’s team. Macy’s has directly hired and contracted with Target’s private brand designers, while Bed Bath & Beyond hired Target’s chief merchant Mark Tritton. However, Bed Bath & Beyond's experience shows that simply adopting Target's approach does not guarantee success, as it went bankrupt last year.

Private labels offer higher margins and competitive advantages, with around a third of sales at Target and 28% at Costco coming from their private brands. However, creating a successful private label requires a comprehensive approach, including sourcing, branding, consumer testing, and effective visual merchandising.

Macy’s, for example, has focused on private brands as part of its Polaris turnaround plan, aiming for them to contribute a quarter of its sales. The retailer's recent launch of the On 34th label, developed by former Target merchants, is an ambitious attempt at establishing a lifestyle brand. However, patience and potential adjustments are necessary for such efforts to yield results.

What it takes to build a private label