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Why Amazon, Birchbox, and The Outnet Launched Their Own Labels

In-house brands do more for stores than cut down on costs

Remember the days when Amazon was knocking down the doors of luxury brands in an attempt to convince the likes of Ralph Lauren and Michael Kors that it wasn’t just a place to buy kooky iPhone covers and used textbooks, only to have fashion people like Yoox founder Federico Marchetti scoff at its ambitions?

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Those days are gone. Not only does Amazon not care about courting luxury brands, but it has gone ahead and made itself designer of its own labels: Franklin & Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Ro, and Society New York. (Yes, those names all follow the same formula for a reason.)

"I bought this for my daughter for Christmas in the pine color," reads a five-star review on a modest sheath dress by Lark & Ro on Amazon. "She says she has never received so many compliments from coworkers on anything she has worn." The dress looks vaguely like something Kate Middleton might wear — if Kate was into $20 dresses designed by Amazon.

A Zady Essentials cardigan Image: Zady

The internet retailer has been making plenty of headlines over its private label experiment lately, but it’s hardly a new concept. Retailers have been stocking private labels for, quite literally, a century (JCPenney launched its first private label in 1914). And it’s not limited to the big guys, either: startups like Birchbox and Zady are pouring resources into developing their own private labels while continuing to stock nationally recognized brands.

Investing in private labels may not be a necessary key to success for every retailer, but it sure is paying off for the ones who go for it — and not just because the profit margins are way better when there’s not a wholesale transaction involved.

"I was skeptical at first about an in-house brand, but Birchbox really knows what they’re doing," reads one of 18,537 (mostly) favorable reviews on Arrow Boost, a lip balm that Birchbox launched under a second private label just 61 days ago. "Birchbox MUST keep making this balm," reads another. "I love everything about it!"

Arrow bills itself as products made to withstand a workout and the brand’s lip balm was the company’s top-selling lip product on the site in February. Birchbox’s first in-house brand, LOC (Love of Color), launched in October and was one of the site’s best-selling brands by Black Friday; no small feat considering that the webshop stocks over 800 beauty brands.

"It’s very important to us that our in-house brands have integrity," says Nicole Massimi, Birchbox’s VP of global sales, in an email. "They’re not derivative of best-selling products from other brands. We know our customer and what she wants (she’s not super passionate about beauty, but she wants to look her best); the immediate success of both of these brands is a direct testament to that."

Birchbox used selling data that it had gathered over the years to make sure LOC and Arrow were filling holes in its beauty categories: LOC’s high-pigment sticks of eye and lip color were for shoppers who wanted to try beauty’s more colorful trends but needed a non-threatening entry point, and Arrow was Birchbox’s interpretation of athleisure. And while private labels are known for being more profitable for retailers, because it’s essentially bypassing the wholesaler, Massimi says that wasn’t the only reason Birchbox wanted to launch in-house brands.

LOC from Birchbox Image: Birchbox

"While it absolutely makes financial sense, launching our own beauty brands isn’t necessary for our bottom line (though of course the margins are favorable)," she explains. "Product development grew out of our desire and ability to use our data to serve our customer even better! We created something for her that didn't exist elsewhere, that we knew was relevant to her lifestyle and beauty needs."

She also noted that LOC and Arrow have helped Birchbox shed its image as just a subscription box service; the in-house brands help to identify Birchbox as a regular beauty retailer as well.

Likewise, Zady, an e-commerce shop for sustainable goods, launched its own private label, Zady Essentials, in November 2014 with one ethically-made sweater and immediately sold out. Zady has since gone on to develop a whole collection under the label and co-founder and CEO Maxine Bédat says that it’s the top-selling brand on the site.

"We created something for [our customer] that didn't exist elsewhere."

For Bédat, the Essentials Collection was a way to wrap everything that Zady stood for into a couple key products. The outside brands that Zady carries are all sustainable in certain ways, but not every way. The company’s private label was proof that a cardigan could be ethically made from where it starts on the alpaca farm in Peru to where it ends with a knitter in New York, while still holding a competitive price point.

"We were very careful with every single dollar that was spent," Bédat says. "A big component of the cost of the product is the living wages that we are paying people, and when you get better paid labor there’s better quality in it as well. But it meant we’re not artificially marking up our products."

While Zady isn’t making huge profits off its private label, the line serves as great branding for the company. "If you say private label, sometimes that means some department stores will have a private label as kind of a knock off of the other brands that they carry," Bédat notes. "We see the Zady label as our line. It’s our collection. It’s the foundation for everything else."

The Outnet, which is owned by Yoox Net-A-Porter Group and stocks off-season, discounted designer merchandise, launched its own private label Iris & Ink in 2012 and, again, it’s one of the retailer’s best-selling brands. According to Shira Suveyke, The Outnet’s EVP and chief merchant, Iris & Ink consistently falls in the top five brands on the site.

An Iris & Ink look. Image: The Outnet

"Iris & Ink was originally developed as well-priced styling essentials to complement the exceptional designer finds available at The Outnet," Suveyke says in an email. "The luxurious fabrics and incredible quality set us apart, ensuring Iris & Ink is aspirational yet accessible; that was part of our strategy from day one. By working directly with factories and fabric suppliers, many of which are also used by some of the most prestigious design houses, we’re able to offer the customer amazing quality and value while also making strong margins."

Where private labels have always thrived, though, is in department stores. JCPenney stocks over 20 private labels, including Worthington, Arizona, and its newest one designed for millennial women, Belle + Sky. A company spokesperson notes that private labels make up half of JCPenney’s total sales.

Macy’s has developed staples like Charter Club and Bar III over a number of years, reeling customers in with strong branding and low price points. "The Macy’s shopper, which is a good portion of female shoppers that are into apparel and fashion, would probably not really think of them as Macy’s brands per se," says Tiffany Hogan, an analyst for Kantar Retail. "I mean, they might know of it as a Macy’s brand but it has its own branding too. I think there’s a way that they make it stand out a little more, have a little more brand equity. Macy’s has historically done a good job of that."

For national retailers that sell in a lot of categories, private labels have virtually no downsides (unless, of course, you’re caught selling the same dresses that sold under another private label for a different retailer). "There are very few non-specialty retailers out there that don’t have any kind of private brand," says Hogan. "Even Nordstrom has private brands. It’s kind of more of an essential than a necessary evil. It’s a good filler to balance out national brands, and I think it just makes for a more well-rounded assortment for most apparel retailers."

And, in an age where shoppers are hard-pressed to buy anything at full price, private labels offer retailers a better return on their investment even when the goods get marked down. "It gives them the margins to sort of convince the consumer that when something goes on sale it’s a legitimate value," says Andy Jassin, managing director of Jassin Consulting Group, a retail brand management agency. "Things that have an MSRP selling price with a private label brand, you know it’s going to be on sale and the store’s still going to make its markup."

"In order for stores to be somewhat successful in this country, they need a blend of private label and brand," says Jassin. "Brands are the comparisons that are set for private label to work under."

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