How cost shortcuts can damage brand reputations

There is always the temptation by brand owners to improve profit by lowering quality whilst maintaining price.

Moving to a lower cost factory or country of production, decreasing the pack size or lowering packaging or product quality all consume much meeting time and generate much angst as brand owners are put under pressure by their shareholders to deliver ever more profit. And they should take time to think. When brand owners – that’s manufacturers and retailers alike – squeeze too much quality out whilst asking shoppers to pay the same, shoppers change their brands.

In the UK many years ago, mid-sector department store Marks & Spencer was famed for the quality of its men’s and women’s underwear. M&S over-indexed in market share of the British “bum and bosom” covering. Prices weren’t cheap but quality was great.

Arguably this is a similar position held by Target in Australia today. Well, in the UK in the late 90s M&S undertook a significant re-sourcing exercise to new factories to lower costs, whilst maintaining the price to the shopper. Quality fell, shoppers noticed and within three years M&S was in very poor shape. You could say the arse fell out of its market!

Walking grocery and apparel stores in the US, Australia and NZ over the past few weeks I have been focusing on brands owned and sourced by retailers, specifically the key items that drive footfall, sales and re-purchase. In men’s and women’s fashion it’s tees, tops and jeans. These items are very high volume, are on shoppers’ habitual repurchase list and have very high margins. In the US, Gap and Banana Republic defined the price and quality of these high volume items.

Over the past four years the prices in these US stores have risen and the quality has fallen. Not just a little, but a lot. Prices have risen by about 10%, and quality has halved; with thinner material with less detailing. So what’s happened? Well, shoppers and competitors have noticed, and each has changed their shopping and buying behaviours. New stores are offering tees, tops and jeans as key items, and these key items are now a better price and a better quality than Gap or Banana Republic.

In grocery stores it’s a different but similar story. There, it’s fresh and chilled that keeps us visiting frequently as we can’t pantry stock. We see it in the chilled mid-price food and dairy sectors. Hummus, caviar dip, cheese, milk, babaganoush are all offered by retailers as own brands alongside local fresh and chilled producers.

However, whilst the products inside often taste as good as branded items, the packaging on the outside is the thing that most frequently lets the retail own brand down. My own experiences in the past week in four different grocery stores covering four different retail own brands includes leaking milk bottles, and dip, chip and cheese packaging that tears where it shouldn’t.

It’s a journey. It took M&S 70 years to dominate the underwear sector with high quality own brands, and Costco has been refining the Kirkland Signature brand since 1995. So try not to take short cuts.

CROSSMARK CEO Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores.