🦬 buffalo jeans
how brand licensing creates the illusion of competition
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A recent story in Fast Company detailed how Target owns 45 different private labels. Apparently, the retailer has been taking ~inspiration~ from successful retailers and essentially copying their products under various Target “brands.” Target also has what I imagine to be a rather informative rewards program, Target Circle; which further enriches the firm’s database with customer information.
As I was reading this little article, I recalled an anecdote that my friend Jon Shell recently relayed. Apparently, when he met his wife, he was an absolutely terrible dresser and his then-girlfriend took him shopping. The best jeans they found were Buffalo, and he bought a few of them as they were almost-perfect. Rather than disrupt any newfound trouser equilibrium, he kept buying this brand when he needed new pants. One day, Jon ordered a new pair of pants online and his (now wife) asked, “where did you buy those terrible jeans?” There was something...different about the pants. Now, they sucked. Given their sudden decline in quality, Jon assumed that Buffalo had been bought by a private equity firm, but instead, it turns out that in 2013, the “Buffalo David Bitton” brand was purchased by the Iconix Brand Group. *The company is now for sale.
After the brand was purchased, it became a private label of sorts. This also means that a different product could be sold under the brand - maybe the same product sold at Bongo or Mossimo, two other denim retailers owned by Iconix. Poor Jon, right? At least he got the girl, even if his jeans aren’t cool anymore.
The potential for dilution with private labels underscores the importance of appreciating who (or what) owns a company.
If what we want is a healthy market with strong consumer choice and product innovation, is a bunch of brands being owned by one company or a bunch of products on the shelf owned by the retailer themselves the best way to get there?
Once Buffalo was owned by Iconix, the energy behind the brand (David Bitton) lost interest. So too did the owner (Iconix) as it served its purpose of getting all its brands into stores ("if you want Buffalo, you also need to take this other [crappy] brand.") Everything just sort of becomes bland. Which is why Ford didn't create the Tesla and almost ruined Jaguar. Which begs the question: how should competition policy help maintain innovative, fair markets vis-a-vis brand consolidation and increased control of the supply chain by oligopolistic retailers?
Brand licensing and private labels obscure competition by creating the illusion of it.
This brand licensing behaviour is not unlike the “flanker” brands that telecommunications companies in Canada license:
Fido and Chatr (Rogers);
Virgin and Lucky (Bell);
Koodo and Public (Telus);
Fizz and Videotron (Quebecor).
For the purposes of this post, though, I’d like to focus on traditional retailers.
Private labels - when a retailer also owns certain brands that they sell alongside competitors - are a unique way that brick and mortar companies can mimic many online marketplaces. By simultaneously knowing your customer, and what people tend to buy when and at what price point, a firm can privilege their own private label products and undercut rivals.
One piece of proposed legislation in the US - the Ending Platform Monopolies Act - aims to clearly define this behaviour as being anti-competitive. It’s goal is, “To promote competition and economic opportunity in digital markets by eliminating the conflicts of interest that arise from dominant online platforms’ concurrent ownership or control of an online platform and certain other businesses.”
Canadian competition legislation does not currently comment on the dynamics of digital markets. But that doesn’t mean that we don’t have oligopolistic Canadian firms with private labels, like:
The Bay, which has 12 private brands: En Thread, Core Life, Lord & Taylor, Design Lab, Black Brown 1826, 1670, Les Essentiels, Distinctly Home, Boutique, Kode, Glucksteinhome, Littles;
Canadian Tire’s consumer bands division boasts Mastercraft, Motomaster, Paderno, and more;
Costco - Kirkland Signature (which generates about a quarter of Costco’s sales)
Mark’s Work Warehouse showcases Dakota, Denver Hayes and WindRiver;
Loblaw’s: Equality, No Name, President’s Choice, Joe Fresh (and more) - *no word on whether or how Loblaw may squeeze brands so that they are essentially forced into becoming a private label supplier to them 😜;
Metro: Selection, Irresistible, Godiva, Hemisphere wine, Première Moisson.
So the question is whether private labels are good business or a conflict of interest - or both. Private labels enable retailers to challenge brands. First, they change the dynamic as the private label is typically at a lower price point than the competitor, and second, they narrow the available shelf space for smaller players (who also have to PAY for that shelf space - at least in a grocery context).
They can be deceptive as the ownership is obscured for the consumer. Retailers can also potentially leverage third-party seller data to make their private label brands more competitive. Below some quick reads on the subject:
Private Labels: Challenges for Competition Law and Economics
Is Amazon’s Approach to Private Label Brands Anticompetitive?
Of interest: The Bay recently announced that it was decoupling its ecommerce marketplace (now “The Bay”) from it’s brick and mortar retail stores (now “Hudson’s Bay”) to create two businesses.
To me, the headline read like the business decision was the result of a proactive analysis of competition policy. Decoupling the ecommerce site from retail brick and mortar is a smart way to minimize the inherent conflict of interest. But as my competition policy BFF Robin Shaban reminded me, HBC would still have a "significant interest" in the online business so they would be seen as the *same entity* from a competition perspective. Reference: the Merger Enforcement Guidelines.
Our economy is structured differently than the US, and the focus of competition policy needs to be distinct, but we have the same or similar outcomes to the Amazon platform issue that the US is interrogating. It’s just what happens when big data meets bricks and mortar.
So it’s not clear whether private labels promote or inhibit competition. As it stands, private brands create a perfectly legal illusion. How retailers may use sales data to inform these private labels (in terms of price and potentially taking inspiration to craft knock offs) and whether consumers deserve and can achieve more transparency around their ownership are questions we (and regulators, lol) should be asking.
📚 ICYMI: A couple of recent competition pieces:
Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.