Battle of Retail Floor Space

Implications: 1. Private label brands offer design exclusivity, control and better profit margin to department stores. 2. National brands are losing floor space and need to counter attack with better strategies.

Analysis:

As a national brand, in order to survive today, you must have a major department store as an anchor.  With all of the mergers and acquisitions, there are fewer and fewer department stores to sell to.  There is mainly Federated (Macy's) in the upper mid tier and Kohls and JC Penneys at the mid tier.  It has taken these department stores more than a decade to get their private label brands right.  It wasn't always the case and there are still private brands that aren't profitable and didn't make the cut.  However, we can see that private brands such as INC for Macy's and Arizona for JC Penney are doing extremely well.  They give the retailer a much better margin and control.  It would be interesting to see the launch of American Living, another exclusive strategy created by Ralph Lauren for JC Penney.   

To address your questions:

1) As department stores giving their own private brands the top floor space, national brands will have to come up with more attractive and exclusive strategies such as: exclusive collections, better designs & quality or better wholesale price. 

The problem is better price will cut into the wholesaler's margin which is already lean.  In the upper and mid tier brands, the designs really don't stand out.  They are mostly followers and not fashion trend setters.  In terms of quality, chances are that the department store private brands are producing at the same factories as the national brands, so the quality is very similar.  

2) Will the national brands open their own discount stores?  Yes and they already have plenty of Factory and Outlet Stores where they are dumping their last season's goods and some of these factory stores are so profitable that national brands will produce merchandise exclusively for these type of discount factory/outlet stores. 

Will national brands hold their hot lines hostage for better floor space?  possibly, but not the type of negotiation skill you want to use frequently.  There are a lot more brands out there than department stores these days.  There is always someone standing behind your back waiting to take on your floor space.