A peek at private label consumer electronics trends

By Bill Roberts -- Electronic News, 1/24/2007

It’s no secret that the Wal-Marts of the world offer private label flat panel TVs, DVD players and other consumer electronics (CE), thereby exerting influence on the supply chain. But just how quickly they’re moving and how much power they wield are questions no one seems able to answer – at least not in public.

“The large retailers are all increasing their activity in developing their own private label brands for all products, including electronics,” said Chris Crotty, an analyst at iSuppli, a market research firm. “Anytime you have a large volume buyer it affects the supply chain. For a lot of reasons this trend will move power away from traditional OEMs to EMS providers and ODMs that work directly with retailers to develop private labels.”

Crotty believes retailers are most likely to tell their manufacturing partners what they want and at what price, then let the partner do the rest. However, he adds, “some large retailers have gotten involved at a deeper level with procurement. I know of a couple but cannot say who. We’ve gotten many research requests from larger retailers interested in market size, product development and price tracking.”

Sean Wargo, director of industry analysis for the Consumer Electronics Association, a trade group, admits it is nearly impossible to know how fast the private label market is growing. “There’s a real dearth of information,” he says. “There are retail tracking services, but they have been put under a mandate by the retailers to mask all private label information. This is highly sensitive for these retailers. Any kind of exposure might reveal how successful they are.”

Shawn Dubravac, a CEA economist, says retail data for all product categories suggest that private labeling was in the low teens as a percent of total in the early 1990s, and rose to about 20 percent by end of decade. His educated guess: Private label electronics lag the general trend but is on a similar upward course. 

Educated guesses must suffice for now. Bred in a culture of cutthroat competition, the large retailers -- both general merchandise companies and those dedicated to electronics -- are not especially forthcoming about plans for electronics.

Electronic News found one: Best Buy Co. Inc., the largest electronics retailer in North America with more than 800 Best Buy stores, offered a general overview of activities without revealing details such as names of partners, numbers of products or the size of its team of market researchers, usability experts and design engineers.

Since launching private labels four years ago, said Fernando Silva, director of private label product lines, Best Buy has sought to identify products where it could offer the customer a lower price, or a more user friendly device, or both. A team of market researchers continuously works with Best Buy sales staff and conducts surveys of customers to identify possible products for private labeling.

“We start with customers, defining gaps and opportunities,” he said. “We verify with sales and service staff. As we go through the commercialization process, we re-verify that it meets customer requirements.”

Best Buy employs several design engineers, hired from Apple, Compaq, 3M and other OEMs. “We’re not in the business of innovating technology, but at innovating product development and commercialization,” said Silva, who spent 26 years in product development at Kodak before joining Best Buy about 18 months ago. “Our design engineers are responsible for defining and driving commercialization.”

Relationships with manufacturing partners vary. Silva said his team is more directly involved in design and procurement with some and much less with others. Best Buy tests prototypes of all products for quality, performance, usability and safety in its own lab.

Many private label products are now available at Best Buy. Some examples:

An MP3 player under the Insignia brand has a rubberized exterior which makes it easier to hold while exercising. Research also found many users were frustrated by lack of ease of use in other MP3 players when downloading their CDs, so Best Buy created easier-to-use software.

Insignia brand DVD players are not only price leaders, but some have ruggedized exteriors and at least one has a simplified interface with fewer bells and whistles. Many customers do not want all the features found on many brand-name DVD players.

A USB flash drive marketed under the Geek Squad brand has a flip-off cap that remains attached, unlike a popular brand whose top comes all the way off and is easily misplaced. Insignia and Geek Squad are two of five private brands the company has, each with its own niche. Geek Squad is also a service offering for computer setup and maintenance.

Silva said the same private label brands are sold in Best Buy’s Canadian stores and in the store it recently opened in Shanghai. He did not rule out creating private labels tailored to the Chinese market.