KMART SEES PRIVATE LABEL AS CRUCIAL PART OF STRATEGY

STEPHEN DOWDELL

ROSEMONT, Ill. -- Supermarkets aren't the only retailers putting stock in store brands as one way to fuel their prosperity.

Private label is also crucial to the survival strategy of mass merchandising giant Kmart, in a discounter universe that is overcrowded and increasingly unstable, according to Joseph E. Antonini, chairman, president and chief executive officer of Kmart, Troy, Mich.

Antonini was the keynote speaker at the Private Label Manufacturers Association convention, held here earlier this month. His presence at the podium underscored the notion that private label has hit the big time, at least as the current catch phrase for U.S. retailing's biggest guns.

His comments echoed many of the popular private-label refrains: that it provides better retail profits, that product quality has reached a critical level vis a vis national brands, that it lends a retailer uniqueness in a crowded field, and that, more than a low-price alternative, private label now is a way to build on the store itself as a brand.

However, Antonini placed private-label's role in the specific context of a changing discount retail arena.

"In the past five years, more than 2,000 discounters opened new stores right in Kmart's backyard," he said. "Our competitors have aggressively taken advantage of the benefit of being the new guys on the block in many places. Traditional department stores have stepped up the margin pressure all over the country. Mergers throughout the industry continue at an unprecedented pace."

As Antonini calculates it, that adds up to a cramped, unstable market. "Mass merchandise sales between 1988 and 1993 grew at an annual rate of 4.9% and will likely grow at a significantly slower rate between 1993 and 1998," he said.

"This modest growth rate, coupled with an industry over-supply of square footage, reminds us all that we are not yet near the completion of the retail consolidation that started with the dawn of this decade. Mass merchandise sales, with little growth and too much space, will continue to see a constant shifting of the mix."

One well-known product of that shift is the big commitment that leading mass merchants have made to selling more groceries. But Antonini emphasized the industry's commitment to private label.

"Whether it is private-label apparel or a truly outstanding line such as our Nature's Classic line of food products, retailers must strive for category excellence.

"We've been very pleased with the popularity of Nature's Classics -- one of the nation's fastest selling private-label brands," he added.

"In the marketplace I have described for you today, uniqueness plays a critical role. We look to our suppliers to help us develop product enhancements that will set us apart from other retailers. In many ways, private labels can make retailers different.

"What's the message of the American consumer? If shoppers don't have to sacrifice, American consumers tell us they would just as soon buy private labels. But they also remind us that -- because they are time-poor -- [we should] offer them a convenient mix of both private-label and national brands."

He emphasized as well that smart store brands appeal to smart consumers.

"A critical message for retailers, manufacturers and suppliers: today's consumer is out to beat the system. Today, for the average consumer, it is almost un-American, an affront to motherhood and apple pie, to admit that you paid full price. That's why a 'good price' is an EDLP that's marked 25% to 35% off."

It's a consumer sentiment that can be unhealthy for some traditional national brands. In the apparel industry, for example, "designer brands are not driving shoppers to stores, but in many ways, have the opposite effect," he said.

"Of all the profound changes taking place with the consumer and on the American retail scene, one of the most vivid examples of what all this means is the issue of national brands.

"Of the top 10 name brands in the country, two are familiar retail stores: Sears and Kmart. Let's not forget. The reason national brands came to be is so that the American consumer would feel safer and more secure about their shopping choices. Today, stores are expected to guarantee that the brands they carry will perform.

"Kgro garden products, Jaclyn Smith and Kathy Ireland apparel lines have now been positioned as 'national brands' in the minds of consumers," Antonini said.

"Today, people are not buying private-label products just because of price. Today, people buy private-label products because they offer quality, reliability, value, style and a good price. From the packaging to the actual product, the quality must be there."