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American retailer Dick’s Sporting Goods is hoping that new private label brands can help it bolster its business as it struggles to remain relevant in the age of Amazon.

While the company’s recently reported fourth-quarter earnings weren’t horrible, it reported a drop in same-store sales and lower margins. And investors seemed spooked by its future outlook, which included an admission that it needs to invest more in building out its online business to compete in a world that is increasingly dominated by Amazon in many categories.

As stock analyst and television personality Jim Cramer noted, many of the products Dick’s sells are available on Amazon. “That means Dick’s needs to spend even more money building out its own omnichannel presence while also suffering from lower gross margins because competition from Amazon
always puts pressure on your pricing,” he told his viewers.

He elaborated, “Dick’s is just supposed to be a company that knows sporting goods. They know baseball bats, Air Jordans, not robotics for heaven’s sake. So Dick’s has to keep plowing money into the most expensive, least-rewarding channel to keep up with Amazon, a company with much lower expenses.”

In what appears to be an effort to fight the potential impact on its margins, Dick’s announced that it will expand its homegrown athletic wear brand, Calia, to 80 stores. And it plans to roll out a new outdoor apparel brand at the conclusion of a licensing deal it has with Reebok.

All told, the retailer aims to generate $2bn in sales from its private label brands and to hit that target, Ed Stack, the company’s CEO, says that Dick’s will dedicate “meaningful floor space” to its new private label brand, which will be “an opening price point product.”

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Can what works for Amazon work for everyone else?

Dick’s struggles come despite the fact that Sports Authority filed for bankruptcy and closed all of its more than 450 stores in 2016. But the shuttering of its largest brick-and-mortar competitor apparently has only done so much to help the retailer counteract the effects of a market that is changing.

Not only is Amazon capturing more and more of the retail market, it has been launching its own private label brands, putting pressure on established brands, its own marketplace sellers and retail competitors.

And it just made big changes to its relationships with wholesale vendors that appears designed to use its dominant position to squeeze even more margin out of sales.

Then there’s increased competition from brands themselves as many are investing heavily in their own direct-to-consumer initiatives.

All of these changes in the market put retailers like Dick’s in a tough spot.

Private label brands are attractive to retailers for obvious reasons, as they are typically sold at meaningfully higher margins. So it’s no surprise that a retailer like Dick’s would seek to increase the number of private label wares it offers customers.

But Dick’s private label strategy isn’t guaranteed to pay off. That’s because it’s unclear whether a retailer like Dick’s can actually reduce its dependence on big-name brands without decreasing its appeal to consumers.

Whereas Amazon can easily promote its private label brands to the countless shoppers who search for products on its site, brick-and-mortar retailers like Dick’s still have to lure customers into their stores that can only showcase a limited number of products.

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The challenge in using private label brands to improve a retail business’ fortunes is highlighted by Dick’s existing efforts: despite the fact that, as Digiday noted, as a percentage of net sales Dick’s grew private label product sales by 14%, its same-store sales still fell by over 2%.

Ultimately, Dick’s private label investment will put the appeal of its stores to the test. Are customers going to Dick’s with an open mind, or are they primarily going because they want to purchase specific products or products manufactured by specific brands that they can also easily find online?

If the former, Dick’s will have the opportunity to sell its customers on its growing selection of competitively-priced private label alternatives. If the latter, Dick’s could eventually see its foot traffic and same-store sales decline, creating the kind of downward spiral retailers fear most.

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