The third channel—private-label sales to large chain store accounts—is attractive for two reasons:
• The private-label segment is projected to grow a healthy 10% annually during Years 11-15 and a brisk
8.5% during Years 16-20. The growth in private label sales is being driven largely by the practice of
multi-outlet chains to use lower-priced private-label goods to attract price-conscious consumers. Chain
retailers that sell athletic footwear under their own label outsource the pairs they need from
manufacturers on a competitive-bid basis.
• Making private-label shoes for chain retailers allows a manufacturer to use plant capacity more
efficiently. For example, a manufacturer selling only 5.5 million pairs of branded shoes with plant
capacity of 6 million pairs (7.2 million pairs with maximum use of overtime) can reduce overall costs
per pair by utilizing some or all of its unused capacity to produce private-label shoes. The added
production volume from being a successful low-bidder to supply private-label shoes to chain retailers
helps spread fixed costs over more pairs and can improve overall financial performance (provided the
price received for producing the private-label shoes is above the direct costs per pair).