Mirroring similar initiatives from rivals like Kohl's (KSS -0.18%) and even Target (TGT 1.04%), department store chain Macy's (M 0.69%) unveiled plans on Wednesday to expand its private label brands. The company's executives explained at an investor meeting it hopes in-house brands will make up 25% of its revenue by 2025.

Private label explosion

Private label goods are arranged and sometimes even made by a retailer outside of conventional wholesale supply channels. Rather than relying on familiar names like Nike or Levi Strauss & Co., a department store chain taps a manufacturer directly. While such goods are considerably cheaper to purchase, the burden of marketing them falls entirely on the store selling them.

Photograph of woman selecting a shirt in a clothing store.

Image Source: Getty Images.

It's a bigger business than most consumers realize, with many shoppers regularly purchasing in-house products without realizing it. Target's clothing lines Cat & Jack along with Prologue, for instance, are both private label brands. Market research firm NPD estimates that private label goods now account for roughly one-third of the United States' $400 billion dollar consumer apparel market.

The Macy's opportunity

Macy's in-house brands include International Concepts and Alfani, both of which the retailer believes will generate at least $1 billion in annual revenue apiece within the next five years. Style & Co. and Charter Club are also private labels Macy's intends to turn into billion-dollar franchises by 2025.

Even at one-fourth of its total business, Macy's house brands exposure would still not match that of more experienced department stores. Private-label goods drive 45% of Kohl's sales, according to estimates from Jungle Scout, jibing with other estimates about Kohl's business mix. At one point around half of JC Penney's was produced by house brands.