Fight or play in private label?

From Flipkart to FabFurnish, most e-commerce companies are nurturing private labels with great gusto. Already, in-house brands account for close to 25 per cent of sales for some top e-tailers. There is mounting evidence that the growth of these brands is no longer a cyclical reaction to economic downturns. Will private labels emerge as the next battlefront between e-retailers and manufacturers?

Private labels are a by-product of regulation: Rajiv Prakash

Much like its offline counterpart, e-commerce is now discovering the magic of private labels and consequent high margins. Since the consumer and the retail sector have been exposed to the concept of private labels, one does not foresee much friction to start off with just because a marketplace has now decided to enter its own private labels in direct competition with the brands it sells. Private labels are dominating segments that are largely unbranded and are filling up a need gap. Consider home furnishings, for instance. Beyond the Bombay Dyeings and Porticos, it gets difficult to extend the list to the fifth or sixth known brand in the category.

Primarily, three product categories come to mind when one considers the possibility of launching a private label - electronics, fashion and apparel, and food and wellness products. Already, there are examples of successful private labels being offered by offline retailers in each of these categories. In electronics, for instance, retailers like Croma and Ezone have been selling certain electronic items under their labels. A more likely point of friction that could emerge between e-tailers and the manufacturers, would be in the event of the former selling the latter's products at a price point lower than the market operating price.

Similarly, in fashion, so long as one is not selling knock-offs of known brands, there doesn't seem much of a chance of bad blood between online retailers and manufacturers listing their products on these portals. Private labels of e-tailers will gain from the acceptability enjoyed by the portal and the advantage of belonging to a known, established brand, in this case the e-commerce platform itself.

However, there are some challenges such as regulatory compliance. Since players with FDI investment are not permitted to take on their books any inventory, how can they offer private labels and still stay compliant with all the norms is a question many are grappling with at the moment. If we shift our focus away from the regulatory issues momentarily, the troubles with building private labels seem even more jarring. The decision to launch private labels is mostly tactical in nature. Most of these brands are price warrior brands hoping to capitalise on the consumer's higher propensity to experiment online. There isn't much serious brand building happening, no efforts to build these brands outside the ecosystem of the platform. Possibly, the next set of private labels to hit the market will see a degree of differentiation.

Rajiv Prakash
Founder, Next In Advisory Partners

 
In-house brands can be a key differentiator for an e-retailer: Vikas Ahuja

Clearly, private label is the buzzword in the online retail space, especially when it comes to the apparel and the footwear categories. There is a huge business opportunity in this space. In-house brands are going to be a key differentiator in the industry in terms of high margins, revenues and the range they can offer. The price differential in the case of in-house brands is in the range of 20 to 25 per cent. To understand the potential of the market consider this: UK's largest online fashion retailer ASOS gets 50 per cent of the revenue from its private label brands. This is the kind of opportunity we are looking at at Myntra. Currently, 20 per cent of our business comes from private labels. We plan to increase it to 35 to 40 per cent in next couple of years.

At this point, the branded apparel market is fragmented and the options that consumers have are limited. So if an e-retailer can identify the potential gaps and come up with a high-quality trendy private label, there is a good business opportunity.

Consumers are always looking for great offerings at the right price. So, a private label can make a good proposition for an already captive audience. E-retailers can use the traffic coming to their sites to promote their in-house brands, create touch points and tie-up with celebrities, just like we have tied up with actor Ranveer Singh for our in-house brand Roadster.

However, setting up a private label is easier said than done. You have to make sure it is visible, has the right price-value equation, design and range. If an e-retailer can do all this, it can still get the consumer to buy the private label product just once - for the first time. But that is only the beginning, holding on to these customers is a bigger task.

Myntra was the first e-retailer to launch private label brands about a year-and-a-half back. We found that to launch a successful private label brand, one has to get the sourcing strategy in place, build capability to work with multiple manufacturers, identify quality vendors and invest in in-house design teams. We have a team of over 50 people driving the private label business. The teams work closely with manufacturers and travel to various fashion shows to understand trends. Remember, you have to rotate the product very fast. Financially speaking, if you don't follow the trend, you risk sitting on high inventory.

Vikas Ahuja
CMO, Myntra

Promote private labels through guided discovery: Pavan Sondur

Private labels have become an essential component of the e-commerce space worldwide. Earlier only niche private labels dominated the market. Now even mainstream e-commerce players have launched their in-house brands. But why are e-commerce companies interested in private labels that fundamentally require more endurance and time as they are unknown to consumers?

Margins from private labels can be higher than the net margin on the branded retail range. In fact, a private label breaks even much faster as the margins to play around with are higher with less cost incurred per acquisition. However, unless a portal has a clear vision about the in-house label and how to position it in the market, it should not launch it. A private label requires building a brand from scratch, handling the manufacturing and supply chain.

In-house labels can be promoted by e-commerce players by using an effective search and recommendation platform to enable better product discovery. With relevant search, navigation, merchandising control and accurate recommendation, e-commerce sites can promote specific groups of products through on-site search and navigation results.

With a merchandising tool, category managers can promote their private labels in search results and even create filtering/sorting rules to make sure users see them. For instance, for the search query of shirts, they can filter the results to show only their private label shirts. They can even 'pin' products to specific places in the search results and category pages, thereby making it easy to discover these products.

Pavan Sondur
CEO & co-founder, Unbxd