Indian private labels boost online retail sites

Until recently, competition in the fast-growing Indian ecommerce space revolved around flash sales of heavily-discounted electronic items; However, the emergence of Indian private labels may prove to be the game changer as they offer aspirational Indians quality products at competitive prices

August 17, 2018

The ecommerce market in India is expected to touch the US$52 billion-mark by 2022, more than doubling from US$25 billion in 2017 - fifth-largest retail destination in the world

Strengthening sales are indicative of the appeal private labels have created for scores of aspirational Indians who look for low-cost alternatives, whether in clothing or smartphones

Private labels are a boon for e-tailers as margins are said to be 20 per cent higher than that from external labels; Private labels also provide control over product design and pricing

While Flipkart controls private brands such as Billion, MarQ and Perfect Homes, Amazon has been banking on Solimo, Myx, Symbol and Tenor to grab customer attention and raise sales

India’s ecommerce market is set to witness a fierce battle in the private labels segment following Competition Commission of India’s recent approval of Walmart US$16 billion acquisition of Flipkart. The American multinational’s entry will boost the homegrown online retailer’s pivot towards private brands in its dogged battle with rival Amazon India. According to an industry report published in June 2018, the ecommerce market in India is expected to touch the US$52 billion-mark by 2022, more than doubling from US$25 billion in 2017. The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. The nation is the world’s fifth-largest global destination in the retail space.

Growing portfolio of private brands

Competition in the Indian ecommerce space has majorly revolved around flash sales of discounted electronic items so far. While the strategy helped selin expanding market and increasing customer outreach, profitability has suffered. Herein, private labels may prove to be the game changer. Analysts believe that Walmart could actually enable Flipkart to push its private brands vigorously or perhaps even develop new ones to counter Amazon, as these remain the Arkansas-based company’s key focus as well. In fact, Walmart’s own fashion brands which are priced between US$5 and US$30 could even find space on Flipkart’s shelves under labels such as Time and Tru for women’s clothing, George for men and Wonder Nation for kids.

Amazon, on its part, has been banking on Solimo, Myx, Symbol and Tenor, as it is under these brands that it sells everything, from headphones to stationery, dry fruits, bed sheets, women’s ethnic wear, not to speak of men’s clothing and smartphones. The encouraging response from the Echo range of wireless speakers has been incentive enough for Amazon to launch other labels, including the recently successful in-house Amazon Basics. This has covered items such as kitchenware, laptops, travel and casual backpacks, alkaline batteries, mobile accessories, office stationery and supplies. The efforts led to Amazon raising India investment by over US$385 million this month, bringing its total capital infusion in the nation to around US$4 billion.

Flipkart, of course, has its private brand, Billion, under which it sells everything from t-shirts to air- conditioners, in addition to the recently launched electronic and furniture labels, namely, MarQ and Perfect Homes, respectively. This apart, the retailer is marketing SmartBuy, its private brand subsidiary, offering high quality products across categories at affordable prices. It has worked with manufacturers in India and abroad to create SmartBuy products while ensuring quality at wallet friendly prices. At another level, Flipkart’s fashion retail arm, Myntra, has forayed into developing private labels with its Roadster line of clothing, for example, finding ready buyers in the tier two and three markets, while building relations through offline outlets.

Private labels are a boon for e-tailers as margins are said to be 20 per cent more than external labels even as they provide control over design and price

Boon for third party manufacturers

Such strengthening sales are indicative of the appeal private labels have created for scores of aspirational Indians who look for low-cost alternatives, whether in clothing or smartphones. Private labels are a boon for e-tailers as margins are said to be 20 per cent more than external labels even as they provide control over design and price. Above all, consumers can also be lured into buying higher priced products after being initiated into low-priced but improved quality purchases. Importantly, e-tailers place orders with third party manufacturers who, under their strict supervision, provide quality goods at reasonable prices. A case in point is the agreement that Amazon signed recently with the Uttar Pradesh government to support its micro, small and medium enterprises (MSMEs).

Under the programme, Amazon will provide the required platform for traditional products made by MSMEs, including Banarasi saris, Badhoi carpets, Chickankari from Lucknow, not to speak of leather products from Kanpur, brassware from Moradabad and locks from Agra. Even Walmart’s entry is expected to boost the MSMEs by way of financing, technology and training, in the process boosting investment, as well. Meanwhile, several other domestic players such as Shoppers’ Stop and online grocery firms Grofers and Big Basket, too, have begun promoting their own labels. Grofers, which is targeting sales of US$700 million by 2020, expects at least 60 per cent of sales to come from its own labels. It is proposing to invest US$100 million in the next three years to promote its private brands.

Similarly, its competitor, Big Basket, markets its own products under the “Fresho” label. In fact, it is even set to sell branded beauty products and fresh meat on its platform soon. The private labels of the online grocery biggies span home and kitchen care products, furnishing, packaged food, baby care and personal care verticals. Incidentally, the online grocery market is touted to touch the US$1 billion-mark soon, which explains why Amazon and Flipkart are also joining the fray. While Flipkart has just started its delivery in Bengaluru, it will inevitably draw from Walmart’s experience in the food business even as Amazon is getting ready to enter the ring. Besides, Flipkart has introduced ‘Flipkart Supermart Select’, its private label in staples, covering pulses, spices and dry fruits.