Taking kart private

The push towards private labels is getting stronger. E-commerce marketplaces are enhancing focus and investment towards their in-house brands as they attempt to gain an edge over the competition and offer novelty products to customers.

Myntra’s Roadster and Mast & Harbour, Flipkart’s Billion and Perfect Homes, Amazon’s Myx, Symbol and AmazonBasics are not only providing a tough challenge to rival brands that retail on their platforms but are also bringing in much-needed income to their parent companies.

Says Vikas Lachhwani, co-founder of personal care brand MCaffeine, “E-commerce is a fertile ground for information collection and the companies are able to tap into it and strategise a perfectly fitting product, with minimal marketing spend. It thus makes perfect sense for e-commerce platforms to have their own private labels.”

According to Harsh Shah, co-founder of e-shopping platform Fynd, marketplaces already have insights into what sells and what does not and “this intelligence is fed to the private labels to enhance the operational efficiency, thus earning more money for marketplaces.” 

Experts say private labels offer exclusivity to the marketplaces, and primarily target the price-sensitive customer with “innovative’’ products and “unique designs’’.

Sidharth Rao, co-founder and CEO, Dentsu Webchutney, says private labels can drive profitability, while “it is in the interest of the marketplace to also have more third-party brands as all of them provide shoppers with greater variety at best prices.”

The contribution of private labels to e-commerce brands is increasing at a quick pace. Estimates by RedSeer Consulting show that in fashion/lifestyle, private labels contribute about 18% to the gross merchandise value (GMV) for e-commerce platforms.

But this increasing popularity can possibly ring alarm bells for other brands. Shah believes private labels are a “huge spoilsport for major brands.” This is because not only do they derive their intelligence of what to manufacture from noted brands’ sales data, but they also tend to copy designs, says Shah. “Since there is no product research, private labels are able to sell at almost 35-50% less than bigger brands.”

For example, a pair of women’s skinny fit jeans by Roadster retails for Rs 800-1,100, whereas skinny fit jeans by Mango commands Rs 2,800 on Myntra. “This price differential draws in price-conscious customers and guarantees a greater number of repeats as customers look to purchase more units of the same/similar product as compared to a premium brand,” claim experts, adding that private labels bring in better margins through every sale.

Margins can range from 30 to 45%. 

Experts believe the rise in private labels is like helping e-commerce firms acquire users sitting on the brand loyalty of established, well-known brands. “Customers get drawn to the marketplaces due to the renowned brands that retail there, but they eventually end up served with loads of private labels. This does not help the big brands,” adds Shah.

In order to fight out the private labels, big brands should innovate and build vastly superior products, says Lachhwani. “Brands should develop a keen understanding of customer needs and wants. Product development and innovation should be their forte and translate the undocumented needs of customers into products.”

18% – Contribution of fashion/lifestyle, private labels to e-commerce platforms’ GMV

35-50% – Private labels are cheaper than bigger brands as there is no product research

SEIZING IT

• Marketplaces already have insights into what sells and what does not; this intelligence is fed to the private labels to enhance the operational efficiency
   
• Private labels offer exclusivity to the marketplaces and primarily target the price-sensitive customer with innovative products and unique designs