Private labels to become a $5-bn business for e-tailers in 2017

Source: Business Standard, Dec 26, 2016

Bengaluru: The contribution of private labels in India’s online shopping segment is expected to triple to around $5 billion in 2017 as e-tailers try to boost earnings and fill gaps in the market in high-margin categories such as fashion, furniture and home decor.

Private labels make up less than 10% of online sales today, or around $1.5 billion in value, largely driven by fashion retailers such as Myntra, Jabong and Koovs. Going forward, it is expected that this contribution could grow closer to 20% and will also be driven by high-value items such as furniture, according to RedSeer Consulting.

“What horizontal players are doing is they are consolidating buyers of unbranded products in electronic accessories and some few other categories and introducing products in those gaps,” said Anil Kumar, chief executive officer of RedSeer consulting. “This helps them earn additional margins where people really don’t care what brand they’re buying as long as the price is right.”

The largest of the horizontal players, Flipkart and Amazon, are launching new private labels to improve margins in commodity products such as electronic accessories. Flipkart recently launched Smartbuy, an umbrella brand for selling electronic accessories and home decor products, and plans a second brand next year.

Amazon, too, has its own private label Amazon Basics to sell electronic accessories and Symbol and Myx in the fashion space.Rival Flipkart relies on subsidiaries Myntra and Jabong to drive private label fashion sales, with estimates suggesting around a third of the sales of the two brands being driven by fashion labels.

Amazon did not respond for comments and Flipkart said it was too early to comment as the private labels were launched this month.With India’s e-commerce expected to grow by 60-70% in 2017, making it a $30-34-billion industry, a sizeable part of that will be driven by sales of private label products. The push for private labels largely comes from investor pressure on e-commerce companies to improve earnings and get on their way to profitability.

“Given how the market is at the moment, where there is pressure from investors who have been asking about profitability or a route to profitability, products that earn additional margins are going to be a focus,” said Devangshu Dutta, chief executive at Third Eyesight.

Globally, Amazon has adopted the private label route, selling everything from groceries under its own brand to electronics such as Kindle tablets. While private labels will grow to contribute under 10% of sales on large platforms such as Flipkart and Amazon, smaller niche players will look at them more deeply.

As of today, online furniture retailers see over 50% of their sales being driven by private labels. Pepperfry and Urban Ladder, the two leading players in this space, almost exclusively sell furniture under their own brand names. In online fashion this contribution is 25-30% while for online groceries it is close to 20%, says RedSeer.

“One reason is that when you’re stepping into a gap in the market, there’s no competition so you are not forced to discount. Secondly, if you’re sourcing it directly and cutting out a brand, the cost of product development and marketing can be made by the retailer,” added Dutta.

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