Of late, many e-commerce players have started discarding aggregation of brands on their platform in favour of becoming private label businesses, with an aim to earn higher margins, bolster their bottom lines and gain easy access to foreign funding.
Where online lingerie retailer Zivame completely turned into a single-brand, furniture e-tailer Urban Ladder filed an application with the Government and is currently awaiting approval from the Department of Industrial Policy and Promotion for its single-brand retail license. Similarly, fashion e-tailer Yepme and Faballey are also considering filing an application for the single-brand retail license.
In November, India amended its single-brand retail FDI policy and announced a unified license for foreign-funded companies that sell products under mono labels for both offline and online retail, thus allowing such firms to do their own inventory-led e-commerce business in the country. Earlier, even though 100 per cent overseas capital was allowed in single brand retailing, they were restricted to selling only through physical outlets and not online.
India also allows 100 per cent foreign investment in e-commerce marketplaces but such models are not allowed to stock and sell merchandises directly.
In addition to easy foreign funding, private labels – brands owned by retailers – also allow the company to have higher margins than brands owned by other firms. For instance, as per an estimate, private labels in fashion can easily fetch margins of 30-60 per cent, which is almost double the margin on other brands.
Better margins, better prices, better positioning
“There is definitely an upside in terms of profitability when one does own brands. Profits are much higher and they (e-tailers) can easily get 50-60 percent increase in margins – depending on the category they are in – by being a private label brand,” says Founder and CEO, Buttercups, Arpita Ganesh.
This Bengaluru-based lingerie brand has always focused on creating own brands and providing a unique proposition to consumers. Ganesh claims that the companies margins are somewhere in the comfortable range of 60-70 per cent.
Even India’s largest online retailer, Myntra, is betting big on private labels (PLs) and expects Roadster – one of its 10 private apparel brands – to become the biggest-selling brand on its site this year, overtaking brands such as Puma, Adidas and Levi’s.
The company, which has 10 private brands currently, even aims to generate about a fourth of its total sales from PLs by the end of the year, up from less than 20 per cent currently.
Just like other brands, Myntra is also eyeing a significant boost in margins and wants to create unique identities for brands so that they resonate with consumers independently.
While better margins and thereby profitability are the main reasons that have triggered the trend, experts are of the view that price is also one of the major draws.
“I believe it is more to do with pricing. Consumers expect lower prices from online retailers as compared to offline stores. But most third-party brands are not willing to give a discount or higher margin, as they wish to avoid channel conflict. In any case, larger sales for most brands is from offline. Thus the option left is to have your own brand that you can price and discount at will,” feels Founder & Managing Director of Wazir Advisors, Harminder Sahni.
Differentiation, innovation- Key to online brands
Even after the clear advantages, building a brand online is not a cake walk. Consumers today have no dearth of options and to hold them back on a platform requires offerings and experience that they can not get anywhere else. Moreover, they would like to get products at a time and channel chosen by them and thus it’s imperative to build a brand that can extend this experience.
Sahni agrees, “Consumers today are looking for value all the time. If the new private label brand is worth their aspiration and fits in the price value equation, they will buy it.”
For instance, Buttercups asks consumers to fill a specialized questionnaire before purchase on the brand website. This not only helps customers understand their bodies but also allow the company to find their right size, also showing them styles suiting their body type. Then there is no question asked exchange policy, which acts as a trust generator and consumers can buy products without the fear of wasting time in the tedious exchange process.
The company also launched fitting rooms in Bangalore which are differentiated by the fitting session provided by highly trained fitters, who help customers with understanding their size and style, equipping them to make educated choices in their intimate wear purchases.
“These fitting centers work as experience zones for us. While our consumers cannot purchase products in these locations, most visitors convert into consumers here. They touch and feel the product and there is this instant gratification to buy it online,” explains Ganesh.
The company which currently has only two fitting rooms in Bangalore plans to add 30- 35 of these in next two years, across 10-12 states or cities in India.
Similarly, for furniture e-tailer Urban Ladder, brand building has been a process. The company – which design, manufacture and sell its own products – was until recently selling products through its own portal but has now tied- up with bigger marketplaces like Amazon and Flipkart to widen its base.
Opening offline stores are also on cards to extend the five-sense experience to their customers.
“The first thing for us was to get the basic level of brand awareness and recognition. So we started with an online presence to make clear that we are a consumers brand and not a marketplace. We are looking to set up experience stores which will not hold inventory like traditional offline stores but will allow consumers to get a sense of our product and its quality,” CMO, Urban Ladder, Sanjay Gupta told Indiaretailing Bureau in an earlier interview.
E-commerce to online brand: A challenging transformation
While e-tailers are swearing by ample positives of becoming a brand, experts warn on the difficulties they might face in transforming into a complete PL from an e-commerce brand.
“The big question is that it is easier said than done to become a brand from a retailer. Building brands is a completely different ballgame and require totally different skills. It also requires much more patience, that their investors may not have,” notes Sahni.
Corroborating the thought, Ganesh says,”The biggest challenge for the private label company in this country is raising money. There is a huge focus in funding towards the top line, mass, quick growth businesses rather than for the businesses like us who have slow and steady growth but aims for profitability and have a lot of value.”
She adds that turning into a complete PL brand might also lead to loose consumers trust and hence potential purchases.
” As a consumer, I go to any particular website to buy all the brands that are there on the platform and not only for their own brands. And if suddenly you’ll ask me to buy only what you have to offer, I might not get convinced – no matter what the price point is – because my vision of this particular website is that I will get all my favorite brands at a much better rate and with an offer,” says Ganesh.
While until recently, only lingerie retailer Zivame has able to turn completely into PLs from an e-tailer, Indiaretailing can not ascertain how they are performing now. The company denied participating in the story.
” I believe the ideal way to work around priavte labels is to build own brands with all the other brands rather than suddenly scrapping third-party brand, just like the way Myntra is doing,” concludes Ganesh.