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Private Labels: A changing perspective in Indian retail

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The Indian Retail Market is growing at an astonishing pace. The retail market is estimated at Rs 46,15,000 crore (US$ 710 billion) in 2017, and is expected to grow at a CAGR of 9 percent to reach Rs 1,08,58,000 crore (US$ 1,672 billion) by 2027. Share of unorganised sector in retail market is 89 percent, whereas organised brick-and-mortar retail accounts only for 9 percent and e-retail has share of 2 percent. The dynamics of Indian retail market is changing at a phenomenal pace. After the implementation of unified taxation under GST regime, it is expected that the share of organised retail will increase at higher rate. Apparel sector has one of the highest percentages of organised penetration at approximately 24 percent which is expected to reach 36 percent by 2021.

Private Labels: A changing perspective in Indian retail
With high growth potential, the Indian fashion retail market has witnessed several interesting trends in recent years, indicating the evolving fashion retail market

With high growth potential, the Indian fashion retail market has witnessed several interesting trends in recent years, indicating the evolving fashion retail market. Growth of private labels is one such trend in the dynamic fashion retail environment.

Private labels in India have seen a sharp rise with offline as well as online retailers. Private labels are brands which are not owned by the manufacturer or the producer but by a retailer. The retailer gets their goods made by a contract manufacturer under their own labels, similar to brands. Private labels are also known as store brand, own label, retailer brand etc.

Growth of Private Labels in the Country

In India, these private labels are evolving. Earlier brands invested heavily on brand building and leverage on their brand value to sell their merchandise across different retail channels, whereas retailers only created a distribution channel focusing on providing a bridge between manufacturer and customers. As retailers are closely connected to consumers and understand their psychology, they are now in a better position to cater to the needs leveraging on scale and scope, these retailers are developing their own brands. In private labels, the retailers spend a fraction of the brands marketing and brand building expenses, thus are able to provide products similar to brands at a slightly lower price.

Higher penetration of supermarkets/hypermarkets in urban areas has resulted in steady growth in private labels. Earlier, private labels were considered to be an imitation of branded apparel with inferior quality and lower prices. But now-a-days, private labels focus on providing good quality at competitive rates. Due to fewer distribution overheads, lesser number of intermediaries and negligible marketing costs, private labels are able to sell their products up at lower prices than their branded counterpart, thus improving their gross margins.

Shoppers of private label apparels proudly consider themselves as smart shoppers as they evaluate the manufacturer brands with the store brands. They take pride in themselves for focusing on value for money rather than being influenced by the brand status or advertising stunt. Cost-centric consumers are more than happy to swap name brand for private label in their shopping cart, considering private labels as a means to economise spending without compromising on quality.

Private labels are win-win situation for both retailers and consumers. The growth of private labels is directly linked to the growth of modern retail channels. With the emergence of e-commerce in Indian fashion retail, private labels are witnessing a new era of ‘datadesigned brands’. E-commerce retailers have access to petabytes of enviable data. Information collected by retailers is exhaustive – the data goes as deep as ‘what is the data of a person wearing a mandarin collar’, ’what color works in which region’, ‘what fabric moves the fastest off the shelves’ and ‘what apparel experience the most return requests’. This quality of data is an asset in the ever-changing digital retail market. It offers deep insights into customer taste and preferences, giving retailers strong competitive leverage to create products to suit these preferences.

Growth Drivers Pushing Retailers To Private Label Space

There are certain strengths for the retailers to enter private labels space as follows:

Access to Data – Retailers have access to exhaustive informative data to consumer purchases, preferences and behaviour. Retailers understand what goes into making a seller product. Retailers are in direct contact of consumers and understand their psychology, which gives them an edge over the retail brands.

Cost Competitiveness – As private labels have fewer distribution overheads, lesser number of intermediaries and negligible marketing cost, they are able to sell products at lower rates than their branded counterpart. Competitive rates of private labels in comparison to the retail brands make them attractive among the customers.

Empowering Retailers – Earlier the market was driven by the brands. They were the decision makers. But emergence of private labels has enhanced the bargaining power of the retailer while negotiating with manufacturers and brands.

Market Reach – Brands have their own customer base. With the popularity of multi-brand outlets, the retailers have a better customer base as they have already built their market presence across different retail formats and different geographies. With negligible customer acquisition and retention cost, the retailers have wide spread market reach for their private labels.

Filling the Gap – Private labels are launched to fill gaps in the current product portfolio offered by the brands. With a better knowledge of consumer’s desires and purchasing insights, private labels focus on products as per the demand of the market.

Opportunities

Continued Rise of Corporatized Retail – Indian fashion retail is transforming rapidly and is witnessing a shift from unorganised to corporatized sector. The structural reforms by Indian government like GST are expected to accelerate the penetration of organised retail at a higher rate in the Indian retail market. Factors like rise in middle class with increase in disposable income, change in consumer preference and increasing fashion awareness due to mass media penetration and social media in the country are the driving force for growth of corporatized retail and private labels.

Due to changing consumer behaviour, they are ready to experiment with fashion and thus they look for updated trends in apparels. Private labels give them opportunity to experiment with their fashion without spending much compared to retail brands. This transformation has provided an opportunity to the private label retailers to cater to these consumers.

Increasing Reach of Retail Market to Tier -II and -III Cities – Fashion is no more restricted to metros and tier -I cities only. With increasing exposure of tier -II and -III cities to latest fashion trends, the consumers are well aware and are willing to spend more on latest fashion. Retailers have realised this opportunity and have started catering to consumers residing in these cities.

Private label provides an alternative to the consumers without compromising on quality and fashion as private labels are launched keeping in mind the gaps in market, especially those between price, style and quality.

Growth of Digital Penetration – With the proliferation of digital devices in the country coupled with increasing internet penetration, online retail has witnessed a tremendous boost in the recent years. E-tail fashion giants have already started establishing their private labels. They provide ample options along with convenience to their consumers. As e-commerce retail has better reach to tier -II and tier -III cities in addition to metros and tier -I cities, they have an opportunity to cater to larger customer base across different geographies. The data available with these retailers provide them an edge over brick-and-mortar retailer to create the product and pick and choose the exact audience for whom it’s made.

Challenges

Individuality of Private Labels – Customers do not prefer private labels over retail brands. However, if the private label is available from a well-known retailer outlet, the brand name of the retailer weighs on private label. So, the success of private label is highly dependent on their retailer.

Changing Consumer Behaviour – Ever changing shifts in consumer demands and preferences is another challenge for private labels. With rapidly changing profile of consumer in term of their demands and preferences, it has become challenging for retailers to keep up with shifting consumer demand.

Price and Quality Conscious Indian Consumer – The private labels are not cheap but are cheaper in comparison to their branded counter parts. The consumer’s purchase decision is not only driven by the price factor but is influenced by the quality, value for money and fashion trend. Private labels have to maintain quality at competitive rates. With the emergence of private labels by different retailers, competition has increased among the private labels too.

The Road Ahead

Private labels have made tremendous inroads over past decade. Better margins and economies of scale are driving India’s big retailers to stock shelves with their own labels. The rich customer insights translates to a significant advantage for retailer’s private labels to create products that incorporate the minute but important details – what prices Indian shoppers are looking for, what value they seek in that price range and what trends they desire. India is a very different market. In Indian market, even if retailers come up with a quality product at lower rates, there is a probability that the product may not convert into sales as the market is not homogenised. The private labels are still competing with major brands and other private labels. With changing dynamics of Indian retail market, Private labels have an opportunity over the retail brands.