Online retailers fill shelves with private brands in margin chase

Written by Sayan Chakraborty | Bangalore | Updated: May 8 2014, 13:23pm hrs
OnlineFor the e-tailers, the incentive lies in higher margins.
Online retailers in India vying for a podium finish in the race to market supremacy are betting big on private brands to shore up sales and profit margin. Whether its the online fashion and lifestyle space or electronics goods, which constituted 25% and 30% of the e-tail segment in FY14, respectively, there has been a steady influx of private brands that are conceptualised, developed, marketed and sold by the e-tailers. These in-house products have become an instant hit with consumers, given their attractive prices and resemblance with other brands of repute. For the e-tailers, the incentive lies in higher margins.

Given there is ample space to expand a report by retail advisory firm Technopak suggests the online segment today constitutes just 0.4% of the $478-billion Indian retail market and is likely to rise to 2-4% over the next five years businesses are eyeing windfall gains with private brands.

For fashion portal Myntra, the tryst with private brands started 18 months ago. Since then, Myntra has grown its in-house portfolio to 10 brands, which account for 20% of its business, with Roadster and Dressberry being the biggest money-spinners. It plans to launch five more private brands this year and aims R500 crore in revenues from them in FY15.

We started with four to five such brands, driven by a scarcity of large fashion brands in the country. They also work well in tier II/III cities and smaller towns as they are cheaper than big brands. It works for us because the profit margin with national brands is 25-40%, but with private brands it nearly doubles, said Myntra co-founder and CEO Mukesh Bansal.

Bangalore-based Zivame, which introduced Indian women to online lingerie shopping, launched its in-house brands Penny and Coucou after spotting big gaps in the space. First, we tried bridging the gap with international brands. But we realised we were missing something those brands primarily cater to a different market and not looking at things from an Indian market perspective, said Zivame CEO Richa Kar.

Though Kars focus is on providing best product at the right instead of the cheapest price, Zivames private brands and labels, after seven months of their launch, account for 35% of the overall revenues. Besides, the realised margin is 10-15% higher than that for established brands. Though the investment in building private brands is about three times, Kar is hopeful of taking Zivames in-house offerings offline and even selling them on other online platforms.

Even consumer electronics and durables chain Croma, which is run by Tata Group company Infiniti Retail, has seen ample traction for its in-house products. The chain, which launched Croma Life Accessories in 2008, sells its in-house products online as well as through its brick-and-mortar outlets.

The 250-odd products are priced a rung below the market leader, but on a par with other brands on offer, said Ajit Joshi, MD and CEO, Infiniti Retail.

At present, private brands account for about a tenth of Cromas topline. The brand clocked revenues of R180 crore from private labels in FY13 and aims to reach the R250-crore mark this fiscal.