Out of the closet

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: When the Tata-owned Trent, which today runs 50 stores across the Westside, Star Bazaar and Landmark formats, recently announced that it was getting into a franchisee agreement with the UK-based retailer Tesco for its hypermarket business Star Bazaar, its managing director Noel Tata said that the latter’s expertise would be utilised to develop private labels among other benefits that would accrue to it as a result of the association.

Yes, private labels. An opportunity no retailer wants to miss out on.

Walk into any large retail store today and chances are you’d come across a section devoted solely to exclusive brands. Here national or international names are not what you’d find, but inhouse or private labels. They span categories. Food, apparels, accessories, general merchandise... you name it. Quite often they occupy the prime position in a store, deliberately so to ensure that prospective customers don’t miss the target altogether.

This thrust on visibility is not without reason. Retailers are increasing their focus on private labels today. What is driving this phenomenon is the need to improve margins. In the cutthroat world of retail, where the bar on price is getting lowered by the day, this is becoming imperative.

For instance, if the benchmark brand in apparels gives a margin of about 30-35% to a retailer, he can take it up to about 60-65% with his private label alone in the category. Similarly, in fast moving consumer goods, another important segment, where the average margin on the benchmark brand is about 15%, a retailer can easily double the figure to about 30-35% with his own brand.

The same goes for electronics, where margins can be thin on the benchmark brand, as low as 5%, for low-value items. In such a case, the retailer can take his margin up to about 15-20% by selling his own brand of electronic products.

Retailers keep a bigger margin by cutting out intermediate levels. When a retailer decides to sell a product manufactured and owned by a private label, he’s in control of the process from manufacture to final sale thereby increasing his share of the profit margin substantially. This is one reason why private labels today present an exciting new option for retailers. It is simply too difficult to resist. As Raman Kwatra, vice-president, buying and merchandising, Ebony Retail, explains, “The single-point agenda of investing in private labels is to improve margins.”