Out of the closet

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: the matter, something a retailer like Trent will vouch for, given that it has devoted much of its attention to private labels at its chain of Westside stores. Almost 90% of the merchandise at Westside comprises private labels. But there are other reasons too for the kind of support retailers are willing to give to their private label initiatives. Uppermost is the need to drive volumes.

Retailers in the developed world, for instance, have seen where private labels can take them. Almost 40% of products sold at Wal-Mart, for instance, are under their own labels. The UK-based retailer Tesco has about 50% of its products sold under private labels alone.

This transformation in topline and bottomline, however, didn’t happen overnight. In their path-breaking book Private Label Strategy, authors Nirmalya Kumar and Jan Benedict Steenkamp have said that private labels began their journey as cheap substitutes to manufacturer brands about three decades ago. In a sense, they were spurious products that the established brands had to contend with. The change in mindset, especially among consumers, was gradual, aided by initiatives taken on by retailers.

One was the launch of premium private labels. These are not cheap products at all. Their mark-up price instead is much more than the established brands in their respective categories. This has helped retailers to shake off the tag of their products being cheap substitutes.

But the real differentiator has been the quality of these products, which retailers play up everywhere—in stores, ads and so on.

According to Nirmalya Kumar and Jan Benedict Steenkamp, this is a key reason why customers abroad gravitate to private labels making them a success there.

In a value-for-money market like India, where the buck really stops at price, private labels play an important role in pushing up sales—they can be retailed at a price much lower than the benchmark brand. By some estimates, this can be at least 10-15% lower than the key brand in the category, which makes it an exciting target for consumers. As Esha Anand, head, marketing and visual merchandising, HyperCity & HyperCity Argos, says, “Private labels provide great value to customers as they do not have the huge marketing spends of national brands and therefore can be retailed cheaper to the latter.”