MSMEs in private labels and D2C products: The government of India must support MSMEs offering private labels and D2C (direct-to-customer) brands by reducing the regulatory and compliance burden and ensuring ease of doing business while plugging the loopholes in the current market practices, said a report by corporate governance advisory firm InGovern.
India’s private label and D2C sectors are currently valued at Rs 1,300 crore, making up 10-12 per cent of the organized retail sector in the country. According to the report, these labels also enable a significant influence in the offline retail space, dominating a staggering 90 per cent of sales in the large apparel and fashion retail sector, while making a substantial 40 per cent contribution to sales in the online grocery retail segment.
For MSMEs, private labels and D2C products offer benefits such as increasing revenue streams, building brand recognition, cost-effective marketing, scalability through production capacity, streamlined supply chain management, expanding customer base and promoting exports, the report said.
Also read: How D2C companies are emerging out of shadows of e-commerce marketplaces
In order to promote retail in India, the government has made various regulatory changes and initiatives. However, “with multiple regulators and a constant fear of changing regulations is inhibiting growth of e-commerce in India. Private Labels and D2C products have integral been part of the retail sector since its inception and hence for the government to regulate one segment and not the other will be anti-competitive,” it noted.
While currently there is no overarching regulation governing the sale of private labels in India, the draft e-commerce policy released by the government in 2019 proposed that to maintain a level playing field for all retailers and traders, e-commerce marketplaces will have to abide by certain restrictions. These included a restriction on a seller selling their products exclusively in any given marketplace. “Such restrictions in turn could impact the ability of online retailers to offer private labels and D2C products via online channels.”
Hence, the report said the government regulations should be supportive for the MSME sector and encourage their entry into the private labels and D2C space to help them compete with national and international brands.
“As the e-commerce industry soars, regulatory clarity and streamlined oversight are imperative for sustained growth and innovation. The government can enable the start-up community by creating a policy environment that creates more investment opportunities and selling platforms in both offline and offline. There is no reason for the government to bar D2C approach as long as they are compliant to the law. The government must allow the same equitable treatment of e-commerce etailers/marketplaces as they do for offline sellers,” said Shriram Subramanian, Managing Director, InGovern.
