Walmart bets on private labels in India for revenue, profitability boost

US-based retail chain Walmart, following its split from Sunil Mittal’s Bharti Retail…

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Under the deal, JD.com will issue about 145 million new class A shares to Wal-Mart, worth about $1.5 billion at JD.com's current valuation. (Reuters)

US-based retail chain Walmart, following its split from Sunil Mittal’s Bharti Retail, is undertaking a bunch of initiatives to boost revenue and profitability in India. One such move is in the area of private labels, which was started by the company in mid-2014. That business, mostly in the food, beverages and stationery segments, has crossed 6% of the company’s wholesale revenue in India, said a person in know of the development.

Walmart, which has a discount retailing business model globally, expects private labels to contribute a fourth to its overall domestic sales in the next couple of years. In the US, private labels constitute 20-25% of the company’s retail revenues. In the UK, under the Asda brand, they account for much higher, at 40%.

In India, Walmart is limited to wholesale retailing as foreign direct investment (FDI) rules do not permit 100% subsidiaries of foreign companies to do multi-brand retailing.

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“The margins in private labels are higher, and the marketing cost is less,” said the source.

The whole idea of private labels was to boost profitability of the India business. Private labels make 25-30% higher margins than brands in the food and fast-moving consumer goods category, and up to 50-60% in electronics and apparels. “Private labels help in two ways — profitability and uniqueness of the product that is not available anywhere else,” says Arvind Singhal, chairman of retail consultancy firm Technopak.

Singhal further adds: “Walmart’s strategy is very well-positioned to launch an array of private labels. Many of their private labels would be bigger than many brands in India.”

Walmart, which made $473 billion in 2014, has more than 5,200 private labels globally and it has introduced two of them in India: Members Mark and Right Buy. In future, the company plans to launch more private labels depending on market needs.

Walmart’s private label strategy assumes importance as it runs campaigns like ‘Every Day Low Price’. The wholesaler will have more flexibility for such deals with a higher number of private label products as they offer higher margins. “Besides bringing a wide assortment of branded products, through private labels we endeavour to bring to our members quality products at affordable prices, especially in categories with a demand gap. This helps our members drive affordability and trust with their customers,” said Rajneesh Kumar, VP, corporate affairs, Walmart India.

In line with PM Narendra Modi’s ‘Make in India’, Walmart has tied up with a bunch of small and medium enterprises for domestic and global sourcing. Globally, the company sources close to $1.2 billion of goods. Of its domestic consumption from India, about 95% comes from local suppliers, with SMEs forming 30% of the supplier base. “We work very closely with our private label suppliers and other SMEs in India to improve their quality and compliance-related processes,” said Kumar.

Over the next five years, Walmart, which has 20 stores across the country, plans to open another 50. The categories it operates in, the company official said, are $120 billion in wholesale and the total wholesale market in India is $300 billion. Walmart and its competitors — German retail chain Metro and Reliance Retail — put together are less an a billion dollars in business. However, Reliance has an edge over Walmart with about 35 private labels.

Sunny Sen

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