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December 26, 2016
Alnoor
Peermohamed, Business Standard
Bengaluru, 26 December 2016
The
contribution of private labels in India’s online shopping segment is
expected to triple to around $5 billion in 2017 as e-tailers try to
boost earnings and fill gaps in the market in high-margin categories
such as fashion, furniture and home decor.
Private labels make
up less than 10% of online sales today, or around $1.5 billion in
value, largely driven by fashion retailers such as Myntra, Jabong and
Koovs. Going forward, it is expected that this contribution could grow
closer to 20% and will also be driven by high-value items such as
furniture, according to RedSeer Consulting.
“What horizontal
players are doing is they are consolidating buyers of unbranded
products in electronic accessories and some few other categories and
introducing products in those gaps,” said Anil Kumar, chief executive
officer of RedSeer consulting. “This helps them earn additional margins
where people really don’t care what brand they’re buying as long as the
price is right.”
The largest of the horizontal players, Flipkart
and Amazon, are launching new private labels to improve margins in
commodity products such as electronic accessories. Flipkart recently
launched Smartbuy, an umbrella brand for selling electronic accessories
and home decor products, and plans a second brand next year.
Amazon, too, has its own private label Amazon Basics to sell electronic accessories and Symbol and Myx in the fashion space.
Rival
Flipkart relies on subsidiaries Myntra and Jabong to drive private
label fashion sales, with estimates suggesting around a third of the
sales of the two brands being driven by fashion labels.
Amazon
did not respond for comments and Flipkart said it was too early to
comment as the private labels were launched this month.
With
India’s e-commerce expected to grow by 60-70% in 2017, making it a
$30-34-billion industry, a sizeable part of that will be driven by
sales of private label products. The push for private labels largely
comes from investor pressure on e-commerce companies to improve
earnings and get on their way to profitability.
“Given
how the market is at the moment, where there is pressure from investors
who have been asking about profitability or a route to profitability,
products that earn additional margins are going to be a focus,” said
Devangshu Dutta, chief executive at Third Eyesight.
Globally,
Amazon has adopted the private label route, selling everything from
groceries under its own brand to electronics such as Kindle tablets.
While private labels will grow to contribute under 10% of sales on
large platforms such as Flipkart and Amazon, smaller niche players will
look at them more deeply.
As of today, online furniture
retailers see over 50% of their sales being driven by private labels.
Pepperfry and Urban Ladder, the two leading players in this space,
almost exclusively sell furniture under their own brand names. In
online fashion this contribution is 25-30% while for online groceries
it is close to 20%, says RedSeer.
“One
reason is that when you’re stepping into a gap in the market, there’s
no competition so you are not forced to discount. Secondly, if you’re
sourcing it directly and cutting out a brand, the cost of product
development and marketing can be made by the retailer,” added Dutta.
(Published in Business Standard)
