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Can Private Labels Become Big Enough To Make Ecommerce Profitable In India?

Can Private Labels Become Big Enough To Make Ecommerce Profitable In India?

Ecommerce behemoths like Amazon and Flipkart have started focussing on their private-label portfolios as the margins here are better due to supply chain efficiencies and better control over operations

In recent times, these players have been accused of promoting their private labels over third-party brands; so, some small brands have adopted the D2C model as an alternative source of distribution

According to a KPMG report, online private labels are estimated to grow 1.3 to 1.6 times faster than the traditional ecommerce platforms during 2019-22

The dynamics of the Indian retail market are evolving fast as consumers embrace new ways of shopping in tune with the ‘new normal’ in a pandemic-hit world. As digitisation has become the latest buzzword, offline trends are making inroads into the online world.

For many years now, offline retailers like the Future Group, Reliance Retail, K Raheja Corp-owned Shoppers Stop and the Aditya Birla Group have been betting on private labels (products contract-manufactured and sold by retailers) as these ensure higher profit margins and, therefore, healthy gross margins. But what used to be a lucrative business strategy for offline retail soon got replicated in the online world as a key arsenal to bolster growth. Over the past four-five years, the likes of Amazon, Flipkart, BigBasket and others are steadily launching their ‘own’ brands and scaling them up as these are a win-win for both consumers and retailers. They offer convenience, trust and better pricing for consumers and higher margins for retailers.

In 2016, Flipkart launched its first private label called Smart Buy, an umbrella brand that sells products across 30+ categories, including electronics and household goods. As of now, the Walmart-owned ecommerce behemoth’s private brands business covers more than 150 verticals, from groceries, furniture and home furnishing to electronics and more. Most of the ecommerce platforms have at least two-five private label brands in categories such as wellness, electronics and cosmetics, while larger categories like apparel and grocery have nothing less than 15-20 private labels, says a 2020 KPMG report on online private labels.

“If you look at any successful retailer globally, they have a pretty large and sustainable business of private brands across categories,” said Adarsh K. Menon, vice-president and head of private brands, electronics and furniture at Flipkart, in a blogpost. “Somewhere in the middle of 2016, as a leadership team, we sat down and looked at our business over the next 3-5 years. One of the many things that came out as an area of opportunity was the lack of a private brand business,” he added.