The Indian retail ecosystem is a vast and complex demography of varied cultures wherein regional and national players are competing for a share of the pie. In such a scenario, do private labels truly make a difference?

Indian context per se, private labels have been around for quite some time now like Shoppers Stop launched its first private label ‘Stop’ in 1994. However, there has been a significant traction in the Indian fashion industry in the last five years. Changing consumer behaviour, the increasing penetration of social media and the rise of e-commerce platforms have all contributed to a massive shift in the market dynamics.

According to a report by RedSeer Consulting, the Indian private label market grew by 1.8 times from US $ 17 billion in 2016 to US $ 31 billion in 2021 and the reports from consulting firm EY estimated that private labels could account for 30-40 per cent of the overall retail industry in India by 2030. Therefore it’s not wrong to say that private label brands are expected to grow and become more prevalent in the Indian market.

The price margin difference between national and private label products can vary depending on the product category and the specific retailers offering those products. However, in general, private label products tend to be less expensive than their national brand counterparts.

A company spokesperson said, “Normally the margin difference between National Brands vs. Private Label swings between 30 per cent – 40 per cent but the same gets covered up with higher sales through for private label w.r.t to national brands. But the bigger concern here should be the fact that national brands have higher marketing budget and hence even if they earn higher margin, they are still no match to private labels which hardly require a marketing budget beyond a certain bracket.”

Reports of KPMG 2022 state that private labels are expected to continue growing in the Indian fashion industry, driven by factors such as the increasing demand for affordable and trendy fashion among consumers and the growth of e-commerce in the country

What’s fuelling the growth?

Private labels offer great value propositions to customers with usually lower prices than branded products with similar or even better quality. The reason behind such cost efficiency primarily lies in the fact that private label manufacturers do not have to incur the same marketing and advertising expenses as branded companies have to.

Secondly, shoppers have more opportunities to pick the right choice, thanks to online stores like Ajio, Myntra, Amazon or Flipkart that allow them to compare prices and features, and often times, private label products offer better value for money.

Thirdly, e-commerce platforms have made it possible to reach a much larger market than ever before, without being limited by geography. All these factors present tremendous prospects for Indian retailers in terms of potential success with private labels.

Additionally, most of the branded retail stores have their own private labels which are not only different in handwriting but also in fabric/textures/prints etc., which eventually becomes a biggest differentiator and helps the customer to make a quick and satisfied decision on final purchase.

Fashion retailers put higher stakes on private labels

There is no doubt that due to retailers’ increased use of omnichannel marketing strategies, the private label goods market is expanding phenomenally. These goods can now be distributed more effectively across a variety of regions as a result of the extensive distribution networks.

As per Retail Association of India (RAI) CEO Kumar Rajagopalan, “The increasing adoption of omnichannel strategies by major retailers has given a boost to their efforts in developing private label products. A significant contributor to the growth of private labels is the widespread distribution networks of retailers across different regions.”

Almost 50 per cent of the top brands currently sold on Ajio are Reliance Retail’s private labels, against the national and international brands such as Levi’s, Superdry or US Polo Association on the platform. Reliance Retail’s top private brands Teamspirit, Avaasa feature regularly among its top-selling brands during festive season sales. Additionally, Netplay (formal officewear), Performax (specialised activewear), Fusion (fusionwear for women) and Rio & Fig (fashionwear for women) are some of the private labels that contribute around 60 percent of the revenue generated from fashion chain.

Similarly, V-Mart Retail which is a known name in Tier-2 and Tier-3 cities also has nine private labels which contribute 54 per cent  of its apparel sales (excluding stores) as per its annual report of FY ’22.

Myntra, a mega player in the Indian e-commerce market, owns dozen-and-a-half private label brands, including Roadster and celebrity-backed brands like HRX, which contribute to the company’s overall profits. Additionally, the price point also plays a major part. The roadster jeans on Myntra costs an average of Rs.412 compared to Levi’s jeans which costs an average of Rs.1899 on its website. Private brands like Harvard, Dressberry, Sztori and other 12 + brands are contributing around 35 per cent of its total revenue from private labels.

On the other hand, Shopper Stop’s Kashish, Life and Fratini have developed into powerful brands, and in FY ’22, Shopper Stop’s private label accounted for 14 per cent  of the company’s overall revenue. Bandeya, an ethnically inspired men’s brand, saw its sales increase by 52 per cent compared to the previous fiscal year, while Kashish, an Indianwear brand for women, saw its sales increase by 56 per cent compared to the previous fiscal year. A significant increase of 83 per cent  in comparison to FY ’21 was seen in sales for the women’s western brand Insense. Actress Sanya Malhotra was roped in as the brand ambassador to promote the label.

Because private labels are launched keeping in mind the gaps in the market, particularly those related to price, style and quality, they offer consumers an alternative without requiring them to make any compromises in terms of the product’s quality or current fashion trends. This could also mean that expansion in Tier-2 and Tier-3 has more potential as the consumer behaviour and psychology pushes the spending capacity and strong value proposition is witnessed.

“The growth in private label sales will also see a boost with our expansion in Tier-2 and Tier-3 cities, which usually witnesses higher sales of private labels due to our strong value proposition,” stated the confident MD and CEO Venu Nair, Shoppers Stop.

Some private labels:

Myntra

• Roadster
• Dressberry
• Anouk
• Mast & Harbour
• HRX
• Taavi

Flipkart

• Metronaut
• Divastri
• Billion
• Anmi
• Florence

Shoppers Stop

• Kashish,
• Haute Curry
• Vettorio Fratini
• EllizaDonatein
• Ira Soleil
• Life

Reliance Trends

• DNMX
• Avaasa
• Fusion
• Rio
• Fig
• Team Spirit

Pantaloons

• Poppers
• Chalk
• Akkriti
• Trishaa
• Alto Moda
• Rangmanch

Challenge to maintain balance between private and national brands

Maintaining a balance between private and established brands is a challenging task for retailers, as both types of brands have their own advantages and disadvantages. It’s a known fact that private brands are often cheaper than established brands and provide a higher profit margin for retailers, however, they may not have the same level of brand recognition or trust as established brands. On the other hand, established brands have a reputation for quality and are often more expensive, which makes them less appealing to cost-conscious consumers.

Retailers today are working towards leveraging their existing infrastructure to develop private-label products that are competitive in terms of pricing and quality, which creates intense competition in the private-label space. To conquer this, retailers are now investing heavily in building strong brand identities to capture the market share but building a strong brand identity takes time and requires a significant investment in marketing and advertising like the national brands.

National brands are also not spared in the cutting-edge competitive retail scenario with frequently changing consumers’ mindset and hence, they are radically working on innovative strategies to stay afloat in the market. There is an urgent need for these brands to adapt to changing market dynamics to survive.

Vikram Singh, Senior Vice President DBS Lifestyle stated, “Experts believe national brands now have to realise this quickly that merely offering width and discounts is not enough as they are no match to private labels which have not only managed to give a chase to their (brands) for money by offering much better MRP but are also offering much better product in terms of quality and unique designs. National brands will soon have to roll up entry-label products under the private labels business vertical, if at all they want to remain relevant. They can also go down deep by offering such product lines to the aspirational class in Tier-3, Tier-4 cities of this huge market as they are potentially the target audience who can become a hedge for brands and help them to remain afloat.”

Despite the multiple challenges, the private label segment is still driving the retailers’ businesses year-on-year and their potential rewards are great, therefore for entry-level or established retailers looking to compete in the growing e-commerce market, private labels are worth considering.