E-commerce is hardly a decade old industry in India but it has grown immensely in last couple of years. This industry has seen exponential growth in a relatively short period due a large interest from VCs and PEs. In fact, market places are emerging as the preferred platforms for establishing players to consolidate and for start-ups to launch their private labels. In fact, all leading market places are spurting their growth by building formidable business around private labels, which in turn constitutes a big chunk in their revenues. In fact, Myntra(a group company of Flipkart-Walmart) has announced last year that its private label business has turned profitable already. The array of Myntra’s private labels includes Roadster, Dressberry, Anouk, amongst others.
The rise and fall of Indian private label story
In-house brands/private labels are not new to India Inc. All big retailers right from Future group to Reliance to Shoppers Stop amongst others have a rich story of private labels. Since they are owned by retailers themselves,their margins are usually high on private labels. However, in case of ecommerce, apart from revenue margins, private labels give market places an opportunity toto behave like merchandise companies(which should otherwise called an IT enabled platform felicitating sellers) or launch their exclusive retail operations. Let’s shed light on few important developments as far as e-commerce private label story is concerned.
Usually, private labels are introduced in categories where brand recall is not very high such as grocery and low ticket household items. Global retailers such as Walmart, Costco, Target grow their private label range aggressively in such categories. However, there has been a drastic shift in this perception and pocket tight consumers are prompting retailers to experiment in whole new categories right from fashion to electronics amongst others.
2016: Flipkart(now owned by Walmart) launchedits first private label,Smart Buy, which spans across 35-36 categories, ranging from consumer durables to household items. Following this, the companies launched its private label in the home décor space.
2017: Amazon acquired Whole Foods and introduced a hefty range of private labels. Soon after, the giant e-retailer made inroads to Indian market with its private label range including AmazonBasics, Solimo, Myx, Symbol and Echo.
2018: Myntra(subsidiary of Flipkart-Walmart Group) launches Roadster Go, the first exclusive store of its private label, Roadster.
Business growth driven through private labels
Last year, the Flipkart-Walmart group owned Myntra announced that its private label portfolio posted a 5% profit at the Ebitda level from the total revenue of Rs8,500 crore as of FY 17-18. Myntra started its private label business in 2015, now it is a growing category for them. The company aims to maintain the annual revenue run rate of $2 billion to touch profitability.
As per global data, Amazon could see healthy revenues of $25 billion by 2022 derived via its private label business. Even in India, the company is aggressively ramping up its private label business. The company aims to bridge the gap in every category via private labels.
On the same lines as Amazon and Flipkart, Alibaba backed BigBasket too operates in the private label space. Started in 2011, BigBasket has private labels in various categories ranging from meat to cosmetics named under Fresho, Royal, Popular and Tasties. As per the data available, the company aims to drive 40 percent revenue from its existing 36 percent as far as private label category is concerned. The company accumulated the revenue of Rs 3,500 crore in the last fiscal. Recently, this grocery etailer has added beauty store and acquired US $300 million from its parent Alibaba Group.
Recent amendments in FDI policy has come as the biggest jolt for the sustainable growth of private label business. Though the government has clarified that there is no ban on private label business, but has barred the equity participating companies to directly sell their products on their marketplace. With these new regulations, selling private labels appears to be a violation of the law. However, so far there is no hold on domestic players but the future of private labels inculcated by home grown players Bigbasket and Paytm mall seem to be murky as they have equity participation from their parent company Alibaba group.
Here is what a DIPP Twitter handle reads like:
“Entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, cannot sell its products on the platform run by such marketplace entity.”
Likewise, Myntra has invested in dozens of fashion start-ups as part of its accelerator program in lieu of stakes. AKS clothing is the latest example which has recently crossed 100 cr revenue mark, and since there is an equity participation, Myntra cannot sell the brand on its marketplace. Myntra initiated accelerator program is a strategic choice from theetailer to grow its private label portfolio.
With the likes of Myntra, Walmart is a world known retailer for its private label growth. Due to a recent amendment,Walmart cannot sell its private labels on Flipkart (where Walmart is the majorty stake holder.)
A private label is a win-win scenario for brand as well as consumers. Therefore, no company be it Flipkart or Amazon cannot afford to shun their private label business. As the remedial measure, many foreign e-tailers are now looking at licensing routeto comply with revised e-commerce policy and retain the exclusive distribution of private labels.
Moreover, to add to the woes,The Confederation of All India Traders (CAIT) is constantly opposing the sale of private labels by e-commerce firms on their marketplaces. The move may further force the government to take even more stern action.
E-commerce companies bank heavily at the sustainable growth of heprivate label portfolio as it provides high returns and better margins as compared to other brands. Interesting times ahead to see how these foreign players (who have invested billions of dollars in the Indian market to grab a pie of Indian ecommerce sector) will sustain the momentum of private label growth.