The Hindu Business Line : A private matter

IF you are an avid mall hopper, you would have noticed a marked difference in the assortment of brands in your shopping basket. For among the Louis Philippes, Levis, and Lee Coopers, new names such as RIG, Gia, Richmond, Eliza and Vittorio Fratini among many others would have cropped up in your shopping bag.

Surely, with almost every retail chain launching products under their own private label or in-store brand, the consumer has never had it so good as far as purchasing options are concerned.

In fact, depending on the retailing major's strategy, in-store brands already account for about 10 per cent to 80 per cent of sales for different Indian retailing firms.

Pantaloon Retail India, which owns the retailing chains Pantaloon and Big Bazaar, already sees a large percentage of sales coming from private labels. Says Kishore Biyani, CEO, Pantaloon Retail India, "Private label contribution in the Pantaloon departmental stores is currently over 70 per cent. We are in the process of increasing it to more than 80 per cent. In Big Bazaar, private labels have just been launched in the apparel segment (five labels have been launched over the past three months and three more are expected to be launched in the next month). We expect private labels to contribute more than 50 per cent in their respective categories."

The number of private labels are also being expanded aggressively at the company's Food Bazaar. "Currently we have five private labels covering seven product lines. By the end of December 2004, we expect to have 30 product lines under the private label programme," says Biyani.

Similarly, retail chain LifeStyle is targeting to increase the business from private labels. Says Kumar S, Managing Director, LifeStyle India, "At LifeStyle, one can find a healthy mix of popular brands and private labels. Our private labels currently contribute 10 per cent of our total business. We are looking at expanding our private labels. We believe that private labels can contribute 20 per cent in the long run."

Shoppers' Stop too has seen the share of private labels rise to 18 per cent. According to G. S. Shrikhande, Director (Buying & Merchandising), Shoppers' Stop, the retail chain has brands such as Life, Kashish and Vittorio Fratini in its portfolio and recently launched two more. "While the chain is growing at about 35 per cent per annum, the private labels at the store have been growing at about 40-45 per cent," he says.

Meanwhile, Westside (which is owned by Trent Ltd) follows a somewhat different model, stocking a very small percentage of outside labels. At present, about 90 per cent of the chain's sales come from its 15 private labels.

Similarly, almost every major retail chain including the RPG-owned Giant, Ebony and Nilgiris has increased focus on private labels. In recent months, even departmental stores have come out with private labels, a case in point being the Chennai-based Vivek Ltd which has launched a range of small appliances under its own brand name.

"In fact," says Amit Adarkar, Associate Vice-President, Synovate, a market research firm, "The growth of private labels is about 2-3 times more than that of advertised brands such as Arrow. This is observed for multi-brand outlets such as Shoppers' Stop and Globus (which have private as well as advertised brands) as also for private label-only outlets (such as Westside)."

But does it make sense for a retailer to invest in creating a separate brand altogether?

Apparently it does. According to retail analysts, not only does it make economic sense in the form of retailers achieving higher margins, it also helps them to plug gaps in their product portfolio.

Says Rucheera Gumber, Senior Consultant at KSA Technopak, "There has been an increase in the number as well as sales of private label merchandise. And this trend is likely to continue for various reasons. Firstly, there are gaps in the Indian market which the existing brands do not fill. For example, in women's ethnic wear, a private label could have clothing for plus sizes. Secondly, as organised retail evolves, the retailers will gain economy of scale to get into private label production. Thirdly, the private label gives the retailers the opportunity to differentiate, and retailers will capitalise on this advantage as they continue to grow. Also, the private label offers a better deal to the consumer. The Indian consumer is seeking value for consumer products. This trend will drive the growth of private labels, particularly so in FMCG product categories."

Agrees Biyani, "Higher margins are just one of the benefits that private labels offer. A retailer has more control over the merchandise and is able to make the required changes and modifications to suit the changing customer profile much quicker. This brings about more consistent and acceptable products, which also helps reduce mark-downs. Margins tend to vary depending on the product and the segment."

For instance, Westside, which predominantly stocks its owns labels, believes that its strategy gives the company the flexibility to create a range of products as per the requirement of the customer, that is, based on the customer profile.

"In addition, we are able to create a stronger emotional connect with the consumer as the experience is not just the store experience but also the product experience. An outside brand could be purchased from any outlet. This is not so in the case of private labels, so the product experience keeps bringing the consumer back. In this case, the flexibility of pricing a product is also with us. We also have the advantage of higher margins despite keeping the prices lower as we are able to cut out the middlemen," says Himanshu Chakrawarti, General Manager (Marketing), Trent Ltd.

In fact, according to Shoppers' Stop's Shrikhande, the profit for private labels is about double that for the outside ones. "This apart, a private label provides a retail chain with exclusivity in addition to filling in the gaps in categories where no other brand is present," he says.

Retail analysts say private labels would grow rapidly, in tune with the growth in the organised retail segment.

According to industry data, organised retail in India at present is estimated at about Rs 15,200 crore, with the share of spend from malls at about Rs 2,900 crore. This is expected to jump to Rs 52,400 crore in 2010, with share of malls being estimated at Rs 38,447 crore.

But though private labels in India seem to be on the growth path, there is a growing feeling that they may eventually cannibalise sales of other outside brands.

Says P. Dayalan, Vice-President, TNS - India, "In the long run, private labels would pose a threat. But in the foreseeable future in India, I don't think any of the national brands are likely to be affected significantly. Also, private labels are available in some stores, but they are restricted to only a select few categories. Apparel is one example, especially women's apparel. Incidentally, women's apparel is one category that has very few nationally acclaimed, established brands. The private label in this case is performing the role of a `regular' brand and not that of a `store brand', in the sense that it is referred to in the West."

Also, the in-store brands seem more prevalent in the economy range and are unlikely to have an impact on sales of premium brands.

Agrees Adarkar. "Most private labels are in the economy/ mid-range level. At the premium end (Rs 800+ for shirts, and Rs 1,200+ for trousers), there are hardly any private labels," he says.

Says Lifestyle's Kumar, "Private labels will certainly not be a threat to brands. Currently they basically assist us in completing our ranges. Brands are strong and their equity is well recognised, some in strength. A healthy mix of popular brands and private labels is the way forward as of now for our store."

At Shoppers' Stop also, for instance, while the retail chain has launched private labels to fill in the gaps in its portfolio, the retail chain feels that it is unlikely that its brands would pose a major threat to other ones. At present, while approximately 80 per cent of its sales come from outside brands and the balance from private labels, the chain is targeting to change this ratio to 70:30.

Says Pantaloon's Biyani, "Private labels have a dual role to play. Obviously, they do offer customers a tremendous value for money proposition, but additionally they also go a along way in expanding the existing market, with promotions and attractive prices, inducing more and more customers to try out new products. This benefits both private as well as other labels. Given the cost saving they offer the customers, private labels are here to stay. However, both private and other labels satisfy diverse needs and thus have a role to play. The market is big enough for both."

And crucially with more options to choose from - the ultimate gainer is the customer.

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