Would Private Labels of marketplaces affect online sellers?

Editor | Sep 09, 2020

Indian ecommerce leaders and niche etailers have been harbouring the grand dream to become profitable. One of the current favourite strategies to touch profitability is – Private Labels.

Be it fashion etailer Myntra, Jabong, online marketplaces Amazon, Flipkart, cosmetics etailer Nykaa or online grocery players, Big Basket, Grofers all have their own line of products.

And why not? When branded apparel earns them around 10-20% profit margin, their private labels helps them to earn a fat 40-50% profit margin. In the grocery market where the margins are wafer thin, private brands bring huge relief to e-grocers like Grofers.

“Marketplace is never a profitable proposition if they rely only on commission as their cut… For marketplaces – their key focus is to sell – from dug to donkey. So we really cannot say that private labels are not their key focus. Private labels bring lot on table – better control over quality and supply and additional revenue stream,” says seller DS (name withheld on request) while speaking to Indian Online Seller (IOS).

But what about online sellers? Do these private labels intimidate them? Do they think it is unfair? IOS finds out sellers’ view on ecommerce players’ private labels.

From a businessman’s point of view

Being businessmen/businesswomen themselves, all sellers that we interacted with understand the practical side of this business strategy. Vendors are aware of the fact that in this cut-throat ecommerce world, online players would have to think of new ways to increase their revenue; private labels being one of them. They treat it as a natural progression as the ecommerce industry matures just like traditional retail market.

Malik Chamdawala, Director of leather accessories brand ADAMIS shares with IOS,

“I believe that the marketplaces have all the right to come up with their private labels and retail them alongside other brands. It is a free market and just as you can have competition from new brands/start-ups in any product category, private labels being launched by marketplaces should also be looked upon and considered on the same platform as any other competition.”

He adds,

“Today, marketplaces are launching their private brands to earn a better margin, since the ROI that they can earn from an external brand being retailed on their ecommerce site is always limited, wherein the profitability can be increased only via growth in sales volumes of the particular brand products.”

From a seller’s point of view

Sellers understand the business aspect of etailers’ private brands strategy. But they also believe that etailers have failed the test when it comes to implementation of the strategy.

There’s no level-playing field for online vendors, who are getting crushed between established brands and private brands. Marketplaces’ introducing their own brands is fair; not levying the same fees/charges is unfair, according to merchants.

“Unfair is that they (ecommerce players) are not factoring commissions, shipping charges, penalties at par with any other marketplace seller. They are provided preferential treatment at warehouses, deals etc. They are not charged for advertisement, PLA, warehouses etc. If I supply to these brands from my factory, I will earn higher than they payout I would get by selling at the same price on the marketplace,” says online seller Kush Agarwal to IOS.

“These private labels are parasitical in nature. Instead of increasing business, they are killing the marketplace by unnatural competition, unnecessary inventory costs, increasing marketing costs, sourcing costs, loss of sales. Marketplaces should run their private labels by factoring all costs that a normal seller would be charged,” Agarwal adds.

Online marketplaces’ unethical business practices also worries sellers. For instance, vendors have accused big players of manipulating product listing visibility, reviews, and seller ratings to bring their own sellers/brands up and delist genuine sellers. This is unfair and unscrupulous, according to sellers IOS spoke to.

“It is noticed that the marketplaces are prone to delist/suppress other brands during big sales and offering an unjust advantage to their own labels in terms of increased visibility. They display products of other brands very low on the search pages, offer the top banner positions and advertising properties to their private labels only, promoting discriminatory pricing for ads between their private labels and competing brands etc. These are a few of the methods being employed by marketplaces to project their private labels against popular vanilla brands,” rightly states Chamdawala

Sellers’s request? Please play fair, ecommerce biggies.

Allow us to sell your private labels, say sellers

Another thing that came up during our research is that why not let other vendors sell marketplaces’ brands?

Agarwal asserts,

“If your private label is restricted only to your own marketplace, then it is a very risky business. No brand or label restricts themselves to a singles sales channel. Like a manufacturer cannot be a retailer, same way, a marketplace cannot be a label.”

Myntra is planning to showcase its own brands in third-party offline stores. Then why not sell it on other ecommerce sites with the help of regular vendors? Because, it would benefit all the parties involved, while maintaining a level-playing field.

“Sellers business will always be affected by marketplaces private labels. We have time and again given inputs to marketplaces on their strategy of private labels so that both sides remain happy. One such suggestion was to distribute the private labels through the sellers who could sell these labels on any marketplace at any price. This would help grow the label, marketplace and the sellers individually,” states seller lobby group All India Online Vendors Association’s spokesperson firmly.

Emails sent to Amazon and Flipkart went unanswered.

Can marketplaces focus their energies on building own brands?

Many firms (traditional players) spend years and a lot of money to gain insights about consumers’ buying behavior and pattern. But online players like Amazon, Flipkart, Jabong, Myntra, BigBasket and others didn’t have to do that. From what groceries sell like hot cakes & how frequently to what’s the latest fashion fad, etailers knew it all. And they put all the data to good use by developing their own labels.

But is that enough to build sustainable brands? Can they match the quality offered by experienced retailers and vendors?

Case in point – Flipkart had to shut its private label DigiFlip in December 2016. The company’s logistics arm Ekart also suffered massive losses. This indicates that while etailers can introduce new brands/service, they might not be equipped to handle what comes after launching it.

Although, Amazon is doing really well in this department in the US ecommerce market. And who can overlook the success of Amazon Kindle? So much so that Flipkart, which started as a book-seller, had to shut its e-book store.

Is there a hidden agenda?

Online seller Sanchit Goyal thinks that ecommerce biggies are trying to monopolize the ecommerce market.

“It is too easy to source material directly and get the middleman out… I strongly believe marketplaces specially like Amazon are trying to create an economy by throwing the MSME out of competition till they remain a monopoly and then charge premium from customers something which they have so successfully done in past,” explains Goyal.

What can sellers do?

Except for the fashion category, the private labels of online retailers don’t seem to be too strong. Most of them are simply trying to ape the big/popular brands and launch me-too products.

“So far I have tried (private brands) pulses, snacks, hand-washes, bathroom essentials and sweets made by BigBasket and Hypercity because of the cheap price and big ads. But they all have disappointed me. I’m now back to the old and trusted brands like Haldirams and Godrej,” shares home-maker and online shopaholic Nikita M.

Here’s where online sellers can still win. They can win against poor quality by working on their own brands and offering good-quality products. Because price may win once, but quality always wins in the long-term.

Some of the suggestions given by sellers are:

  • Do not focus on number of orders; focus on profits
  • Innovate products regularly
  • Build your own online store
  • Understand that me-too brands won’t help you survive
  • Aim for enhancing/maintaining quality of your product

What ecommerce biggies do is not in sellers’ hands. Would they agree to play fair or continue to take an undue advantage of their position is not in sellers’ hands either. So focus on your own business and brace yourselves for a fierce fight.

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