Can privately owned brands earn money in ecommerce?

It’s not rare that you see your neighbour sporting a tablet of a brand you have not heard of or that fashionista at work wearing a Kurtis from an unknown brand. Times are changing. People are now ready to explore new things. The age of the innovator is on the rise. Ecommerce companies know best to tap into such opportunities and make a quick buck or two. Yes, it is the era of the rise of private labels owned by online sellers.

It is interesting to understand why private labels could probably be the only way to make money in eCommerce in a thin margin competitive environment, where there is hardly any room for marketplaces to make money in fast moving e-commerce friendly categories like Electronics, Consumer durables, and even Clothing and Footwear.

Is it a profitable business?

With Flipkart announcing its own branded Digiflip tablets, everyone is talking about the profitability and acceptance of private brands. Is this what ecommerce players will invest to sustain businesses in future? Is this their only way of getting good returns? “In the near future, the focus is about getting to market a great device at a lower price” say Sachin Bansal and Binny Bansal, co-founders of Flipkart, in an interview with TOI in the context of the Digiflip Tablet launch.The tablet is the first from the e-commerce portal’s private label stable and has been an instant hit especially for its innovative branding and packaging which has received great reviews. If it has all that and more that a Samsung, HP or a Lenovo can offer; it sure can stand tall among global brands.

The fashion segment, which is seeing a lot of traction from consumers and sellers, is projected to reach $2.9 billion by 2016. E-commerce companies are investing heavily in this category because the margins (20 percent) are higher as compared to other categories for fashion products, which can go higher in the case of private labels (50-60 percent). Further, in the case of private labels, the control on the supply chain and inventory is higher. These higher margins are a blessing for e-commerce companies because they can offset the hits taken due to free shipping, same day delivery and wafer-thin margins on standard goods such as books and electronics (low single digit margin).

It is but obvious that businesses are seeing a lot of potential with the opportunity of launching private brands. Talking to PTI, Jabong.com’s founder and CEO Arun Chandra Mohan said,  “We are setting up a full-fledged design team in London because we also want to create our own brands that provide good, fast, western fashion to the Indian consumers. We are in the final stages of setting up a top end design studio in London. It will be a team of the best fashion companies in the world that are going to be focusing only on creating the design. There is an immense opportunity to develop our own brands.”

Myntra has seven private-label brands, which contribute about 18-20% to sales. The online retailer hopes the private label business will generate as much as 30-33% of its business over the next two to three years. It may introduce two new private label brands this year said Chief Operating Officer Ganesh Subramanian in an interview. Among the brands, Roadster, Dressberry, HRX and Anouk have gained significant momentum and to start with they will initially look at online channels like Flipkart for distribution.

“Making the most out of the emerging opportunities, Myntra, in an attempt to create private brands, will invite applications from fashion designers across the country for its soon-to-be-launched fashion incubator. They will be groomed for six to 12 months, following which their products will be showcased on Myntra’s portal and after the success of their tenure; Myntra will invest in them, depending on the consumer response to their product lines” outlines an article

Even outside India, Private labels seem to be the torch lit tunnel out of poor sales margins and falling share prices. “Expansion efforts expected to boost sales include the introduction of a new private label, Price First, in the third quarter” Walmart executives said in an article.

Customer Acceptance

No matter what our ecommerce heroes think, the final say is with the customers. Urban Indian customers are now changing their lifestyle and trends. They are open to trying new brands, new designs and sport new styles; especially in the apparel and fashion segment. More and more of the youth want to be seen as ‘Trendsetters’ who want to stand out in a crowd.

“I love experimenting with new brands and styles of outfits. I also know that most of my friends look up to me for my taste in fashion. So it really doesn’t matter which brand I pick my clothes from as long as I can carry it off. And then, even my friends end up buying from those brands” says Shruti, a college student.

So I say, who wont dress want to dress like Nargis Fakhri, if it’s possible at a pocket friendly price! Nobody is going to look underneath to check the brand label are they?

While there is a majority of people who stick to known brands and wait for reviews to purchase something unknown, there are a growing number of people who are innovators, especially when it comes to online shopping! These innovators usually if not always also turn out to be influencers and ambassadors or evangelists of these lesser known labels.

E-commerce companies are looking at creating brand value for their users; from hiring international designers to spending big bucks on the packaging. If the E-Commerce players can promote their branded products and sell them along with the others in their web store, then they can have a clear cut priority in selling completely unknown pricing within a known category model. It can boost revenue for the ecommerce businesses and if they are one of the lucky ones, they can even get a million dollar funding

Packaging makes the difference

One of the main investments when it comes to Private Labels is the packaging. With quality and classy packaging, even a lesser known brand can create a good value in the minds of the customers. The brand name on the tag, the laundry tag, the extra buttons and the wrapping cover all constitute packaging of a product. When it comes to electronics, the branding of the logo, the warranty, the peripherals in the box and the box itself make a difference to the end user of the product. It is through such packaging that brands create impressions and make a name in the market. E-commerce companies are also hiring specialised professional agencies to help them with their packaging requirements. An article on ‘Packaging being a Silent Salesman’ talks more about the same.

Private Labels are learning about the consumer trends when it comes to branding. They are finding creative ways of popularising brands so that they get universally accepted. “When I buy a Tommy Hilfiger or a French Connection outfit I like the tag to be shown but when I buy those brands that are not so popular I’d rather have the tags hidden, at least till these brands become popular” says Karen a brand freak.  Getting celebrities to endorse private labels is a good strategy to entice customers to opt for new brands.

Not only this, but there is a lot of art and science behind the art of Packaging when it comes to private brands or otherwise. Launching a private brand is not a joke but a carefully thought out strategy.

“Private brands is overall big strategic play for us. We are not looking at it as a business for filling category gaps through our own stable but it is actually a fashion brand business for us,” said Abhishek Verma, who is now leading Myntra’s private label initiatives in an interview

So next time you like a lovely outfit but don’t seem to have an idea about the brand, don’t think twice before you click on the buy button; it could probably be designed by an Italian designer after all!