Jul 16, 2008
Business - Retailers bet big on Private Labels
Established as well as wannabe retailers have hit upon a new idea in these days of cut-throat competition, high showroom rentals and rising overheads: Private labels. Apparel, fast-moving consumer goods and healthcare retailers are all moving to their own brands to ease the squeeze on their profit margins.Till not so long ago, only a handful of retailers like Shopper's Stop had their own labels. Now, private labels have become core to every retailer's strategy.The list of retailers (see chart) who have either introduced private labels recently or plan to do so in the near future includes all the top names of the business like Future Brands, Reliance Retail, Spencer's, Subhiksha and Dabur India.The reason for the rush is not far to seek. According to industry experts, private label margins range from 30-40 per cent in the FMCG space to 40-60 per cent in apparels and 15-20 per cent in electronic goods. In most cases, these margins are 5-10 per cent better than the mass market brands these retailers sell."To support the current real estate prices, you need overall profit margins in the range of 30 per cent," Dabur India CEO Sunil Duggal said, adding: "The answer to this is private labels which give you margins in the range of 40-50 per cent which when blended with regular products give you margins that are around 30 per cent."Show room rentals typically account for 35-50 per cent of the non-material cost for retailers. Space in new malls is more expensive because of the rise in steel and cement prices.Profit margins in private labels, experts said, are higher because these are in-house products and retailers are able to cut out the intermediaries and overheads. This makes them a cost-effective proposition. As of now share of private labels occupy 10-12 per cent of the product mix on average but the retailers see this number growing significantly."Private labels may reduce the pressure of the large overhead the retailer might have to pay to the real estate developer and may in that sense help deal with the high real estate costs," said Future Brands CEO Santosh Desai. Future Brands too is keen on introducing a wider range of private labels ignored to provide a value option to the consumer.Still others said private label is a good way to address the value-conscious customers. " Private labels is more about providing relevant and quality products to the value conscious consumer and given the economic conditions it becomes a way deal with inflation," said RPG Group Vice-chairman Sanjiv Goenka.The current high inflation scenario seems to be the high point for private labels as more and more consumers are willing to try these new brands. Retailers also taking to private labels to fill in the gaps in across price points and categories and in turn providing a wider choice to the consumer."Since most of our sourcing is mostly the same as that of branded goods, the consumer gets the same quality at a better value," explains Goenka.For Future Brands it is also about building their private labels at par with any other national brand and hence increase the rate of conversion for consumers from other brands to its own private labels. " We are as of now trying to build brands and make the consumer aware of them. We hope that in future our stores will only have our own brands," adds Desai.