Business - Spencer's to push private labels

Targets Rs 2,500 cr turnover by 09-10

KOLKATA: Spencer’s Retail expects private labels to contribute at least 25% to its total targeted turnover of Rs 2,500 crore by the financial year 2009-10. Currently, private labels form adds about 10% to its sales.

Retailers rake in larger margins from their private labels against margins on brands from other firms. For example, food items fetch about 15% for retailers but private food labels can reap double this figure. In apparels, the margin on private labels are even higher at 40-50%.

So, Spencer’s, which is the retail arm of RPG Enterprises, has decided to focus on some of the high margin categories such as non-branded foods (such as teas), household products (such as floor cleaners) and other less sophisticated products (toothbrush, etc) to meet its turnover target .

However, experts said retailers face various challenges when they make an attempt to push private labels and even Spencer’s would have to overcome similar hurdles.
“In India, it will take some time to sell good quality private labels,” an industry analyst said.

Unlike overseas, where retailers rake in 25-40% of sales from private labels, the share is only 1-2% for the organised retailers in India, he said.

The challenges mostly lie in putting in place an efficient supply chain. Spencer’s has 32 distribution centres currently, but it is looking to almost double this count to 50-60 by 2010.

Also, getting the vendors to produce quality goods is a big challenge.

“It is not possible to have dedicated vendors unless retailers promise them certain volumes, which, at this stage, is not possible,” the retail analyst said.

Spencer’s believes that team building is necessary for pushing its private labels. It will also aim at educating consumers through various below-the-line and above-the line advertising activities.

“Fixing the supply chain and replenishment of stocks with speed are key to successful retailing of private labels,” a Spencer’s spokesperson said.

He said the company’s investment in the backend, warehousing and other infrastructure would be about 5% of its targeted sales by 2009-10. The company’s investment in stocks will be 25% of the targeted topline, he said.

Spencer’s is also aiming to triple the count of its stock-keeping units (SKUs) to 15,000 from 5,000 currently.

The company had earlier said it would be investing Rs 2,500 crore by the financial year 2009-10 for expanding its retail network. It is said to be planning to take up the number of its hyper stores to 75 by March 2009 from 33 currently.

Spencer’s, which has streamlined from its earlier four sub-brands of Daily, Express, Super and Hyper to two only models- Spencer’s and Spencer’s Hyper - is targeting a turnover of Rs 1,800 crore by 2008-09 and Rs 2,500 crore by the fiscal year 2009-10.