Indian multibrand fashion retailers are switching to private labels, but it's not going to be easy

Private labels constitute over 25-30 per cent of the merchandise mix of most global fashion retail companies and modern retail in India, too, is beginning to go the private label way.

By Ajita Shashidhar  
Monday, November 12, 2018

The promoter of a homegrown kidswear brand was recently lamenting that some of the leading multibrand fashion retailers have discontinued retailing his brand through their stores as they have created their own private labels.

Private labels constitute over 25-30 per cent of the merchandise mix of most global fashion retail companies and modern retail in India, too, is beginning to go the private label way. The profitability and market cap of modern retail companies has been rising and the e-commerce onslaught is not really impacting them any longer and for this to happen the modern retail companies have changed their strategies in order to be able to attract more consumers. Offering great products under their own private is one such strategy.

Private labels are no longer restricted to offering a basic shirt or a kurta, retailers are investing a fortune in building their own private brands. Melange and Code from Lifestyle, Bombay Paisley from Westside, Avaasa, Netplay and Rio from Reliance Trends are a few examples.

"In an omni-channel world, merchandise brands are getting increasingly commoditised, so, modern retailers need to create strong brands in order to differentiate,"points out Kumar Rajagopalan, CEO, Retailers Association of India (RAI). Rajagopalan is referring to the deep discounting of merchandise brands done by online platforms, which hardly gives consumers a reason to walk into a store and buy a particular brand.

It is well known that private brands give retailers margins in excess of 20 per cent and in return they can offer their products to the consumers at a competitive price, but most modern fashion retailers till recently preferred to restrict their private label presence to less than 10 per cent. Rajagopalan of RAI says that private label is a volume game. "Indian retailers have started getting good volume business only recently.

Unless they have volumes it doesn't make sense to have private labels." But in today's times private labels have become necessary for a retail brand to create differentiation. After selling Pantaloon to Aditya Birla, Kishore Biyani's apparel retail brand, FBB, is completely private label, 30 per cent of revenues of Biyani's multibrand retail format, Central, also comes from private labels. Retail brands such as Shoppers Stop and Lifestyle also have exclusive tie-ups with international and domestic brands. Shoppers Stop exclusively sells celebrity brands such as Wrogn by cricketer Virat Kohli and actor Shradha Kapoor's Imaara, Lifestyle has exclusive rights to sell international sports wear brands, Bossini and Kappa.

Though private labels are the need of the hour for most large format retailers, it isn't easy for a retail business to become a brand business. "They have to ensure the same design quotient and better value or else the customers will not buy. They also have to spend significantly in brand building which most retail companies aren't used to," points out Arvind Singhal, Chairman of retail consultancy, Technopak. The other big challenge for modern retailers wanting to get into the business ofbrands would be the need to lock inventory. "The retail business doesn't require the retailer to sit on too much inventory. If a particular style or colour isn't selling, the retailer can always ask the brand to take it off the shelves. The moment they get into branded play, they will have to commit to buy from their supplier," explains Singhal.

By offering better products at a value, will the multibrand fashion retailers give tough competition to the merchandise brands such as Louis Philippe, Benetton or Vero Moda? "The merchandise brands will definitely need to pull up their socks," says Rajgopalan of RAI.  

However, Singhal of Technopak expects the private label strategy to be more successful for mid-market retailers such as FBB and Westside. "These brands cater more to the mid-market which is not too brand conscious, but those retailers which have a premium positioning (the likes of Shoppers Stop and Lifestyle) the private label strategy may not work that well, as the customers they cater to are overtly brand conscious and will not easily switch to a private label." However, high end global fashion retailers such as Macy's have close to 30 per cent of stock keeping unit, which are private labels and are hugely successful. "But these brands have been built over the last 50-60 years. The Indian modern retail story is barely two decades old," explains Singhal.

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