Private labels pushing e-commerce firms to profitability

E-commerce firms such as Pepperfry, Myntra, ShopClues, Flipkart and Amazon are directing their focus towards private-label brands to garner higher margins and to fill gaps in customer needs, as revealed by search query algorithms on their platforms.

Online shoppers are lapping up these private labels, as evident from its increasing contribution to total sales, ranging from 12 per cent to over 50 per cent, in some cases.

Pepperfry, which has over the last five years built a portfolio of 9 private-label brands that contribute to nearly 55 per cent of its overall sales, has forayed into the ₹6,000-crore mattress market in India with the launch of Clouddio, its 10th private label – it has other sub-brands such as Stratus, Cumulus, Nimbus, Altus and Cirrus.

Hussaine Kesury, Chief Category Officer, Pepperfry, said rising demand for mattresses prompted the company to introduce its own private label to cater to the diverse consumer requirements in terms of the material, price, comfort and convenience.

‘Key pillar’

Private-label brands are usually more profitable as it gives e-commerce firms total control over the product design and specifications, sourcing, manufacturing, pricing, marketing and distribution. This, in turn, allows them to be made at lower costs, and as a result, be made available to customers at prices that are 15-20 per cent lower than products of well-known national and global brands.

Fashion and lifestyle e-tailer Myntra’s private-label portfolio of 13 brands, including Roadster, HRX, All About You, Mast & Harbour and Dressberry, deliver about 23 per cent of its business at present. Myntra CEO, Ananth Narayanan, in an earlier interaction, said its private-label portfolio is a key pillar of the company’s strategy to building differentiated offerings.

The e-tailer expects its private-label brands to contribute 35-40 per cent of its business in the next 12 months.

Beginning mid-2017, ShopClues launched four exclusive labels, including home and décor brand HomeBerry, fashion and accessories brand MEIA, men’s footwear brand Baton and electronics brand Digimate, which already contribute to 10 per cent of its total orders and 12 per cent to its revenue share. While e-commerce market leader Flipkart is looking to increase the contribution of its private labels to sales in the categories they are placed in, from 10 per cent to 22 per cent in the next five years, Amazon is preparing to unveil a range of private-label products that will take its total tally to 100,000 SKUs from 5,000 SKUs at last count during the festival season.

Way forward?

Is building a private-label portfolio the way forward to profitability for e-commerce firms?

“No, says K Vaitheeswaran, co-founder of India’s first e-commerce company Indiaplaza.com and author of Failing to Succeed: The Story of India’s First E-Commerce Company.

“Private label is a great PR story. In reality, the impact of private labels are minimal, much like airline loyalty programmes, which only need to be reasonably successful. Because if they are highly successful, it means sales are down, which is not good for the airlines.

Harminder Sahni, founder and MD, Wazir Advisors, said that private labels should be introduced only when certain SKUs at particular price points are missing in an e-tailer’s marketplace, or when there is hardly any differentiators between brands that customers are paying for.

“For instance, private labels can be introduced in products like hand wash where there is hardly any differentiator or in spices and condiments where there are very few brands,” he said.