Why Are Retailers Moving Towards Private Label Space?

The Indian Retail market is making an astonishing progress. In 2017, it was around Rs 46,15,000 crore and it is expected to grow at a CAGR of 9 percent to reach Rs 1,08,58,000 crore by 2027. Presently, the share of apparels in total retail sector stands around 8 per cent. With the implementation of one tax under GST, Indian retail market including the fashion apparel, is expected to rise fast. Along with the growth of retail market, many new retail industry trends are evolving in India and one of them is the growth of private labels. What are private labels? Private labels are those brands, which are not owned by a manufacturer or a producer but by a retailer. The retailers own the brands and get their goods manufactured through a contract manufacturer under their own labels. They can also be known as a store brand, own label or retailer brand. Earlier brands used to invest in apparel manufacturing and brand building and sell their products through different retail channels. Retailers were just a bridge between the manufacturer and the consumer. However, as the retailers are more connected to consumers, they are more aware of their needs. As a result, these days many retailers are developing their own brands. They choose some manufacturers and ask them to design and manufacture clothes based on the consumers’ preferences. These retailers spend a fraction of their revenue on brand marketing as well. As a result, consumers get products, which are quite similar to the brands they wish for, but at a lower price. There was a time when people did not believe in private labels as they were considered as the imitation of brands with low-quality products. With the fewer distribution heads, less number of intermediaries and negligible marketing costs, private labels have slowly and steadily made their clientèle. They are now able to provide good quality compared to their branded counterparts. On the other hand, shoppers of private labels are also happy in swapping brand name for private labels as they can get economized products without compromising on quality. The growth of the private labels by the retailers is due to various factors that are pushing more and more retailers towards exploring private label options. Some of them are as follows: • Access to data: As said earlier, retailers are more close to consumers and thus know in detail about their purchases, preferences and behaviour. As they understand the consumers’ psychology, it gives an edge to them over many retail brands which are actually sitting very far from their day to day customers. • Affordability: Private labels have cost competitiveness over retail brands as they have fewer distribution heads, lesser intermediaries, and insignificant marketing cost. • Authorize retailers: With private labels, retailers are empowering themselves as earlier they had to depend on retail brands’ terms and conditions. However, today, they can bargain with manufacturers and producers over cost and distribution. • Access to the market: Retailers have a strong customer base as they have built a prominent market presence across different retail formats and varied geographies. As the retailers need not invest in customers’ acquisition and retention, they have widespread market reach for their private labels. • Bridging the Gap: Presently, there are gaps in product portfolio offered by the brands, even of the established ones. But as the retailers have a better knowledge of consumers’ desires and purchasing insights, they can offer products as per the shoppers’ demand.