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Rediff News  All News  » Business » How retailers are attracting more customers

How retailers are attracting more customers

December 10, 2007 10:56 IST
Franz Giovanni, Mario Zignotti, Richmond and Ascot. Foreign brands for menswear? Not really. You could pick up these designer clothes from a Westside or a Shopper's Stop. At affordable prices too. It's not only for apparel that retailers creating their own lines; whether its for air fresheners or 'atta', they're putting out their own brands.

Says Pinakiranjan Mishra, Partner, Ernst & Young, "Private labels are catching on because it's far more profitable for retailers to sell these than well-known brands. They can fetch gross margins of  40 per cent, once a retailer has achieved some scale. That's way higher than the 25 per cent that can be earned from established brands."

Adds N V Sivakumar, Leader, retail practice, Pricewaterhouse Coopers, "The share of private labels today may not me more than  5-6 per cent of the total goods sold but they could account for as much as 25-30 per cent in three years time." For perspective, about 45 per cent of products sold in Europe are sold as private labels; this compares with about 25 per cent in the USA.

Indeed Sivakumar believes that model  like those of  Westside, owned by Trent,  that has always focussed on private labels , should succeed. "Customers will not get put off  even if they to choose from only private labels," he says.

About 95 per cent of Westside's sales  are driven by private labels compared with about 25 per cent for rival, the Rs 928 crore (Rs 9.28 billion) Shoppers' Stop, which is a house of brands. Now, the Rs 472 crore (Rs 4.72 billion) Trent is attempting to scale up the proportion of private labels at its hypermarket chain, Star Bazaar, from 20 per cent to about 30 per cent.

Says Neeti Chopra, head, marketing, Trent, "Our margins on food products, which we sell under the store brand "Star", are twice as good as those from established brands."

Adds Andrew Levermore, CEO, Hypercity, "The margin differential is entirely the retailer's decision. It could be deliberately lower than the national brands to create a price perception for the customer.  However, in most cases we generally approximate 15 per cent more margin."

Says Upamanyu Bhattacharya, CEO of the convenience store chain, TruMart, "It's really worth it  because  in this business even a 2 per cent margin is big.  And for groceries our margins are about 3-4 per cent better while for products like cleaning powder, they're about 8-10 per cent better. "

Bhattacharya says, TruMart  is pricing its private labels  well  below the competition, as is typically the case. In Europe, for instance, these prices can be 10-18 per cent cheaper while in the USA some private labels can be 25 per cent cheaper than the market leader. However, the idea is not always to sell at very much lower than competing brands or come up with cheap substitutes.

Says Chopra, "Our prices are only marginally lower, we may be about 10 per cent lower in a product like tea. That's because we want to deliver good value and build loyalty for the brand." Chopra claims that  in any category where store brands have been launched, they turn out to be the best-selling brands.

It may not always be possible to offer a big discount through private labels, but as PwC's Sivakumar points out, they certainly provide a retailer with an opportunity to differentiate and offer greater  variety, thereby filling gaps in the product range. That way they  hope to attract more footfalls.

Explains Govind Shrikhande, CEO, Shopper's Stop, "Our private labels, which we call exclusive brands, help us offer our customers an exclusive range at the same time covering niche price points." Westside, says Chopra now has almost half a dozen brands  for menswear and an equal number for womenswear.

Adds Bhattacharya, "Rather than launch me-too products, we are looking  to create products that are slightly  different. For instance, we believe our biscuits are crisper because they have some special ingredients." Bhattacharya says TruMart, which has just launched the 'Swadisht' brand of savouries, plans to soon offer juices, cooking oil, pickles and ready to eat foods."

It's much the same with the others, most retailers are experimenting with several categories. Says Shoppers' Shrikhande," There are no entry barriers for private labels in any category. But generally speaking cosmetics and mobiles are somewhat difficult to handle."

Adds Hypercity's Levermore, "We have private labels in every category except for some electronic goods where existing brands already offer the right choice of range and price points."

R Subramanian, chairman of the convenience store chain Subhiksha, says the company already has about a 100 labels, though he adds that it will stay away from some.

"National brands will always have a role to play in certain categories where there is a high emotional connect. For instance, I don't see us making baby food," Subramanian observes.

Which is why in categories such as food it will probably be difficult for retailers to go beyond a point. As Bhattacharya points out, "For foods, it's unlikely that we will be able to do more than 30 per cent. Even abroad, the trend is similar where the biggest hypermarket chains don't sell more than 25-30 per cent in the form of private labels."

Observes E&Y's Mishra, "If they do not stock the popular branded goods, stores will not be able to attract enough  customers. They simply cannot afford to dispense with brands." Therefore, as  Mishra points out, it will be some time before retailers can  extract a  better price from big suppliers of branded product. Says he, "I feel that retailers will not really have too much bargaining power with big manufacturers, at least in the near term."

That's why players like Pantaloon are planning not just to have private labels but also national brands. Says Santosh Desai, CEO &MD, Future Brands, which owns and manages the private labels the Future group, "We propose to create a customer franchise for some of the private labels and turn them into national brands."

The idea, explains Desai is to sell these brands, says Dreamline or even a Tasty Treat, not just through Pantaloon's outlets but also through outlets of other retail chains. "We will use the existing retail strength as a starting point," he says, adding that categories such as apparel, home furnishings and even personal products will be explored.

While that would mean a considerable amount of expenditure on advertising and marketing, Desai believes it would be worth it because  an asset would be created. If that's an ambitious strategy, Subhikha's is a more modest one.

"Ours is actually a quasi-private label model," says Subramanian, explaining that the company does not own any of its private labels. What it does is simply enter  into exclusive arrangements with a host of vendors who supply to it., monitoring the quality.

Others, like Shopper's feel some amount of advertising may be necessary to push the brand. Says Shrikhande, "Usually private labels are never advertised. But recently we have used the platform of Om Shanti Om to promote four of our brands including Push and Shove and Haute Curry."

Perhaps retailers realise they're not just competing with national brands, they're up against other private labels too. And given the profusion of these brands in the marketplace, it's not surprising they're doing whatever it takes to sell.
Shobhana Subramanian in Mumbai