Clothes-hopping: E-Tailers Jump on the Brandwagon

Late last year, an innocuous observation by a regular customer got Richa Kar thinking.

Despite being India’s largest online lingerie-only store with numerous offerings for regular body structures, the customer said, Zivame.com had limited options for petite frames and the average price points were high for someone like her, a young professional who had recently started working.

Kar, founder and chief executive of Zivame, did some homework. She found that she wasn’t alone: Most of the other national and international brands had also overlooked the value proposition in this segment. Lingerie, by definition, is extremely intimate and customers want to feel, literally and metaphorically, comfortable with their purchases. But customers were having to compromise between aspiration and accessibility.

That was enough for her. “The products available with us were a bit limited in terms of offerings,” she says. “We saw a glaring gap in the assortment. The international brands’ price points were difficult to match in the Indian market. That is when we decided to provide private labels.” As a niche player, it needed to offer every possible product in the category. “It is our product strategy.”

A few weeks later, in January 2014, Zivame launched Coucou, an in-house brand offering reasonably-priced lingerie for younger customers with special attention to the needs of petite women.

Today, Zivame offers over 2,000 lingerie styles from 45 national and international brands such as Enamor, Triumph, Wonderbra, Jockey and more. But Coucou and Penny Goddess (Zivame’s first private label,  aimed at fuller women, launched in November 2013), now comprise almost 40 percent of the site’s revenue.

Kar is not alone in her epiphany. Private labels (fashion-retail-speak for in-house brands, typically manufactured externally, under supervision, and exclusive to the e-store) suddenly seem to be everywhere.

And it’s early days yet, say industry experts. Pragya Singh, associate vice president, retail and consumer products, Technopak, a management consulting firm, says, “For private labels, the upside in terms of margins is very high. E-tailers make about 35-45 percent from regular brands while private labels contribute anywhere between 60 and 65 percent gross margin.”

India’s $3.1 billion e-commerce industry is highly commoditised and overcrowded, and companies clone each other’s services in no time. Negative margins are more the rule than the exception.

But online fashion retailers, at the very least, seem to have found a saviour in private labels, which help them build both profit margins and a differentiated offering. As Mario D’Souza, strategy head at Bangalore-based Fryed Advertising, says, “Not only do they build loyalty among fickle online customers towards the website, but also a strong private brand offering could possibly be taken offline as well, maximising the brand’s potential in terms of profit and equity.”

Myntra, the country’s largest online fashion retailer, certainly seems to think so. It plans to double its portfolio (currently seven private labels) across men’s formal-wear, kids-wear, handbags and other segments.

In May, Myntra had roped in Abhishek Verma from McKinsey & Co to lead its private label business; he is now senior vice president, Fashion Brands. “We are building this business as independent standalone brands,” he says. “For us, private labels are not category fillers. Each of these labels are independent strong brands targeted towards a particular consumer segment, creating a long-term brand equity value, quite apart from their obvious economic value.”

The initiative is not new for Myntra. Its private denim brand, Roadster, launched in December 2012 to target the 18–24 demographic, is currently over Rs 100 crore in sales, with plans to push it to Rs 500-crore in the next two or three years. The company recently roped in Bollywood star Ranveer Singh as Roadster’s brand ambassador. And, in collaboration with Parabellum (an Italian design agency with clients like Lee, Puma and denim brand 7 For All Mankind) it is developing a premium version called RDSTR. Priced 30-40 percent above the brand’s core price segment, it will be launched in October 2014. The company’s other private brands include Dressberry, western women’s-wear, Anouk, ethnic women’s-wear, Mast & Harbour, a nautically-inspired brand for men and women, ETC, wardrobe essentials for men, and the graphic-inspired Kook N Keech. And in 2012, they acquired Sher Singh and its sister label, Exclusively.

In addition to the 30 in-house designers leading its private label efforts, it will work with young designers looking to create their own labels through its Myntra Fashion Incubator (MFI) programme, to be launched in October this year. Says Verma, “We will induct 10 designers and take them through an incubation programme of six to nine months after which their first pilot collections will be available exclusively on our platform.”

Myntra’s private label portfolio currently contributes 20 percent to its overall sales and it plans to introduce them as an offline experience in three metro cities within a year.

A few online-only brands like Yepme.com and Zovi.com have taken private labels to the next step.

They retail their signature brands through other marketplaces as well. Vivek Gaur, co-founder, Yepme.com, says that since they have already spent money on customer acquisition, it makes sense to sell elsewhere too. “Marketplaces want us on their sites as there are customers who look for our brand. We make more margins by selling on third-party platforms.”

Bangalore-based Zovi.com gets 15 percent of its revenues from these marketplaces, says Manish Chopra, its chief executive. Originally an online private label menswear brand in 2010, the company now also sells women’s-wear and accessories.

For Jabong.com, the aim is to bring Spanish fast-fashion chain Zara’s concept online. Arun Chandra Mohan, co-founder and chief executive, says, “We want to offer customers new fashion every 15 days. To this end, we are building an infrastructure in terms of design, branding, merchandising and sourcing to provide fast fashion.” That kind of in-house control is the only way it can hope to replicate Zara’s catwalk-to-store two-week benchmark and perhaps, their billions in revenue. “I don’t want to restrict our offerings to an Indian supplier base. I want to be able to offer best in class products from across the globe. So, if the best denims are from Turkey, I want to make them available here. It is important to have a comprehensive sourcing strategy to build strong private labels.”

Jabong’s design-cum-merchandising office in London has a 15-member team, including designers and buyers recruited from global brands such as Zara, River Island, ASOS, Mexx and Marks & Spencer. The office integrates with networks in China and other Southeast Asian markets, including Vietnam and Cambodia.

The company’s Miss Bennett label targets young women while Lara Karen caters to a more mature clientele. Its menswear brand, Incult, makes biker-wear and casuals, mostly denims. And it is exploring other categories starting with shoes: It launched Sangria for women in mid-2013.

Currently, one in five units that Jabong ships is from these private labels and they bring in about 18-20 percent of overall sales. While Chandra Mohan does not specify a time frame, he expects this to rise to as much as 35 to 40 percent in the near future.

Other companies are jumping on the bandwagon too.

Fashionara.com will launch a series of private brands in the next six months in categories like clothing, handbags and accessories, co-founder and chief executive Arun Sirdeshmukh told Forbes India.

The online fashion market in India was pegged at $559 million last year, almost doubling from $278 million in 2012, according to a report by venture capital firm Accel Partners. In the next three years, it is expected to grow by 400 percent.

Not surprisingly, it’s not just fashion e-tailers who see the flashing rupee signs. Marketplaces like Flipkart, Snapdeal and Infibeam are also eyeing online brands. In May this year, Flipkart announced an investment of $100 million in fashion over the next 12 to 18 months.

However, private labels do pose significant challenges. Sophisticated infrastructure for manufacturing, product development and research, among other factors, requires deep investments, not including the necessity of brand-building activities. Technology-driven categories such as watches, performance footwear and premium perfumes also require product know-how and back-end investment, cutting into the high margins that make private labels attractive.

Categories like sports shoes or premium perfumes, Technopak’s Singh says are highly brand-skewed, with customers looking for established brands. “Even denims would be challenging for private labels though there are a lot of in-house brands. It requires high-end manufacturing process and product development.”

For all the hoopla, private labels are not a new development. Brick-and-mortar multi-brand retailers like Shoppers Stop and Lifestyle see 15 to 25 percent of their sales coming from private labels. For Trent Limited’s Westside and the Landmark Group’s Max, the product portfolio is heavily skewed: Private labels contribute about 80 percent of sales.

And the big guys have noticed it too and are thinking ahead.

Arvind Ltd, India’s oldest textile and apparel brand business, is focusing on the next wave: Personalisation. The $1 billion textile major has launched Creyate.com, a custom clothing portal. Kulin Lalbhai (second son of Arvind chairman Sanjay Lalbhai) says, “Providing not just a private label offering, but also a customised product will be expected in the future. The ambition is to be much bigger than a private label.” Creyate seeks to become a Rs 100 crore business over the next year-and-a-half.

It will be a while before we know which companies come out on top in this new brand game. So far, the biggest winners are the customers.