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Will big e-commerce players introduce private label?

August 27, 2014 CK Wong Category : , , , , , , ,

Tesco private label - Everyday Value

It is a natural step forward for big retailers to introduce private labels to provide consumers more affordable options at the same time maintain higher profit margins. Besides Tesco (pictured above with Tesco Everyday Value), private label brands are also carried by AEON (TOPVALU brand introduced in Malaysia since 2013) and Giant.

According to Euromonitor, private label is still quite undeveloped in Southeast Asia with 2% or lower retail penetration, as compared to developed countries in Europe which can be as high as 30%.

On another hand, we stumbled upon an article of HBR saying that pricing advantages of pure online-play retailers mostly come from lower profit margins rather than lower cost.

The information technology, distribution centers, shipping, and returns processing required by e-commerce companies can actually cost as much as running physical stores.

Private label is one of the logical ways to lower the cost, so are (bigger) e-commerce players embracing private label brand?

Besides purported lower cost, private label can provide retailers a better control of quality, supply and distribution. Similar with prominent position on the shelves, online retailers can also facilitate online marketing weight for their own private labels.

However, the next question is which categories will work best for private label? Traditionally, we only see private labels on FMCG (fast-moving consumer goods), like tissue & hygiene, packaged food, home care, drinks to beauty & personal care.

Private labels shares by FMCG market 2012

However, private labels like TOPVALU also carries a range of fashion items besides the consumables.

As the matter of fact, TOPVALU is one of the private label strategies establishing a generic brand distinguished from the retailer brand. With a similar approach, online fashion retailer Zalora has introduced its own private label brand EZRA since 2013. (Update: Lazada too launched LZD Premium Collection in 2014)

On other e-commerce fronts, India-based online retailer Jabong has also recently announced their plan to introduce private label brands soon. There are also rumours that Groupon is planning for its own private label line.

If you read clearly on Lazada's US$250 million funding from a group of investors which includes Tesco back in December 2013, it says:

Both parties will work closely in various areas including customer analytics, private label development, and supply chain management.

Is private label applicable only to big online retailers? How important private label strategy is for e-commerce players? We shall see.


What say you?