Electronics Retailers Bank On Private Labels As ‘Crowd-Pullers’

Koryo and Vise may not be a buyer’s first choice for an air conditioner or a television but electronics retail chains are increasingly betting on such private labels to draw customers. Being cheaper, they boost sales. But that’s not the only reason.Such brands offer low net margins for sellers of appliances and televisions but serve two purposes. They help convert enquiries into sales for consumers who find products from bigger established brands out of budget. And they help graduate buyers to bigger brands.Some customers might buy private-label products while others may walk into the showroom looking for them but eventually buy other brands, Nilesh Gupta, managing director of Mumbai-based electronics retailer Vijay Sales, told BloombergQuint..“The biggest advantage is that private labels act as a crowd-puller.”.It’s not a new phenomenon — India’s appliance and television retailers have been offering their private branded products for seven to eight years. Yet, private labels contribute just 6 percent of India’s retail sales, according to Aranca estimates quoted by India Brand Equity Foundation released in February 2018. That compares with 19 percent in the U.S. and 39 percent in the U.K.But, with the nation’s electronics retail market expected to grow threefold to Rs 3 lakh crore by 2020, according to another IBEF report, the potential is huge and hence the increased push for private labels.The opportunity has prompted even online retailers like Amazon and Flipkart to launch own brand of televisions to air conditioners..Cheaper Products.One reason why consumers go for private labels is that they are cheaper than bigger brands. And Vijay Sales and Croma, the electronics retail chain of the Tata Group, pack in features like Samsung Electronics and LG Electronics and Sony Corporation.A Croma one-tonne split inverter air conditioner is priced at Rs 28,000. That compares with Rs 32,190 for an AC with similar specs made by Voltas, India’s largest maker of cooling products, at a Croma store. A Samsung one-tonne split AC sells for Rs 38,100, while a similar LG unit is priced at Rs 35,594.At Vijay Sales, a one-tonne Vise inverter split air conditioner is priced at Rs 28,990. A similar Voltas product sells at Rs 30,000 at the store.A Croma 32- inch LED television costs Rs 11,990 while a similar Samsung TV is priced at Rs 23,500.A Vise branded 32 inch LED television is priced at Rs 11,000. A similar Samsung television sells for Rs 18,990 at a Vijay Sales outlet..Koryo, the maker of air conditioners to televisions owned by Kishore Biyani’s Future Group, so far didn’t play the pricing game. Its products are priced on par with those from peers like Samsung and LG. Even as sales of the brand jumped 30-40 percent across categories in the last one year, Sandeep Sharma, head-electronics and Koryo at Future Group, said it plans to launch products at lower prices.That comes at a cost..R&D, After-Sales Costs.Usually, private labels offer higher margins because they help save on marketing costs and retailers don’t have to share profit with manufacturers. But for electronics, other costs are involved like product development and marketing and branding costs.Gross margins are higher for retailers who come up with their brands, according to Devangshu Dutta, chief executive officer of the retail consultancy Third Eyesight Consultants. But product development and after-sales services costs eat into net margins, he said.Gupta of Vijay Sales agreed that own brands offer wafer-thin margins. “No retailer will push for its private-label revenue contribution to go over 10 percent.”.Croma has adopted a different route. The share of private labels to its revenue rose nearly by half to 7 percent in the last one year, according to Ritesh Ghosal, chief marketing officer of Infinity Retail which operates Croma. It not only plans to market more low-priced products, but also add features such as compatibility with virtual assistants like Amazon’s Alexa.There’s also the tough-to-beat-customer connect that retailers bring to their private labels. Ghosal cites the example of the company’s air fryers, which have up to 20 percent more capacity. “We understood that our customers have families of four to five people,” he told BloombergQuint. “You can’t keep one person waiting when the other guys have started enjoying what’s cooked.”

Electronics Retailers Bank On Private Labels As ‘Crowd-Pullers’

Consumer durable retailers see approximately seven percent of their revenue come from the sale of private label products

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