It turned out great for Flipkart that Anurag Shukla had spent considerable time in China. As a purchase manager at Samsung India, he had even picked up a working proficiency in Mandarin as he networked with electronics suppliers in the neighbouring country. Shukla now heads electronics sourcing for Flipkart’s biggest forward bet—its in-house brands business that is heavily reliant on China’s manufacturing might.
Flipkart began selling its own brands a year ago, making its private label business a cornerstone of its growth strategy for the obvious control it affords over inventory, pricing, and margins. For developing products such as electronics accessories and appliances, it is collaborating with Chinese manufacturers. Flipkart has built a dedicated team comprising people such as Shukla from across industries to give wings to the project.
Flipkart has high ambitions for its private label business. Within three years, India’s largest online marketplace wants its in-house brands to account for 15-20% of its overall sales volume. The company already has created a few umbrella brands—SmartBuy for electronic accessories, Perfect Homes for furniture, MarQ for large appliances, and Supermart for staples.
“Private label is very important for us. If I look at all the initiatives we are doing in the company and pick, say, the top five, especially building for the longer term, private label will be there,” said chief executive Kalyan Krishnamurthy.
Flipkart executive chairman Sachin Bansal oversees a parallel private label project called Billion, which includes smartphones and categories such as home appliances and fashion.
Flipkart’s closest rival Amazon has been hugely successful with its private label play in the United States, where it launched Amazon Basics in 2009. The company’s in-house brands extend across categories—grocery, electronic appliances, home goods, pet supplies, etc.
These are aside from Amazon’s e-reader Kindle and Amazon Echo, its smart speaker that has grabbed a lot of global attention, including in India.
Royan Mody, brand head of Flipkart SmartBuy, remembers when he was the lone executive tasked with researching private labels. He spent a couple of months understanding how Macy’s, Costco and others had gone about building their in-house brands. What clicked, what didn’t? What were the benchmarks, how were the various programmes organised? “It was an in-depth strategy project on what Flipkart should be thinking from the private label perspective.
What were the best private label programmes in the world? Whom do you benchmark yourself against? It began like that. The strategy project went on for a couple of months, after which the team was incubated,” said Mody. “We looked at global brands— Macy’s, Wal-Mart, and others. We also looked at Indian players including Shoppers Stop, (Tata group’s retail unit) Croma, and our own Myntra (Flipkart’s fashion unit).” Myntra’s private label business— which includes its artificial intelligence-powered brand Moda Rapido, Roadster, and actor Hrithik Roshan’s HRX—turned operationally profitable in June, two years after launch. The retailer expects its inhouse brands to contribute 35-40% of total revenue in 18 months, from about 23% in September.
Building a team for a private label business is not nearly the same as building a team for an online marketplace. You need people with very different skillsets. Flipkart sourced a part of the team from the industry and the remaining internally.
Adarsh Menon, who heads the e-tailer’s private labels business, came from Hindustan Unilever, and Rushabh Sanghavi, business head, Perfect Homes by Flipkart and Flipkart Supermart, was a founding member at online furniture brand Urban Ladder.
“We have tried to combine skills from products, from analytics, finance and the core categories to put things together. It is a very unique team,” said Krishnamurthy.
Once the core team was built, Flipkart decided that the humble mobile phone charger would be its first port of attack. Flipkart had built a reputation in the mobile phone category, and it only seemed logical to extend that brand trust to mobile accessories. Its phone charges would be cheaper than branded ones but of a higher quality than unbranded units.
Smartphone companies selling chargers separately typically priced them high. “No customer wants to pay, say, Rs 1,200 for a charger, (and) the non-branded chargers are of low quality. We looked at the top-selling chargers and the reviews, understood pain points, and figured out the need in terms of quality and pricing,” said Mody.
Once the ball got rolling, more product lines fell into place. Flipkart, in a year, has its own brands in about 10,000 products spanning 70 categories. “(Private label sales) have risen to high-single digits in many categories,” said Krishnamurthy.
HOW THINGS WORK
The first step in launching an umbrella brand like Perfect Homes or SmartBuy involves a product deep-dive—research on features, competitors and their products, and price. The research team works closely with the marketplace category team to figure out pain points, study product reviews, and even speaks with customers who returned a product to understand the reason.
“Before launching anything we do research on what products we should launch. We look at the entire Flipkart space and figure where exactly we should play, and pick a couple of reference products from the market. We sit with the category team and understand if we are moving in the right direction because they are the encyclopedia of that product,” said Ishita Bhatia, brand head, Perfect Homes by Flipkart and Flipkart Supermart. “We understand customer pain points, look at ratings and reviews on the website, and take out returns data and talk to those customers to understand their concerns and re-engineer the product.”
Before launching its furniture brand Perfect Homes, Flipkart’s research team studied what types of furniture a family needs, the pain points across those furniture types, if the commonly available dimensions were good enough, and what more customers wanted. “This is a very unbranded, fragmented space. We decided on which are the primary rooms in a home, what are the primary verticals a family needs in a home. For example, a bed… when you are cleaning, you push the bed to clean (and) what happens is the headboard comes out. We used a different construction completely, working with our manufacturers in Malaysia to make it more sturdy,” said Bhatia.
Such insights are sent to the sourcing team to find manufacturing partners. This is where Shukla’s experience comes in. “China is the factory of the world. All big brands go for design there. I had that experience. I was confidently advocating (going to China)… we can beat the competition not only in price, but also trend,” he said.
To establish the initial partnerships, Shukla spent almost a month every quarter in China, relying on his networks and trips to manufacturing fairs to find the right partners. At the fairs, armed with the specifications, Shukla and team had to funnel partners until they found the right ones.
Flipkart has set up a small office in Shenzhen, China to be close to its manufacturing partners. It has also tied up with manufacturers in India and Malaysia for various products.
WHAT THE FUTURE HOLDS
These are still early days for Flipkart in the private label space, but it is certainly one of the company’s biggest push towards turning profitable. According to Krishnamurthy, the data that Flipkart has will be the differentiator. “It is a huge data play. If you look at all that data—what are customers’ preferences from a value point of view, quality point of view, service point of view—and are able to design products based on that, the value is unmatchable,” he said.
Going forward, the idea is obviously to expand private label products and categories. “Perfect Homes will soon have sofa, coffee tables, drawers… every furniture in your house. MarQ will go into all large appliances—home theater, washing machine, etc. Very soon, we will have 100 categories,” said Menon, head of Flipkart’s private labels business.
Sreedhar Prasad, partner and headconsumer markets and internet business, at KMPG India, said the private label strategy has become critical for online marketplaces. “Unless you have enough or more grip on the supply chain and the cost of goods, it is difficult for a marketplace to become profitable,” he said. “This (private label) business will grow and be a strong backbone for the overall ecommerce industry.”
Source by:- economictimesShare: