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Fight Slowdown – Alliances + Consumer Behavior + Private Labels

April 25, 2009


This is the second of the two post series on fighting the retail slowdown[first post here]. We will touch upon three core areas- Alliances, Consumer behavior and focus on Private Labels.

Alliances:
In the current scenario retailers should be on lookout for opportunities to partner with foreign retailers as it could possibly bring in the much needed capital and expertise. The relationship could involve joint contribution by parties with shared control /ownership and has some degree of exclusivity attached to it. Retailers can also consider entering into an alliance with
A retailer from the same channel, A retailer from a different channel, Vendors, Back-end service providers like third party logistics players and IT service providers.

Alliances enable retailers in entering new markets, categories, expanding value proposition and capturing new consumer segments. While globally, it’s a common trend, Indian retailers are slowly recognizing the importance of such partnerships and therefore actively seeking for
opportunities to unlock value.

Decode Consumer Behavior:
India is a diverse nation with multi-lingual, cross cultural population spread across different geographical regions. Retailers have to recognize the fact that a strategy that holds true for a particular region and set of people may not hold true for others. Any retailer who does
not do his ground work in terms of understanding his customer needs stands a great risk of failing even with one of the best models at hand.

Investment in consumer research was not amongst their top priorities in Indian retailers. Some of teh strategies adopted by retailers are – Offering Discounts, Lowered Selling Prices and offering value added services.

Private Labeling:
Private labels enable retailers to offer quality products and earn higher margins. The retailer also derives many advantages of using private labels. In-store labels are at least 5-20 percent cheaper across various categories. This is because they cut out middlemen costs and pass on the benefit to the consumer. In the long run, the retailer can use the Private Labels to attract customers to his outlet. Thus, many retailers are considering increasing their private label offerings significantly.

In India, very few players are into own manufacturing of private labels and are dependent on third parties – For example, Vishal Retail is increasingly shifting from manufacturing to third party sourcing primarily because of increase in categories for private labeling and volumes.

Part of private label growth in a recession is permanently sustainable. As consumers learn about the improved quality of private labels in recessions, a significant proportion of them are likely
to remain loyal to private labels, even after the necessity to economize on purchases is no longer required.

Higher profile, quality-focused private label brands are likely to prosper as consumers begin to reassess their views of own-brand goods. Also, with increase in competition and rising pressure on margins, private label are increasingly getting attention due to the aggressive marketing of retailers at par with branded goods.

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