LIME - BUILDING A PRIVATE LABEL

Tanya Desai, Category Head of Women’s Western Wear at Royal Department Stores (RDS) seemed lost
in her thoughts. The annual budget and strategy meet for the forthcoming year of RDS had just
concluded. This year, the focus of discussion for the Women’s Western Wear category was to increase
the gross margins of the category and the sales percentage share of its private label “Lime”. Though
conceptualized and introduced around a year back, Lime had a limited range offering and contributed to
about 4% of the category. The core range of Lime was focused on Young Fashion catering to the age
group of 18 to 26. As a plan for next year, the target was to increase gross margin percent of the
category from 49% to 56% and the private label share had to increase five-fold over the next 2 years
from 4% to 9% in year 1 and then to 20% in year 2. Though many organized players have started
entering the market, ladies western wear in India is largely unbranded as a segment and it would not be
a difficult task to convert customers to purchase the private label. But the challenges go beyond than
just convincing the customers to buy the product. How will the range be designed and developed? Is
there the internal expertise for sourcing and sampling? Should some of the functions be outsourced? Is
the supply chain adept to factor the fast changing trends? All the activities required for private label
were currently managed by a small team who were also responsible for the national and generic brands.
Should the team size increase or is there a requirement to create a separate team who are solely
responsible for private label? With these concerns in mind, Tanya proceeded to her work station to
chalk out the road map and next plan of action.

FASHION RETAIL MARKET IN INDIA

The estimate size of the retail market in India is estimated to be worth INR 53,06,400 Crore ($792 billion)
and is expected to reach INR 1,50,68,300 Crore ($2,249 billion) by 2028 growing at a Compound Annual
Growth Rate (CAGR) of 11 percent. The fashion retail market which is estimated at INR 3,61,160 Crore
($54 billion) in 2018 is expected to grow at a promising CAGR of 8.1 percent to reach INR 7,88,532 Crore
($118 billion) by 2028.

The Indian apparel market can be broadly classified into Menswear, Womenswear and Kidswear.
Currently the share of menswear in the apparel market is the highest at 42 percent, followed by
women’s wear and kidswear at 37 percent and 21 percent respectively. It is estimated that over the
next decade, CAGR of women’s wear and kidswear will be at a high level of 8.3 percent and 8.9 percent
respectively which will result to a rise in the market share of these categories.

WOMEN’S WESTERN WEAR MARKET IN INDIA

The pre-dominant categories of women’s wear in India are Ethnic wear, Western wear, Indo western
wear and Inner wear. Currently ethnic wear is the highest contributor but western wear is estimated to
grow at a higher rate as compared to ethnic wear in the next decade. In 2018, the approximate size of
women’s western wear was 235 billion Indian rupees and is estimated to reach 625 billion rupees in
2023.
The key factors contributing to the growth of women’s western wear segment are increase in
urbanization, rise in the number of working women, brand awareness, increasing reach of western wear
brands to tier II cities and increase in the young generation population. The emergence of ecommerce
has given a further boost to this segment.

The key global women’s western wear brands operating in the Indian market are Zara, Vero Moda,
Mango, H&M and some of the national players include 109 F, Chemistry, Madame and Mineral. There
are a notable number of private labels as well in this segment such as Ginger, Honey, Nuon and Stop.

ROYAL DEPARTMENT STORES

Royal Department Stores (commonly known as RDS), founded in 2014 with a single store grew as a chain
of 15 stores spread over Mumbai and a few tier B cities of western India. The average size of the stores
being 20,000 square feet specialized in Fashion Retail for Men’s, Ladies and Kids. Headquartered in
Mumbai, all the key functions of RDS were centralized. The range comprised of pre-dominantly national
and generic brands. Private label across the departments, though present, were negligible and
contributed to about 5% of the overall business.

The category teams were divided on the basis of departments which were Men’s, Ladies and Kids.
Ladies wear was further split into Ethnic wear and Western wear. Tanya headed the Ladies Western
wear category which had a 4 member team looking into the various functions of planning, buying and
merchandising along with designing and sourcing. Since the focus till date had not been towards private
label, the current team was responsible for both private label and other brands as well.

Lime, the private label of Ladies Western wear, started around a year back. It focused on young fashion
and catered to the age group of 18 to 26. The designs and styles were pre-dominantly based on the
fabric availability with the existing vendors. If there was some excess fabric which had a cost advantage
and fit into the offering, they were incorporated in the product range of Lime. The designing, range
development and quality aspect were at a very preliminary stage. Further, since the same teams
currently managed both the non-private and private labels, the focus was at a minimum level.

The global and national brands would help in the store image, increase traffic flow and support in
marketing and promotional expenses. However they yield lower gross margins and the same brands are
available in competing stores as well. A focused strategy to increase the share of private label would
help create a differentiation and address a gap, have a control on all key aspects such as design, quality,
supply, create customer loyalty and above all due to detailed cost working, it would enable to earn
higher gross margins. But, private label had its own set of challenges as well. Significant investments
were required for developing a private label, creating customer awareness and promoting a favorable
image. Further unsold merchandise cannot be returned back to the manufacturer and there is no
external support for any marketing expense related to private label. The entire cost has to be borne by
the retailer.
However, after an in-depth discussion at the annual budget and strategy meet, the benefits of private
label were multi fold and it far outweighed the challenges faced. There was hence an immediate need to
focus and develop “Lime”, the private label of Women’s Western wear category at RDS.

PRIVATE LABEL DEVELOPMENT

As a category head, Tanya began to list down various areas to be looked into in order to achieve the
target of increasing the share of Lime from 4 percent to 9 percent in the forthcoming year and followed
by 20 percent in the next year. Being an in-house label, it was given prominence and was at key
locations in all stores. Also the branding was well worked on to suit the taste of the young target
audience. However, barring these factors, all the other areas had to be looked into in great detail and
would possibly require to be re-worked to achieve the set target.

To begin with, the design team would need to be formed as they conceptualized themes and played a
critical role in the private label development. This of course does not undermine other roles. But being a
young brand, it was necessary to imbibe the latest design trends into the range. The general perception
of a private label is that there is lack of originality, they normally copied the successful designs of
popular brands and offered similar products at lower prices. But this would completely defeat the
purpose of a private label, as the main objective was to offer differential designs which are relevant and
aligned with current trends.

The planning team analyzed data and market trends and worked on a detailed option plan with respect
to styles, price points and deliveries. They were also responsible for allocations, replenishments and
keeping a control of inventory levels at stores along with the warehouses and pending stocks lying with
the vendors. The option plan is the driving force for concept and styles finalization along with the design
team.

Once the designs are finalized, the sourcing team identified the sources of supply which can be from
existing or new vendors or a combination of both. Negotiation was a key skill set required for the
sourcing team. Getting a right product at the right cost goes a long way in achieving higher margins.
Samples were accordingly developed based on the specification of fabric, color and fit. It further went
for quality check which involved lap dip and fit sample. After sample approval, the styles were sent for
manufacturing.

Once manufactured, as per the given schedules and undergoing the required quality check, the styles
were delivered to the warehouse and then allocated to stores. Fashion products being perishable
constantly face the issue of seasonal uncertainties and changing trends. This makes it important for the
supply chain team to be responsive and agile. Also, for a fashion label, in addition to all the planned
ranges, the flash range also needs to be factored which can occur within any season. Whilst the design
conceptualization and development are important, the fulfillment of the product as per demand is an
imperative factor for success.

An important point to be noted in this process is that though there was a difference in the teams and
their deliverables, it was critical that all functions worked hand-in-hand and closely with each other. Any
slip from any quarter would uproot the entire cycle. Further, at any point in time, most of the teams
were simultaneously working on 3 seasons –

(i) the current season for monitoring purpose and to work on in-season action plan like inter
store transfers, markdowns etc,
(ii) the immediate next season for monitoring the manufacturing process and to work on course
corrective action if required like fabric rejection etc and
(iii) the season following the immediate next season for sample development and finalization.

After drawing the broad framework which was imperative for the private label development, Tanya
wondered if the current team were adept and had the capabilities to achieve the five-fold increase in
the share of “Lime” in the women’s western wear category.

References:

Images Yearbook 2019: India Fashion Retail Market 2018 – Technopak Advisors

https://www.statista.com/statistics/1030492/india-market-size-of-women-s-western-wear/

Questions

1. Group 1 & 2 - Detail out the action plan to achieve the target of increasing the share of sales of
the private label to the category.
2. Group 3 & 4 - What would be the challenges faced to achieve the target of increased sales share
of the private label?
3. Group 5 & 6 – Describe the role of various teams in private label development in retail.
4. Group 7 & 8 – Enumerate the factors favoring the current team continuing to work on the
private label of Women’s Western wear category at RDS
5. Group 9 & 10 - Enumerate the factors favoring a separate team to work on the private label of
Women’s Western wear category at RDS