UrbanClap, Housejoy plan to introduce private labels as On-demand service providers UrbanClapand Housejoy are looking to introduce private labels in their beauty and home appliance categories as they seek to capture a larger share of the mass market while squeezing the most out of margins.
The move will see these companies shift beyond services to extend their footprint on the product side as well.
“We work with OEMs (Original equipment manufacturers) and brands in the beauty space and are also looking to introduce our own private label products. The idea behind launching private labels is to also significantly bring down prices without impacting quality because the contract manufacturer could be the same. The margins in this segment are very strong,” Abhiraj Bhal, CEO of UrbanClap, told ET.
For on-demand service marketplaces, the beauty segment accounts for about a quarter of their revenue share, with gross margins for the category spanning 15-20% where a contractual service professional is involved and goes up to 40% when service providers are on the payrolls of the marketplace itself, according to industry estimates.
Introducing private labels in this segment allows UrbanClap and Housejoy to extend their footprint beyond just the mass premium market, which opts for brands such as Lotus, Sara Cosmetics, and L’Oreal — currently available on these platforms — to tap into the main mass market, helping boost margins by at least 4-5%.
“The market is extremely fragmented, and it’s a natural extension of our product service, benefits the customer, and as an extension, benefits us as well, from an overall profitability standpoint,” said Saran Chatterjee, CEO of Housejoy, which is looking to launch private labels in moisturisers, sunscreens, night creams as also shampoos and nail paints for its beauty vertical.
“It’s a little early at this point, because we also have to understand the supply chain a little better. We have to work with the right kind of manufacturers, who conform to certain guidelines, as well as our product standards. Once we do that, it’s about experimenting with the product, and figuring out which one has the right product-market fit,” Chatterjee told ET.
However, experts believe a successful private label play in beauty, where brand recall plays a significant role in creating and sustaining customer loyalty, may be tough for such firms.
That would probably explain UrbanClap’s move to also introduce private labels for spare parts in its home appliances category. “As the core consumable component starts to increase in a service, using that price and being involved in the supply chain can help reduce pricing for the customer and create a new revenue pool for ourselves,” said Bhal.
Urban Clap expects the private label play to significantly move the needle for its appliances category rather than beauty, given that the product forms the key cost for the service value in such categories.
Within home appliances, Urban Clap is looking to launch private labels in RO filters for water purifiers followed by spare parts for refrigerators, microwaves, geysers, TVs as also screen replacements for mobile phones.
Experts, however, view the move with caution, pointing towards the costs involved in orienting the entire supply chain towards product-sales from being a pure play services enabler alone. Investors and analysts alike maintain that unless such heavy costs are balanced with a significant increase in order volume, it is unlikely to positively impact margins and will rather weigh heavily on further losses.
“While it is a good start to at least begin trials on this front, it may be better for such companies to partner with specialists or niche product providers to make this concept more valuable. However, the market opportunity at play (for this move), will determine the capital that can be raised and how much (these companies can afford) to burn (to see this through),” noted Karthik Reddy, managing partner at Blume Ventures which has backed hyperlocal startups such as Dunzo and MilkBasket.
The online services market in India reached $70 million in 2017, with players including Urban Clap, Housejoy and Quikr Services having witnessed 25-30% growth QoQ, according to Redseer Consulting. At a compound annual growth rate of about 60%, Redseer expects this market to grow to $300 million by 2020.