The Evolving world of E-commerce

The Rise of Aggregators Taking Over Independent Online Brands?

The forced shift of retailers moving to online marketplaces due to COVID-19, has created an even more competitive online shopping landscape. During this very long two years of the pandemic, we have seen a surge of independent brands and sellers taking advantage of eCommerce marketplaces (platforms such as Shopify, Amazon, Etsy, and Shopee). Often these independents started their businesses as passionate side gigs, but many of these side gigs have now turned into full-time careers with reliable income streams. Amazon’s third-party marketplace generated $80 billion in 2020 thanks to this huge market segment shifting? from individual websites to online marketplaces. The trend is driven by the ease of launching online, the access to enormous user bases, a significantly smaller capital outlay and convenience.?

However, these small companies often become the victims of their own success as, the bigger they get, the more there is to manage. There are 3rd party suppliers that exist to relieve some of this pressure - outsourced branding, marketing, logistics etc. - however, once these companies get to a certain size, scaling further can become extremely challenging as entrepreneurs seek to manage multiple 3rd parties.?

Off the back of this growth we have seen a new model emerge, the Roll up/Aggregator model. Aggregators are companies that partner with, or acquire, independent brands and sellers who have already established themselves in these marketplaces and roll them all up under one “umbrella”. These Aggregators seek out companies generating over $1 million a year, with profit margins of over 20%, solid customer ratings, an efficient supply chain and logistics, and the potential for future growth. Loyalty and a proven track record is hard to build so these aggregators have decided to buy it. It removes huge unknowns from building a new company, the trial and error has already been done, they can just step in to grow these companies further, largely by leveraging a deep understanding of the ecommerce algorithms associated with the search and recommendation functions.?

Many sellers are hugely attracted to the idea of being acquired as they have done the hard work, built businesses with revenues of over USD1M, and are able to command a good sale price and step away from the headache of running the day to day operations. Car Cache, for example, a brand that sells mesh slings for back-seats in cars, was approached by Thrasio for an acquisition deal. Seifer, Car Cache’s founder, decided that the benefits of not having to look over the day to day running of the business - rankings, warehousing, customer complaints, counterfeit products etc - was worth the price Thrasio offered so they are now part of the Thrasio “stable”.

ECommerce 2.0 goes beyond the buying and selling platform. It’s about establishing the entrepreneur's brands while using the platform’s functionality to cover more ground and tap into niche markets better. A more integrated eCommerce solution where brands can eliminate inefficiencies and fragmentation allows these entities to handle advanced functions not covered by the storefront providers themselves. Entrepreneurs can either sell their brand or choose to remain in control while using a variety of services to implement social media strategies, logistics etc while also being able to run multiple storefronts from a single unified hub. This model provides efficiency, savings, and allows brands to maintain some control while scaling up. By working under a unified provider to gain on-demand access to proven technology, expert advisers and a whole new suite of services future growth is more manageable.?

Under a‘single umbrella’ platform, the aggregators offer better synergies and bigger economies of scale. Sellers don’t have to rely on third-party providers nor waste time in managing multiple outsourced teams. It’s about gaining the benefits of being a big company without having to be a big company.?

Conglomerates for the Digital Age

Many of the brands that fit the parameters for growth that make them attractive to aggregators have been successful by exploiting a gap in a niche market. In that way the digital world is mirroring the retail world and, in the same way, one can think of these Roll ups or Aggregators as the internet ‘Unilevers’, creating a portfolio of a whole host of niche brands.?

During the pandemic, more businesses were forced online, more people launched businesses to create new revenue streams and, as a result, more niche eCommerce brands caught the attention of aggregators.

Thrasio, which started in the USA in 2018, is estimated to earn over $1 billion in revenue this year, claiming to be ‘the fastest growing unicorn company in the US’. Initially buying profitable brands at low prices, having run them through data-driven operations they now aim to become the next ‘online P&G’ on Amazon, having already acquired 150 brands. Their key focus? To improve the basic SEO marketing to grow out their acquired brands under a single name. It’s cost-effective and takes advantage of Amazon’s SEO ecosystem.?

Others, like Perch, that focus on sellers in their early startup stage, sweep up potential niche brands to carve out a profitable portfolio, and turn them into household names, establishing them as brick-and-mortar retailers. Open Store, Razor Group, Elevate Brands, Branded Group, Technology Commerce Management, Win Brands Group, and Unybrands have all been acquired with billions of invested capital by marketplaces.

source: crunchbase news)?

According to Thrasio’s founder Silberstein, more aggregators will enter the market but predicts that ‘in the next few years the existing group of companies will self-separate into the 10% to 15% that have a chance to create value’. New entrants will have to figure out new approaches beyond just replicating Thrasio’s business model. More customers are shopping online intentionally and aggregators will need to master SEO and ecommerce marketplace search engine algorithms in the short-term. Brand building is expensive and requires long-term commitment. We’re already seeing some aggregators of Amazon-based businesses struggling to survive as they compete with China-based brands who make up half of the marketplace ecosystem, at a fraction of the price. It’s, as yet, an unproven model for the longer term so there is still a lot of inherent risk.?

Nebula: The Next ‘Thrasio’ Model for China

Chinese sellers represent 40% of Amazon’s US marketplace; low prices, rapid product development, and a concentration of innovators are the key growth drivers. Mainland aggregators in China are quick to follow up on potentially profitable mainland brands - it’s easier to build trust and familiarity with local buyers and supply chains than with overseas brands; not to mention the simpler banking processes if the sellers are onshore. However, increasingly, Chinese sellers have been complaining about the growing competitiveness on both the Chinese marketplaces - like Taobao - as well as on cross-border marketplaces - like Amazon - yet they remain skeptical of the aggregator model.?

Having said that, Nebula, a fast-growing aggregator in China, is gaining traction;? already offering a variety of brands; has supply chains covering whole industries; as well as globally competitive engineering talent. They have also built professional teams of brand marketing, production, R&D, supply chain management and other teams in Beijing, Shenzhen, and New York. More brand acquisitions means more sales, which in turn means more focus on tech capability to handle multi-brand, multi-channel and multi-module management. They’re hoping to expand categories to sports, mother and child, health, home furnishings.

Aggregators are also looking to capitalise on seller’s supply chains and product design skills in other marketplaces too e.g. Shopee (SEA based), Coupang (Korea), and other Amazon regions to optimize the reach of their niche brands and even considering potentially selling in traditional retail stores. After all, brands like SHEIN - a fast-fashion eCommerce brand already popular with influencers - are reportedly venturing offline to build brick and mortar stores.?

The Future For eCommerce 2.0 Marketplaces?

We’re living in a fast-paced evolving digital world, and when it comes to eCommerce, there’s no ‘clear future’ in terms of business growth. We are seeing a mix of single-umbrella acquired brands, “stables” of brands, and independent brands on big online marketplaces. Both Western and Eastern platforms are being disrupted but only time will tell if we will see whether the independents seek new stores so as not to compete with these new conglomerates on the major platforms; whether appetites for the independents will keep those brands viable; whether the aggregators will keep on growing and gobbling up everything in sight; or whether secret door "Ecommerce 3.0" brings us something completely new again.?