One of the biggest business revolutions of the digital age has been the emergence of the global e-commerce industry. Whether you want to buy a pack of toothpicks to the most expensive gadgets available in the market, fashion, or footwear, everything is available at a click on the leading e-commerce platforms such as Amazon and Flipkart in India. E-commerce has democratised retail in a way that wasn’t possible a couple of decades ago. You don’t have to be a big brand to achieve success online, but if you have a good product that is liked and rated highly by your customers, you will be able to do good business. Lower-entry barriers and the ease of starting a business on e-commerce marketplaces such as Amazon, and Flipkart, etc., are breeding a new generation of ambitious retailers. Using the massive framework and market reach offered by the leading e-commerce platforms, many of the entrepreneurs have built highly valuable businesses in a comparatively short span of time.
However, there is only a certain extent to which small yet profitable businesses can expand on their own. Built with a lot of passion, these niche businesses manage to make a mark for themselves on the major e-commerce platforms before they hit the roadblock of technology and working capital limitations that inhibit their growth. It is to acquire and expand the operations of such highly profitable e-commerce seller businesses with a good reputation that the modern investment firms known as e-commerce rollup companies have entered the fray.
Exemplified by Thrasio in the US, the e-commerce roll-up sector has shown strong growth in recent years. The pace of e-commerce retail has grown rapidly in the wake of the pandemic and created ample opportunities for rollup companies. It already has over 150 high-value Amazon seller businesses on its portfolio. Sensing the opportunity to tap into India’s vast yet unrealised e-commerce potential, the concept of rollup firms has now entered India in a big way. The investors and venture funding firms are pouring tens of millions of dollars into the business with great speed, and the rollup sector aims to leverage mutually beneficial opportunities of scaling e-commerce seller businesses and create a high-value brand portfolio for the rollup firms.
If we look at the current rate of e-commerce penetration globally, US and China stand at 15% and 30%, respectively. India has only achieved 4% e-commerce penetration so far. This implies that the Indian e-commerce and rollup market has the potential to grow exponentially in the years ahead. Eager to capitalise on this huge opportunity, many e-commerce rollup companies are rapidly scaling their operations in the domestic market. The Indian e-commerce ecosystem is already teeming with thousands of players and the roll-up companies are aggressively scanning the ecosystem to identify, evaluate and acquire the right businesses. While it is not logical to expect that these firms would go on to offer a deal to every seller they analyse or enter into conversations with, there is the potential for many promising businesses to get acquired.
As an e-commerce destination, India has its own unique sensibilities and appeal. Therefore, the rollup companies are not only looking at the trajectory of a brand but also focusing on connecting with 15-20 high-value prospects which are profitable and scalable in a better way than the others.
These e-commerce rollup firms then move in with a proposal to acquire the seller businesses and infuse capital, market expertise as well as technology and talent into the brands that they take over. Since the potential is huge and diverse, the roll-up companies tend to target specific verticals to choose businesses from. These range from fashion, B2B business category, sports, fitness, home décor, and other such prominent business categories.
The focus of these e-commerce rollup companies is on using their tried and tested playbooks and technological expertise to scale the businesses much faster than they could on their own. When they identify a business as a potential performer, they focus on integrating it into their portfolio. At times, there are opportunities to bundle and scale together multiple businesses to create a much larger brand that is valued higher and enjoys greater stability than the others.
As evidenced by the post-pandemic surge in the Indian e-commerce sector, there is a clear and highly lucrative opportunity available to be tapped into. The investors are betting their money on the rollup sector and there is no doubt that this next generation of investment firms is going to lead growth and value creation for all stakeholders at a rapid pace!
Writer is the co-founder and the CEO of 10club. Views expressed are her personal.