It could happen. In India’s growing business of online retail, the latest strategy is to dominate one product or vertical—and then hope the bigger players swallow you up for millions.
That worked for Myntra, the largest player in the broad category of online fashion retailing which got acquired by Flipkart in May this year. While fashion in itself is a large category, Myntra had acquired sports-inspired apparel retailer Sher Singh in 2012.
Companies are now looking at niche areas or categories to explore in depth. While Footsy, a Bangalore based startup, is selling only socks online, Superhero Toy Store, based in Mumbai, is in the business of selling superhero collectibles online.
The tactic might sound basic because it is. Even Amazon and Flipkart started with a single vertical and then added categories.
On an average it takes seven to 10 years to build a $1 billion internet company, according to Bowei Gai, Founder of World Startup Report. Flipkart took about seven years to get there. The fact that the company is not really making profits is another story.
But in the beginning they were all young single-category online retailers. So is that what will happen to all of India’s single category e-commerce players? “Earlier there was wide space to expand from one category to another. Now that space has quite a few large players,” said Nishant Verman, an associate at Canaan Partners. What new e-commerce companies do now is look deeper in their respective categories and gain domain expertise.
Devesh Chhabria, founder of Superhero Toy Store says: “ardent fans are happy to shop from a niche player. Large companies may be able to give the same or similar products at lower costs, but we know our customers and products inside out and can offer variety and larger number of options. The customers also connect with us much better because we can tell them which product to buy if they are a fan of a superhero comic book series or the movie series.” His company specializes in selling superhero collectibles, action figures, posters, etc. online.
Verman of Canaan says, “these companies have the advantage of being able to understand the customers better. They aren’t playing the volume game like large online retailers. They are playing the margins game.” He also adds that these companies can focus on creating good online brands and products of their own.
In 2007, Nilesh Parwani had set up Printbell in India. The startup had ventured into the printing space, producing business cards and then expanded to other promotional material. The company was acquired in 2011 by Vistaprint, a global internet company in the same space. “In the e-commerce space, large players that are in multiple categories do not have margins of more than 30-35%. In our business, globally we have a gross margin of 60-65%,” he says, pointing out one clear area in which it beats large multi-category online retailers. The company offers products like t-shirts embroidered with logos even in small numbers. Parwani says that it is difficult to find such products in in stores.
The challenge now for some of these companies is to be able to give the same advantages that large multi-category shopping sites can provide. Quick delivery, lower costs that companies can afford because of their scale of operations and most of all, other products, because it’s not every day that a customer will go online to shop for furniture, or business cards or superhero collectibles. “The biggest challenge for these companies is discovery,” Verman said. “Also finding a way to ensure that customers remember them because some of the purchases on single-category sites are not products you shop for regularly.” Inventory, he believes, can be a way to create differentiation.
Footsy, an online socks retailer, is trying just that. The company stocks socks in different colours, designs and patterns, including a range of socks for babies. “Other fashion retailers online sell socks but they have very simple designs and basic colours. No other retailer online has the variety we offer,” said Seema Seth, founder of Footsy. She says educating customers about socks as a fashion accessory has been a challenge and customer acquisition has been slow.
Such players globally have rarely gone public, and are far more likely to be acquired by larger players. In India, the exit route is unlikely to be any different. “Certain categories may stay independent but it’s too soon in India to say which categories will really become big and stay independent,” Verman says.
Footsy’s Seth says that acquisition by a larger player is a big option for a company like her’s. “The expertise and knowledge we gain in our category stays with us. So acquisition is a huge option for a company like ours once we grow to a certain size.” Chhabria of Superhero Toy Store says that while getting acquired can be an option, ideally they should operate independently even after the acquisition, rather than getting rolled up into the digital aisles of the larger website. The way Myntra continues to operate, for instance.