Decoding India’s Rising Wave Of Vertical Marketplaces

The vertical marketplace has been the cornerstone of Indian ecommerce for years. In 1999, the country’s first ecommerce website Fabmart started its operations by selling only CDs, while Flipkart (acquired by Walmart) began its journey with books in 2010.

But for over a decade now, India has seen the rise of the horizontal model that sells everything instead of focusing on a single category. Simply put, these are the online markets built on the concept of brick-and-mortar megamalls.

The success of ecommerce giants like Flipkart, Amazon, Snapdeal and ShopClues – mostly horizontal marketplaces although ShopClues was in a league of its own – have attracted global investors. From $3.9 Bn in 2009, the Indian ecommerce market is estimated to reach $400 Bn by 2030.

Interestingly, ecommerce startups bagged $1.9 Bn in Q1 2022, the highest ever raised in the first quarter in the past nine years.  

According to The State Of Ecommerce Report Q2 2022 by Inc42, in association with Pickrr, homegrown ecommerce startups raised more than $29 Bn between 2014 and Q1 2022, making it a coveted sector with the highest number of unicorns at 23. Of these, marketplaces minted the maximum unicorns (10). It is also the most-funded ecommerce sub-sector, capturing around 59% ($17.1 Bn) of the total funding ($29 Bn) raised during 2014-Q1 2022. 

But how did the niche marketplaces with narrower target groups fare in crunch times? 

The outbreak of the Covid-19 pandemic in 2020 also upped the game for vertical marketplaces in India. Although horizontal players account for 75% of the ecommerce industry, a whole bunch of vertical entities like Nykaa, FirstCry, Droom and Purplle catered to the rising demand for personalisation, customisation and unique experience among tech-savvy digital shoppers.

All four have entered the unicorn club, and IPO star Nykaa still enjoys a dream run despite market corrections. Other significant players in this space include the likes of Voonik, Yepme, Zivame, Fynd, CarDekho, Faaya, VelvetCase, Supertails and Hopscotch.

Of course, this segment still lags in funding compared to horizontal ecommerce. According to Inc42’s Q2 2022 ecommerce report, of the total $17.1 Bn raised by the marketplaces, around 81% ($12.5 Bn) went to horizontal players during 2014-Q1 2022.

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Decoding The Scope For India’s Vertical Marketplaces

Vertical marketplaces accommodate multiple brands/vendors but only focus on a specific category such as beauty and personal care (BPC), fashion, home decor, pharma products, automobiles and more. Unlike the horizontal model, they are the masters of particular niches and bring more value to their target consumers due to their expertise. 

Over the years, we have seen the rise of many good players in this segment.

For instance, Nykaa, the unicorn and pioneer in the online beauty and personal care (BPC) marketplace, is the first BPC vertical marketplace player to list in India. The company’s IPO was listed at a market capitalisation of $13 Bn and debuted at a 74% premium in November 2021. 

Nykaa captured around 18.5% of the total addressable online BPC market in FY20. The company has soared its revenue from operations by 55% from $325.4 Mn in FY21 to $503.2 Mn in the next financial year. The annual number of unique transacting customers also went up by 64% to 12 Mn during this period. The company has a PE valuation of $1.2 Bn and a market cap of $8.7 Bn as of June 2022. 

Mumbai-based CarTrade Tech, a vertical marketplace for new and used cars, also went public in August 2021. The company witnessed a 28% rise in revenue, from $37.5 Mn in FY21 to $47.9 Mn in FY22. As of 31st March, 2022, it has 47 CarWale abSure (CarTrade own-brand) outlets across 32 cities and plans to have 120 outlets by March 2023.

Droom, another automobile marketplace, is also set to go public this year, eyeing an IPO valuation of $2 Bn.

Financial Performance Of Vertical Marketplaces

In the ecommerce report of Q1 2022, it was observed that none of the top five funded horizontal marketplaces was profitable in FY21. In contrast, three out of the top five funded vertical marketplaces were profitable during that period.

Among these, Nykaa, FirstCry and CarTrade were EBITDA positive in FY21. This clearly shows that the vertical marketplace as a business model is gaining success in India.

The Way Forward For Vertical Marketplaces In India

Although horizontal players currently dominate the ecommerce landscape, vertical marketplaces are steadily rising, given their niche expertise and the personalised shopping experience they offer. Their financial performance in FY21 was also commendable as three out of the top five funded companies were in the black.

As vertical marketplaces focus more on Tier-2 and Tier-3 cities to foray deeper into Bharat and cater to a larger audience, the opportunity has become more lucrative and attracted the interest of VC investors. Therefore, many new players are entering this space, and the competition will heat up in the coming years.

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