Consolidation In Ecommerce: It’s A Marathon, Not A Sprint

Consolidation In Ecommerce: It’s A Marathon, Not A Sprint

SUMMARY

Growth all around also means companies are constantly looking to consolidate their position — both by bulking up and adding newer avenues of engagement and related monetisation.

The aim of consolidation has been primarily to garner new customers; improve stickiness, conversion and provide a holistic shopping experience. 

As entry barriers are eased, giving rise to more start-ups, one of the most prevalent methods today of consolidation and branching out in the ecommerce segment is through acquisition

While ecommerce and the digital way of life have become more mainstream and continue to gain significance in our daily lives — attracting young entrepreneurs and multi-generational first-time users.  Yet some companies have hit a stumbling block — who struggle to survive in a hyper-competitive space – companies that are in a funding crunch and or are in Darwinian existential crisis. 

Consolidation has been a theme that has been playing out the past couple of years but has picked up significant momentum this year, and will likely follow through in the coming year as well. Considering the nascent stage of the segment there is tremendous value to be unlocked, as companies are grappling to quickly capture market share and mind space. 

Growth all around also means companies are constantly looking to consolidate their position — both by bulking up and adding newer avenues of engagement and related monetisation. This allows ensuring long-term and sustainable growth in an increasingly competitive market with a huge headroom to grow.

The aim of such consolidation has been primarily to garner new customers; improve stickiness, conversion and provide a holistic shopping experience. 

Consolidation is also the most efficient way for eCommerce companies to adapt their businesses. It can unlock substantial value by:

  1. Accelerating growth
  2. Improving operating margins
  3. Shortening the road to profitability 

As we focus on the activities happening in the M&A space, we find the following reasonings to consolidate:

  1. To improve market share by acquiring competition in an, especially competitive space
  2. Acquiring newer technologies, to gain access to geographies, to scale and accelerate

Bringing in synergies also plays an integral role in evaluating acquisitions — both in terms of costs and revenue. Considerations of cost synergies help reduce fixed and variable costs. This is done by combining people; capability and assets, and revenue synergies. The combined entity then brings to fore unique market strengths, such as customers, products, geographical presence, and sales channels.  

The path to profitability and pressure on unit economics has also been at the forefront of conversations. This has particularly gained increasing significance during the pandemic. The shift from potential to sustainable growth will be crucial going forward, as the eCommerce space aggressively expands its footprint.

If two start-ups have a better probability of achieving profitability in a shorter timeframe, it should be a motivator to consolidate. 

With the current environment of sharper deal evaluation and resiliency assessment, funds are likely to adopt a more stringent and cautious approach to investments in the sector. However, winners will continue to be rewarded with big cheques — some of which would be available for expansion – both organic and inorganic.

As traditional businesses think about joining the digital bandwagon, “make or buy” decisions are likely to spur consolidation to achieve relevance and growth.

Another interesting trend giving significance to consolidation in the eCommerce space, is the rise of super apps. It’s a bid to build a one-stop-shop in a deeply integrated ecosystem. Companies entering the digital realm, want to increase the lifetime value of customers by building a portfolio of ancillary services. This can be done internally which would take time and a concerted effort, or could be alternatively done by externally acquiring existing companies that have been operating in the segments. In the past, most companies would have chosen the former, but with little time to spare and aggressive expansion in the space, the deep-pocket players are driven to the acquisition route. 

As entry barriers are eased, giving rise to more start-ups, one of the most prevalent methods today of consolidation and branching out in the ecommerce segment is through acquisition. 

In a mobile-first economy, consolidation has allowed big players to integrate themselves into the palms of their customers. It consolidates the end-to-end shopping experience, relying on additional services and market-commanding presence to keep customers within their ecosystem.

In a segment rife with many similar ventures, high cash burn business models and increased competition are surely milestones on the road to consolidations. The larger, better-funded and slightly mature eCommerce companies are looking for strategic purchases to leverage themselves into a road of hyper-growth, to shore up capabilities and market share. Several reasons are influencing these new dynamics propelled by drought in funding and the maturing of many ventures into the next level.

The traditional deal evaluation methodologies require to rethink in this new normal as the economic environment, geographic risk, market and competition risk are being reset every day. Evaluating the right acquisitions is a matter of evaluating complementary strengths and weaknesses amongst companies – from capability fit; levels of funding; strength in the market, and maturity level. 

Companies and investors who have the right focus, and risk management framework for deal evaluations, can make significant returns and build large and impactful businesses. Exploring synergies can help ease the burden on their companies and discover innovative ways to not only survive but also thrive.

(Views expressed are personal.)

 

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.

You have reached your limit of free stories
Become An Inc42 Plus Member

Become a Startup Insider in 2024 with Inc42 Plus. Join our exclusive community of 10,000+ founders, investors & operators and stay ahead in India’s startup & business economy.

2 YEAR PLAN
₹19999
₹7999
₹333/Month
Unlock 60% OFF
Cancel Anytime
1 YEAR PLAN
₹9999
₹4999
₹416/Month
Unlock 50% OFF
Cancel Anytime
Already A Member?
Discover Startups & Business Models

Unleash your potential by exploring unlimited articles, trackers, and playbooks. Identify the hottest startup deals, supercharge your innovation projects, and stay updated with expert curation.

Consolidation In Ecommerce: It’s A Marathon, Not A Sprint-Inc42 Media
How-To’s on Starting & Scaling Up

Empower yourself with comprehensive playbooks, expert analysis, and invaluable insights. Learn to validate ideas, acquire customers, secure funding, and navigate the journey to startup success.

Consolidation In Ecommerce: It’s A Marathon, Not A Sprint-Inc42 Media
Identify Trends & New Markets

Access 75+ in-depth reports on frontier industries. Gain exclusive market intelligence, understand market landscapes, and decode emerging trends to make informed decisions.

Consolidation In Ecommerce: It’s A Marathon, Not A Sprint-Inc42 Media
Track & Decode the Investment Landscape

Stay ahead with startup and funding trackers. Analyse investment strategies, profile successful investors, and keep track of upcoming funds, accelerators, and more.

Consolidation In Ecommerce: It’s A Marathon, Not A Sprint-Inc42 Media
Consolidation In Ecommerce: It’s A Marathon, Not A Sprint-Inc42 Media
You’re in Good company