According to data from investment research firm Venture Intelligence, this year so far, niche e-commerce companies have attracted a total funding of $46.55 million across 12 deals, almost double the investments last year.
The major deals in the online niche category include automotive marketplace CarDekho.com raising a fund of $15 million from Sequoia Capital India and Lenskart, an online eyewear retailer, attracting an investment of $10 million from IDG Ventures and Unilazer Ventures, a private equity firm promoted by Ronnie Screwvala.
Even early this month, online lingerie portal Zivame raised $6 million from Unilazer Ventures and existing investors, IDG Ventures and Kalaari Capital Partners, while in November, Urban Ladder, an online furniture store, raised $5 million from SAIF Partners and Kalaari Capital. According to reports, last month Google India head Rajan Anandan had invested an undisclosed amount in TravelKhana, an online food delivery company that offers services to the Indian Railways.
Kaamastra, an adult online store, which was launched in February this year and has been growing at 30% per month, said it turned profitable in October and is not even looking at external funding.
“This industry has been very unorganised in India and some of the bedroom need products available in India are of substandard quality being sold at high premiums and still being available in scarce quantities. Moreover, this segment requires an intimate approach,” says Amit Batra, co-founder of Kaamastra, adding that there is always a demand for niche products due to scarcity in the market. For instance, there were 20 lakh Google searches a month only from India for adult products.
“Niche e-commerce is the next big thing in India as customers are growing more and more demanding on personal attention," adds Batra.
According to Rajiv Srivatsa, COO & co-founder of the Bangalore-based online furniture store Urban Ladder, vertical players have a clear value proposition, top-of-the-mind recall and a focused positioning. “Business economics and margins work better for vertical players and they need a smaller scale to get to profitability. Also, solutions can be specifically designed from product to digital experience to marketing for the specific target audience,” says Srivatsa, who is well funded for the next two years.
The furniture website, which was launched mid last year, at present, is seeing a 10-15% month on month growth in transaction.
Pune-based TastyKhana, which started in October 2007 and clocked sales of R2.5 crore in 2012, is aiming to cross a turnover of R10 crore by the end of this year. “Niche players always have their own standing in the market. Once you distinguish yourself on services and quality standards people would always want to transact from an 'expert' than a have it all player,” says Shachin Bharadwaj, CEO & Founder, TastyKhana.com.
Even though most online retailers have not managed to be profitable as they are struggling to grow, it hasn’t stopped investors from cherrypicking opportunities and parking their funds in single product and services companies lured by higher margins and faster growth rate to breakeven. It is also a fact that there are not many attractive sectors where investors find good returns.
“The niche companies usually have higher margins. While the initial customer acquisition is as costly as a multi-product company, the niche companies tend to achieve break-even at a customer level is faster as the brand effect and product differentiation gives them a stickiness effect. Their products also cannot be compared with other sites and thus do not get commoditised and lower price is not a factor,” says Prashanth Prakash, partner, Accel Partners India, the venture capital firm which has backed Facebook and Groupon, and invested about $5 million in online jewellery store BlueStone.com last year.
“Niche e-commerce must be categories that allow you to go deep. Such a category will not be a great success for big players as it will be just another icon or tab for them and is not their focus area,” notes Gaurav Singh Kushwaha, CEO and founder, BlueStone.com, which was started in April 2012 and has managed to grow at more than three times over the past year, is expecting R35-40 crore in 2013-14.
The e-commerce industry, which is estimated at about $2.5 billion, growing at 40-50% annually, forms 6-7% of the country's organised retail market. According to data available with management consulting firm Technopak, e-commerce is projected to grow at a CAGR of 45% to reach $200 billion by 2020. Currently, the travel transactions account for about 80% of all online sales in India.
Pragya Singh, associate director (retail) at Technopak feels, while at the top, there is only going to be a few, there will always be a long tail of small niche players. “The whole industry is in a flux and the market is large enough to accommodate a large number of niche players. You can be successful if you manage to differentiate.”