By Nitin Agarwal
Early last year, Indian e-commerce woke up to a new business model. In the roll-up model, the firm invests in e-commerce brands, infuses working capital and brings on a highly experienced e-commerce team to scale their business. Since then, a clutch of companies have adopted the model, and close to 100 ecommerce brands across multiple consumer industries have been acquired by them.
Much like any new industry play, the sector has seen some teething issues. Below are some issues that one can expect when starting a roll-up:
Overvalued assets: Roll-ups often tend to pay extra for a brand, thinking that they can recover the excess by leveraging the synergies that exist between brands. On a spreadsheet, those calculations hold up. But executing those synergies require the integration of softer aspects like people and culture. Synergies might take time to kick in, and roll-ups need to account for that.
Integration of brands: As pointed out, integration of brands onto a centralised system takes an uncertain amount of time because of the number of moving parts that a firm is made of. Roll-ups often focus on acquiring assets more than integrating them, and this leads to limbo periods where the acquired company isn’t functioning optimally. There are 100+ integration points when merging two companies, and a clear focus on integrating the brand would benefit the roll-up exponentially.
Seasonal product portfolios: It’s important to ensure that acquisitions have a product portfolio sans seasonal demand. Such portfolios entail a need for constant product development and give rise to collections which don’t have any longevity. This increases the variance in a number of functions such as sourcing and demand planning. On the ·IP side, products with longevity can be a boon, as the roll-up can invest larger sums in their marketing, and create efficient sales engines as they accumulate more sales data, over time.
Look to build: One of the synergies that often gets overlooked is the customer insight that a roll-up develops through operating multiple brands. They have rich data, informing them about customer preferences, industry trends, and more. This can be leveraged to build your own brands.
While these issues exist, it’s important to remember that the sector is only a year old, and has already generated millions. Roll-up ecommerce was pioneered in India because there was a need to grow third-party sellers beyond what they could accomplish on their own.
The author is co-founder and chief growth officer at UpScalio
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