AGGREGATE OR ACCELERATE? WHY BRANDS ARE LOOKING TO BUY IN ECOMMERCE EXPERTISE RATHER THAN SELL OUT
As seen in Direct Commerce, by Ken Doyle, CEO, Luzern eCommerce
Back in 2021, media were reporting a rash of funding for eCommerce aggregators, underpinning the trend of consolidation among third-party sellers looking to move to the next level of growth. The model itself is not new to us, just think of Google for Search aggregation, Indeed or Simplyhired for Job Aggregation or AirBnB for accommodation aggregation.
According to research, the global aggregators market was expected to expand by $1 trillion by 2025. The eCommerce model works on the same premise, with companies acquiring brand sellers, mainly Amazon sellers, and consolidating them onto a single platform. The difference between the aggregators and Amazon and other marketplaces is that they not only buy up the brands, but they are also responsible for operations, brand building and growth. Whereas on Marketplaces, items are listed under multiple brands, which aren’t owned by the platform, so multiple businesses can sell their items on Amazon for example.
How do Aggregators work?
Aggregators make their money by using their skills in business development and marketing to attract more customers to their site and gain commission from sales made by the sellers on their site. A solid-sounding business premise, and one that attracted much interest.
Figures from Marketplace Pulse show that by September 2021, aggregators had raised some $9 billion in new funding. This year the figure is less than $2.4 billion. Thrasio in particular garnered a great deal of media coverage with its momentum and rapid growth, and they and other aggregators blazed their trail on the main premise of thinking they could do everything better than the brands that they bought.
However - the wheels began to come off after the initial surge, and the aggregator sector started to slow down as the realities of actually executing the business model became clear. There are myriad skills and areas of expertise needed to deliver a sustainable ecommerce business, and aggregators – particularly those with a scattergun approach to buying up brands – are realising that ‘doing everything better’ is a lot harder than it looks. Generalist knowledge does not magically convert into specialist knowledge.
The efficiency gains forecast by the aggregators turned out to be not as expected. Huge amounts of money were put into buying inventory, and the growth rate slowed. Thrasio hit the news again, this time for its layoffs, the loss of both co-founders and the CFO. The company, and others in the sector, are now regrouping and rethinking the business model.
Accelerators: the key to the future of the e-commerce customer journey
There are different approaches to eCommerce aggregation. The scattergun one with no synergy between brands or product lines is the most difficult to manage, whereas aggregators that take on brands in a specific segment such as pet care, cosmetics or eco-friendly products have a better chance of success.
The point to note is that brands that want to survive and prosper are becoming far more willing to retain ownership and invest in their online presence. Big established brands are working to ensure their eCommerce offering delivers the best customer experience – they may be good at brick and mortar but online is a different world. Digital native brands that are born online may have an instinctive understanding of how to reach their markets and their customers, but they don’t have the experience of handling all the messy execution.
The future of the eCommerce customer journey is all about acceleration. It’s about speed to market, being more agile and nimble than the competition. The digital native brands need support in building an efficient ‘store-to-door’ operation in order to achieve sustainable growth. The big brands with the legacy of high street survival need to concentrate on their eCommerce offering to ensure they can compete on level ground with the online challengers.
the benefits of Accelerators for your Brand
Accelerators drive brands forward online, bringing expertise in strategy, marketing, product presentation, pricing and order fulfilment, with real-time price change tracking and profitability analysis to enable brands to optimise sales, margins and inventory. Accelerators bring specific experience in eCommerce, with technology that handles the messy execution end of the process, so brands don’t have to.
Everyone who sells online knows there is huge – and ever-increasing – competition for the customer. Maximising opportunities to reach those customers takes specialist knowledge of how to deliver the most attractive product mix, bundles and pricing to attract buyers.
And taking the money is not the end of the transaction. Efficient inventory management and order fulfilment can make the difference between success and failure. ‘Out of stock’ is guaranteed to set your customers on the road to your competitors, while overstocking ties up valuable working capital - just one of the issues that the aggregators discovered in their scramble for profits.
It is unlikely that the huge investments made in aggregators will turn out to be a smart use of money. While those which concentrate on building up expertise in niche markets will likely do well, the big names in the sector have done the worst damage they can do in terms of hype and expectations. We’re witnessing the plateau of the eCommerce aggregator, while in contrast, we’re seeing the rise of the accelerator as brands look to compete more professionally, more aggressively and more cost-effectively. eCommerce accelerators, such as Luzern eCommerce, use both technology and expertise to help brands to grow profitably and sustainably across multiple channels such as online marketplaces, online stores and social. 2023 will most definitely be the year of the accelerator.
The rise of eCommerce Accelerators is not only changing the face of ecommerce but also spelling out a positive future for online businesses. By partnering with an eCommerce Accelerator, your brand can leverage its expertise to scale up, decrease costs, increase sales, and navigate through the complexities of the ever-evolving e-commerce landscape. To ensure your brand is well-positioned for the future of e-commerce, reach out to Luzern eCommerce, the leading eCommerce Accelerator, to learn how we can help you achieve your business goals.
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