Media and news reports in 2024 have reported a slowdown in funding and investment activity for e-commerce roll-up companies and aggregators. See, for example, this report from The Economic Times. However, despite the slow-down, funding for and acquisition of e-commerce brands continues. For example, aggregator Goat Brand Labs — focusing on the roll-up of India-based e-commerce brands — announced in July 2024 that it had raised $21 million to continue its aggregator investments. See here.
From historical trends and economic theory, the combination and aggregation of brands is a common feature of new/emerging market niches. For example, this played out in the automotive industry at the dawn of the automobile age, with home appliances later in the 20th Century and even with consumer food brands. Now, we see that the trend continues with e-commerce brands and businesses. Likewise, the ebb and flow of investment capital is common as some aggregators fail and others succeed. Retrenchment offers those in the industry and potential investors the opportunity to evaluate why some efforts succeeded and others failed.
Debt ratios are always a potential reason for failure. But there are others, too. For example, e-commerce roll-up companies and aggregators will likely have to pay much closer attention to compatibility and the reasons that a solo brand has had success. That is, it may be that brands that are being matched need to be compatible on levels beyond the mere fact that they are selling similar goods or services. For example, customers may be “in love” with a certain brand because of its exceptional customer service and return policies. Those are certainly important features of an e-commerce business but are the specifics of that customer service and those return policies going to survive the merger into the larger aggregator business? If not, then those customers may go elsewhere since they are no longer receiving the service that attracted them to the brand. In this respect, the target brand may be a “bad fit” even if the product or service “fits” with what the aggregator is offering.
In further explanation, the general e-commerce roll-up or aggregator business model involves acquiring multiple e-commerce companies/brands that have solid and loyal customer followings. Typically, the brands that are acquired and combined have similar or compatible offerings like medical services, furniture, clothes, etc. The roll-up or aggregator combines and continues to operate the brands under one web platform, which is intended to accelerate the growth of all brands, decrease costs, and, thereby, increase profits.
One mechanism for decreasing costs is to consolidate customer service and shipping services. But, as highlighted by our hypothetical, changing the customer service and return policies might “chase away” customers for a given brand. So, aggregating that brand will generate results that are contrary to what is desired.
There are, of course, many other lessons that will be learned. In any event, the aggregator trend among e-commerce businesses will continue. If you are thinking about buying an e-commerce business (or putting your business up for sale), you will need experienced legal help.
Contact the E-commerce Roll-Up and Aggregator Attorneys at Revision Legal
For more information, contact the experienced e-commerce roll-up and Aggregator Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
