Investors find their better pricing, potential for higher margins attractive
After fuelling the growth of the $3.2-billion Indian e-commerce industry, venture capitalists are now focussing on specialised and niche portals. Experts are of the view that as the market matures, online consumers will look for portals that cater to their exact needs without getting distracted by other offers.
Portals such as BlueStone (gold and diamond jewellery), Bluegape (fan-based merchandise), Lenskart (eyewear retailer), Pepperfry (furniture), GreenDust (refurbishment), OnEMI (that sells only on instalments), Ohmysecrets (sexual wellness) and Zivame (lingerie), amongst others, have successfully raised VC funds in the last 18-24 months.
This was mainly due to their smaller sizes, potential for higher profit margins and a less capital-intensive model.
Compared to these niche portals, their broad-based counterparts such as Snapdeal, Flipkart, Myntra and Jabong, although bigger in terms of size and revenues, are still struggling to breakeven.
Differentiator, the key
“When you invest in a specialised company, you have to be very clear what their differentiator is going to be versus the broader players,” says Siddharth Talwar, Partner at VC firm Lightbox. “In order to attract customers,” he says, “you must be able to convince customers that there is value in buying from you.”Lightbox has invested in GreenDust, a portal that specialises in selling refurbished electronic goods, with price as its key differentiator.
“We are looking for spaces that are niche but have the potential to have significant volume in the future. Within these spaces, we need to find companies that significantly differentiate themselves from broader companies. For example, will users get a better buying experience, or significantly better pricing?” Talwar asks.
According to GreenDust’s founder Hintendra Chaturvedi, the company is growing at a healthy rate and is already profitable. It is looking at raising another $100 million to expand into the overseas market. Says Sanjay Mehta, an entrepreneur and angel investor, “There is massive consolidation happening among the broad-based portals (latest being Flipkart’s acquisition of Myntra). Compared to those, the vertical or specialised players are making money because of the good margin between the cost of acquisition and selling price.”
According to Mukul Arora, Partner at Venture Capital firm Saif Partners, broad-based players are more volume-driven whereas niche-portals are more value-driven. The repeat customer base in the latter is as high as 50 per cent due to better pricing and wider collection. “We will witness more players (joining the scene) in the coming months. It will be interesting to see a high-end luxury portal soon, given the increased appetite among Indian consumers. Niche e-commerce will be the next big thing in India as customers demand more personal attention,” Arora added.
Peyush Bansal, founder of Lenskart, talking about the market for his portal’s offerings, says, “Focusing on a niche space and developing related expertise is a key to differentiate oneself. A third of India’s total population needs spectacles today. Only 25 per cent of these people actually wear spectacles. “The second part of this story is about people who want to use eyewear as an accessory.They are interested in owning multiple eye-wears to go with a variety of looks.”