In recent years, e-commerce brand aggregators have made their presence felt globally. Between October 2020 and October 2021, investors poured $11.4 billion into aggregators. In just the first three months of Q1, these companies raised over $2.3 billion in venture capital funding. Frequently dubbed as “the next big thing in e-commerce,” brand aggregators have the power to disrupt the industry over the coming years by creating powerhouse portfolios of retail brands.
This blog explores why brand aggregators are gaining so much traction in the e-commerce sector, and why investors are pouring billions into what’s being described as a “modern-day gold rush.”
Streamlining and Simplifying Functions to Improve Topline
In the evolving and dynamic world of e-commerce, sellers have to maintain a delicate balance between consumer demands, supplier challenges, and business objectives. However, the challenges in these areas can often lead to a miss on prospects to expand into new markets, acquire more customers, and increase sales. To perfectly sync up the demand and supply, sellers must efficiently manage their sales and back-end processes related to warehouse management, logistics, and fulfillment. They must also optimize functions like advertising, PR, market research, and search engine optimization. When these functions get added to the complexity of cross-border selling, international payments, and foreign exchange taxes, it ultimately leads to stunted growth.
A brand aggregator can manage these operational complexities that hinder marketplace sellers. They can streamline back-end processes and simplify a brand’s complicated national/international sales network. They can also help brand owners get competitively priced goods from low-cost manufacturing destinations.
They Enable Economies of Scale
Typically, direct-to-consumer (D2C) brands are limited in many ways. In particular, they operate at a smaller scale and can only focus on a single channel because they lack funds or capacity. For all these reasons, they struggle to scale their operations and technology. Predictably, brand aggregators acquire D2C brands and integrate them into their business model and systems. They bring capital, professionalized management, technological know-how, and deep domain expertise in areas such as branding, merchandising, supply chain, logistics, and even packaging. These are all challenges and lack areas for smaller brands.
All these capabilities enable brands to achieve higher economies of scale, accelerate growth, and increase their return on investments. With the aggregator’s expertise and support, even modest players can successfully tap into their latent potential to grow their revenues and profitability.
They Serve as “Incubators” for Acquired Brands
The best aggregators serve as incubators for the brands they acquire. They foster a brand’s development by providing various resources and services, such as training, access to capital sources, advisory, operational support, and assistance with market research, legal compliance, sales, and marketing. They have in-house brand development studios and create detailed processes and checklists to develop brands and take them to the next level of growth.
In most cases, aggregators acquire brands with their own brand identity and have established themselves in the market. Other attractive targets are brands that own private label brands and proprietary trademarks. These brands are already in a strong and “defensible” position that enables aggregators to leverage existing synergies to optimize and grow the brand.
They Help Address Supply Chain Challenges
The COVID-19 pandemic created severe supply chain shocks that led to manufacturing breakdowns, labor, inventory shortages, logistics headaches, and product delivery delays that affected customers worldwide. Unsurprisingly, smaller sellers were less able to successfully navigate these shocks and maintain business continuity compared to larger, more established e-commerce players.
E-commerce brand aggregators enable smaller companies to navigate supply chain issues in the marketplace. These companies have expertise in the online aspects of distribution, marketing, and supply chain. With their support, D2C sellers can better manage their inventory, cash flows, distribution, and fulfillment processes. They can also centralize their operations to achieve greater efficiencies, optimize marketing spending, eliminate redundancies and waste, and more successfully tap into their growth potential.
They Offer an Easy and Profitable Exit
Some third-party sellers run small-scale operations by a handful of people who don’t have the resources, skills, or technology to coordinate with the various aspects of the business – much less scale or grow it. Brand aggregators offer such promising entrepreneurs the chance to quickly and profitably exit from the business. Aggregators also support brand owners who want to continue growing the brand while also retaining autonomy and some control over the business. In this case, the aggregator takes over processes related to design, manufacturing, sales, and distribution – all of which are managed by seasoned and experienced professionals. These managers find ways to reduce operating costs, optimize operating cash flows, and increase the brand’s equity value. The entrepreneur can focus on product innovation, and leave the nitty-gritty of operating processes to the aggregator’s management team.
Conclusion
The e-commerce industry is poised to expand by $1 trillion by 2025. While smaller companies and individual entrepreneurs will continue to operate in the industry, the role of brand aggregators like Ergode will become even more entrenched in the coming years. These companies will enable third-party sellers to realize their full potential, and create win-win situations that benefit the seller, the aggregator, and ultimately, the consumer.
Ergode’s brand aggregator portfolio features dozens of brands in areas ranging from groceries, home improvement tools, and electronics, to furniture, kitchenware, personal care, and more. Contact us to know how we help brands optimize their operations, achieve economies of scale, and successfully grow in a competitive e-commerce sector.
