Vertically Integrated Ecommerce stores in India : What’s the big deal?

[Editorial notes: What is the future of vertical/niche Ecommerce sites in India? Guest author and founder of a niche ecommerce store Unamia, Jo Pattabiraman shares her thoughts.]

A few weeks ago, Josh Koppelman of First Round Capital kicked off an intense debate when he pointed out that the companies that ruled e-commerce in 2005 are identical to today’s market leaders. So what’s going on ?

Well, one answer is the scale effect. It’s hard for anyone to compete with Amazon on price or reach. The same holds true of a handful of large players in India. As we all know, there can be just one winner in that game and it’s not going to be a new entrant.

Disruptive innovation in e-commerce has been comatose for a long time. Now, however, there are signs that things are changing around the edges.  Companies like Fab and OneKingsLane helped create exciting new experiences around shopping, to say nothing of other private sale companies that caught the public’s attention – and wallets.

One such trend has been vertically-integrated e-commerce sites, wherein companies don’t try to re-distribute others’ products but actually make a market for niche products and services – either their own or sourced from a very small and exclusive set of suppliers.  This seems to be a global trend, as evidenced by companies like Indochino, (custom suits for men ), Warby Parker ( eyeglasses) and Julep ( nail polish) . All of these companies not only promise better quality, but also offer innovative methods of building trust and product delivery. Warby Parker offers to send you five pairs of glasses to try on, whereas Julep is creating salons where people can experience their products. And better quality products for better prices is the underlying promise of every one of these companies.

The underlying thesis is this : instead of incurring the costs of physical retail and intermediation, why not build a strong relationship with the customer and offer them products that they really need but can’t get in mainstream retail ? No gatekeepers, no large overhead costs ?  Wait, this is sounding really familiar ….

Now where have we heard that before? Yes – you’re right. We’ve seen it before in content, where YouTube and AppStore made it possible for customers to benefit from the ingenuity of smaller artists, from musicians to tutors to film-makers. In retail, too, we are going to see a new level of disintermediation in products worldwide.  Smart customers who don’t believe in following the herd and know how to spot quality for themselves will be the biggest beneficiaries of the new retail.  At least, that’s we at Unamia believe- we make a terrific line of kidswear with quality and style that’s comparable to international brands, but we are able to offer it at very reasonable prices because we don’t have retail overheads.

What will happen to physical retail ? Because if you can buy better products over the net, all you need are kiosks or experience spaces where people can connect with the product for the first time before taking everything entirely online.  Could something like that happen in India ? I would imagine that it would happen especially in India, because we have some of the most expensive retail space in the world.  Mavens put the cost of retail and overheads in India at 30-45% of ticket size, compared with 15% in developed economies.

When compared to other countries, though, India has specific challenges from the supply chain. Lack of power to factories for even a small part of the day contributes to unpredictable delivery schedules  ; as can extended holidays and bandhs. While this may be acceptable to companies that build up large inventories, it is very frustrating for leaner startups.  The lack of consumer protection and resulting skittishness is another challenge startups  have to work hard to overcome. Enough and more has been said about the state of delivery infrastructure.

Despite all this, I am hopeful about the future of vertically-integrated e-commerce. A great deal of that hope comes from interacting with customers who are truly, deeply appreciative of our products,  yet more comes from seeing others find success with this approach and still more comes from our belief that what we’re seeing in India today is just the tip of the iceberg.  C.K. Prahlad once said that models that succeed in India can be exported to the world.

“You have to create disruptive business models,” Prahalad said, “By choice. Ask yourself: Does this model radically alter the economics of the industry? Does it improve functionality? Does it make it difficult for incumbents to react? Is it sustainable? And does it enlarge the size of the market?”

Yes. Yes. Yes. Yes. And Yes . If vertical commerce companies build products and models that are truly meaningful and responsive to the Indian consumer, the world can very well be our oyster.

What are your thoughts?

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