The world of e-commerce It’s not slowing down, but many e-commerce aggregators are already struggling. Declining consumer confidence, inflated commodity prices and a freeze in investment capital are creating a perfect storm. Unless collectors change how they operate, their future is bleak at best and nonexistent at worst.
Patternwise, last year we predicted the demise of the aggregator business model, but the moment of truth came sooner than we thought. That said, these businesses still have time to make amends. If collectors act quickly, they can position themselves well for the next phase of development. But how did we get here in the first place?
In theory, the brand bundle business model seems viable. A consolidator buys consumer product companies and leverages existing infrastructure to scale and profit. For many of these brands, earnings before interest, taxes, depreciation and amortization (EBITDA) are two or three times their original purchase price. Buy enough of them and you’re looking at EBITDA arbitrage – a 20x or 30x increase by your own estimation. So far so good.
However, this is where most of these collectors stop. While they’re great at acquiring brands, they’re terrible at investing in R&D, innovation, and operations — all the things necessary to grow one brand, let alone a dozen.
Additionally, many collectors worked on a highly accelerated schedule. They had limited (and shrinking) brands to buy in the short term if you wanted to package them up and copy them as a package. So, they continue to buy brands without taking the usual precautions, which inevitably leads to buying mediocre products, over-sales and fake reviews.