But after three important deals in the last one year, we may perhaps be looking at a premature saturation of the inventory model.
The logic of the investments made
In September 2017, Amazon, through its investment arm, picked up a 5% equity stake in department store chain Shoppers Stop. A year on from that, in September 2018, the company purchased a controlling stake in grocery hypermarket chain More.
Then, in August 2018, Walmart spent $16 billion to buy Flipkart.
To a casual observer, e-commerce seems to be changing in India, but the fact is that inventory-led e-commerce has reached its tipping point, and online sellers are getting impatient.
Between the two, Flipkart and Amazon control 60% of the e-commerce market. But there’s increasing evidence that the market, as the two saw it—inventory-led e-commerce—may not be growing as fast as expected. E-commerce is estimated to add up to less than 3% of Indian retail.
As entrepreneur action and investor interest moved beyond inventory-led e-commerce, the new paradigm is that it is actually more about enabling businesses between sellers and the end customers. In short, B2B commerce.
According to a report by trade association body NASSCOM, 43% of India’s new tech startups in 2018 focussed on the B2B space. In 2018, B2B marketplace Udaan, co-founded by ex Flipkart CTO Amod Malviya, became the fastest startup to reach a $1 billion valuation after it raised $225 million in a round led by Yuri Milner’s VC firm, DST Global. Udaan was founded in 2017.
An interesting sub-segment of the B2B explosion is B2B2C. Bengaluru-based Meesho, a platform for enabling social media-based sellers, which just closed a $50 million round of funding in November, is a good example of this.
Both Meesho and Udaan have raised money from VCs such as DST, SAIF, Sequoia, Lightspeed, and Matrix. These are investors who shied away from making new bets in B2C-focused e-commerce until the B2B phenomenon took off. Is this a new dawn in Indian e-commerce?
Meesho’s ‘Robin Hood’ pitch
Meesho’s model revolves around moving stock owned by wholesalers to end consumers, without the actual sellers ever taking ownership of the stock. Instead, sellers on Meesho—or rather re-sellers—act as independent workers. They pick a niche such as garments, home decor, or lifestyle accessories and focus on finding customers for these products.
When end-customers place an order with the re-seller, the stock is moved from the wholesaler’s warehouse directly to the buyer. This means zero investment for re-sellers when they start out. Instead, their real challenges are knowing how to sell (stock curation) and figuring out whom to sell to (demand base).
In business terms, Meesho’s model isn’t new at all and was widely known as ‘drop shipping’. According to Rahul Chowdhri of Stellaris Venture Partners, dropshipping can only be emulated across long-tail categories like fashion, shoes, home decor, accessories, and health supplements. Stellaris had earlier invested in Shop101 and Wydr, both of which are competitors to Meesho.
Before pivoting into social commerce in 2015, Meesho CEO Vidit Aatrey and his team started as a hyperlocal startup that delivered garments and fashion products by aggregating small neighborhood boutique shops. It made sense for Aatrey and his team to narrow down on the hyperlocal segment because it was an emerging play in 2014 and 2015, and of course, VC money was abundant.
“Most boutique shops were led by married women, and a majority didn’t even have a store. They simply promoted inventory owned by other small wholesalers using WhatsApp and Facebook groups,” says Aatrey. But there was a problem.
Boutique shops deal with niche lifestyle products, and the demand is scattered throughout the year across festivals like Diwali, Rakhi, Holi, etc. Some customers want special hand-made sarees, and some customers want accessories to go with their sarees. Finding a continuous supply for such fragmented demand could be harrowing.