Do We Need An Indian Twist To the Thrasio Model? Many Thrasio-style startups in India have captured the attention of investors. However, the interest is mostly based on a thesis, and the execution is yet to be seen

The Thrasio business model has been making media headlines in India for the last three months. For the uninitiated, Thrasio is a US-based startup that looks for well-performing third-party private-label businesses on Amazon, collaborates with them, and acquires them.

Founded by Joshua Silberstein and Carlos Cashman in 2018, Thrasio clocked a revenue of over $500 million as early as 2020. The startup gives these small brands upwards of $1 million, integrates them to its platform, and gives them an operational boost to drive rapid growth.

In India, we have seen over a dozen startups inspired by this model that have garnered a lot of traction from equity as well as debt investors. There are multiple startups that have raised a significant amount of funding from VCs. Some of the notable names include GlobalBees, Mensa, Goat and 10Club.

However, this interest is mostly based on a thesis, and the execution is yet to be seen. Will India be able to replicate the success of Thrasio, given that India as a market is quite different from the US, China and the UK?

The Hush-Hush Approach Till Now

"In this model, the game lies in assessing growth potential of brands, acquiring at the right valuation, and then driving growth through a combination of increased sales and lower costs. I attribute the hush-hush approach to the fact that in many ways, this is a race to acquire the best and the most at the lowest price," said Nupur Garg, an investor and founder of WinPE, a not-for-profit initiative to enhance gender diversity in the investing ecosystem.

She added that not only does one have to be quick to act in order to close the acquisition, but one has to do it before competition drives up valuations.

Basically, since the competition has shot up in a short time, many of these houses of brands have been secretive to maintain a competitive edge in a market. "Each company wants to have a first-mover advantage in hitting the ground running and roll up the acquisitions lined up sooner than later. Easier said than done as it's an operations-heavy business and one needs to bring in specialized teams as well to be able to scale the business model quickly in a short period of time," said Ankur Bansal, co-founder and director, BlackSoil.

Hype Or Opportunity?

India, as a market, is quite different from the US and the overall size of the e-commerce economy is still comparatively smaller. Additionally, there are fewer online brands as offline retail continues to rule, despite the pandemic.

"Thrasio and Perch in the US are both profitable which requires anyone following their model in the true sense to be disciplined in valuations paid at the time of acquisitions. It also requires discipline in pricing your products and not selling at untenable discounts just to gain volumes. The model will need to be reviewed to factor all of these considerations," said Garg.

That said, she added, India being the eighth largest market for e-commerce and Amazon India's 4,152 Indian sellers surpassing sales worth INR 1 crore on its platform last year, she will not be surprised to see more than a couple of startups trying to get ahead in this race. According to ecommercedb, with a revenue of $46 billion in 2020 India's e-commerce is estimated to grow at 30-plus per cent year-on-year.

"The model is not hype; there is tremendous opportunity in the space as using economies of scale and getting the right expertise and help optimize the bottom line for the brand being acquired. Furthermore, investment in manufacturing and inventory helps reduce COGS, increasing margins significantly," said Vishesh Khurana, co-founder, Shiprocket.

While India is the fastest-growing market, when it comes to e-commerce sales, India is still behind the US, China and the UK, which further showcases India's e-commerce growth potential, and the opportunity it presents for new models like Thrasio. However, India is a unique market with its own set of challenges and opportunities. "The Thrasio style model in India cannot just be the total replication of the US counterpart, as the consumer behavior, market and ecosystem are quite different in both the countries. The US-based companies worked on the model of acquiring brands with the Amazon Third Party Seller ("TPS') ecosystem. However, India's TPS ecosystem is not that evolved and there are a limited number of sellers with high sales volume," said Kapil Makhija, CEO, Unicommerce

He also added that the customer affinity towards brands is much higher in the US market compared with India, making it tougher for smaller brands to achieve regular customer traction. "However, the scenario is changing with many homegrown consumer brands becoming big in India. Companies like MamaEarth, SUGAR Cosmetics, WoW Skincare, BoAt, Healthkart, Lenskart are emerging conglomerates in India," he said.

Future Trends

As more and more players enter this space, success, experts believe, will depend on fundraising, acquisition of quality sellers, and ability to scale the businesses efficiently. "Due to the increase in competition, we could see higher multiples given to sellers, and companies that will be able to thrive in the initial years and acquire a good share of the seller market with positive unit economics, will survive in the long run," said BlackSoil's Bansal.

In the short and medium term, e-commerce experts expect to see the evolution of the model in the Indian market where the execution models will evolve based on the business dynamics of the Indian market. "For instance, in the Indian "Thrasio-style model', companies may acquire D2C brands or offline brands that are popular in the country, as they have a good customer affinity with a better control customer experience with clear growth projection, which is generally missing in the TPS ecosystem of India. This will also enable D2C brands of India to expand their presence to the international market at a much faster pace," added Unicommerce' Makhija.

Another interesting trend is the acquisition of established D2C brands by industry conglomerates. For example, Marico acquired Beardo last year and recently acquired Just herbs, Emami has invested in The Man Company. "We will see FMCG and personal care brands acquiring the upcoming D2C brands in the segment to create a portfolio of digital brands. This will also encourage offline brands and small e-tailers to start investing in technology to ensure a consistent customer experience and have better visibility of customer data," said Makhija. n the future, we can expect a lot of consolidations and a house of brand models where multiple brands work under the umbrella of one company, believes Shiprocket's Khurana. "We can see unit economics will perform better under these models attracting a lot of VC capital in the space. Also, with this, we will see growth in new "brand' startups as these models now give exit opportunities to brand owners unlocking value for brand owners," he sums up.