Roll-up e-commerce models hit the unicorn list in record time this year, capitalizing on the Direct-to-Consumer (D2C) wave. The model, which has been around for some time now, is inspired by the playbook of American company Thrasio, where it acquires D2C brands, which sell in e-commerce marketplaces, and evolves them for profit.
Gurugram-headquarters, which competes with industry unicorns such as Mensa Brands, wants to build a niche with brands in the utility category.
UpScalio recently announced the acquisition of four brands of automotive accessories – Autofurnish, Destorm, Urban Lifestylers and MotoTrance, which have a combined turnover of Rs 25 crore. the automotive accessories brands manufacture car mats, body covers and bicycle body covers, selling their products on Amazon and Flipkart.
âOur rationale for acquiring these brands was the disorganized nature of the industry. These brands have accumulated love from customers and customers are proud of these brands, âsaid Gautam Kshatriya, CEO and co-founder.
With this acquisition, UpScalio currently has a portfolio of eight brands, including ergonomic chair maker GreenSoul, footwear brand Trase, backpack maker The polar star, and manufacturer of kitchen appliances, Hestia. The company plans to increase the number of brands in its portfolio to nearly 50 over the next four to five years, Gautam said Your story.
Why choose the utility category?
The company began by evaluating offerings in the areas of lifestyle, fashion, and personal care brands, but as the thesis evolved the focus was primarily on utility brands. because they do not require significant investments in marketing. Although the the margins in the fashion and beauty categories are higher, a large part is dedicated to the marketing of the brand.
âWe stay away from the fashion, beauty and personal care categories because these brands take a long time to turn a profit. With the D2C beauty brands, it’s hard to predict whether this will be profitable, as fashion requires a further decline every quarter or so, âGautam explains.
He adds that the category of utilities that UpScalio deals with does not change often and continues to gain the attention of customers after one to three years of implementation.
What makes a good acquisition target?
The key factors that make a brand an attractive target for acquisition by UpScalio include a clear path to profitability over a six to nine month period, a required minimum income of Rs 5 crore per year, and good reviews and ratings in e-commerce marketplaces where brands sell their products.
âWe typically partner with these brands, acquiring a controlling stake of up to 80% in these brands and giving out to the founders over time,â says Gautam.
UpScalio scales the acquired brands to 5x their revenue over a two to three year period, using the team’s expertise in inventory management, enhanced digital marketing and managing their pricing strategy for the platforms. e-commerce sites they sell on. Gautam says that although it is still in its early stages, the company has been able to double the revenues of some of its acquired brands.
the UpScalio’s annualized income rate is already over Rs 210 crore of its existing brands, with the objective of increasing revenues to Rs 750 crore from existing and new brands by the end of the 2021-22 fiscal year, he adds.
A former McKinsey executive, Gautam founded UpScalio in April 2021 with former Bain & Company executive Saaim Khan and former chief marketing officer of online beauty retailer Purplle. The company has so far raised $ 42.5 million in a Series A funding round from Pension capital, an undisclosed global hedge fund, as well as risky debt players.
Much of the equity has been spent on brand acquisitions, with the risky debt component used to fund working capital requirements, apart from other investments.
The road to follow
With the repertoire of brands through automotive accessories, gardening, furniture brands, and others, UpScalio has the ambition to make them global. The company has already started with the Middle East, the United States and Europe.
âThe beauty of the e-commerce roll-up model is that it is a scalable and profitable business, unlike a simple e-commerce platform,â Gautam said.
According to a report published by the market research firm Straighten in June, the e-commerce roll up model reduces overhead for brands, lowers operating costs without reducing volume and price, and is able to order a better price without losing volume.
With companies like Mensa Brands, which was valued at over $ 1 billion within six months of its incorporation, and GlobalBees continuing a new round of unicorn valuation reports, the race to the top has only just begun.