Disruptive innovations have enabled microbrands in Asia to launch cheaply, but still reach a significant audience.
The widespread growth of e-commerce during the COVID-19 pandemic is already a well-known fact, especially in Asia.
But while successful brands and revenues hog e-commerce news headlines, businesses cannot ignore another fact – that 90% of e-commerce startups fail.
Very often, whether an e-commerce brand or business succeeds or fail hinges on two very important factors: whether it is riding the crest of an e-commerce trend; and whether it is leveraging disruptive innovations.
Early in 2022, Rainforest – an Asian e-commerce brand aggregator – announced that it has surpassed US$30 million annualized run-rate after its first full year of operations, a rare feat for a Singapore startup.
Having successfully acquired 12 Amazon brands in Asia, Rainforest is well-positioned to scale these brands rapidly while providing sellers with an attractive exit opportunity. The company has also strengthened its brand acquisition, sourcing, and supply chain capabilities in China.
DigiconAsia had the opportunity to discuss e-commerce trends in the region with Per-Ola Röst, CTO and Co-Founder, Rainforest:
What is Rainforest’s business rationale and experience in e-commerce acquisitions in Asia? Are acquisitions the new trend?
Ola: Microbrand acquisitions have grown in the last few years with around US$15 billion being raised by new aggregators for this purpose. It’s interesting to look at why there has been that much capital inflow recently. In the last 5-8 years, there have been disruptive innovations that enabled microbrands to launch cheaply, but still reach a significant audience.
One of the most important factors has been Alibaba, connecting suppliers to entrepreneurs, ensuring safe transactions and high product quality. Another key innovation is Amazon’s fulfilment programme “FBA”. Instead of having to set up their own warehouse, microbrands could tap into a fully automated storage and fulfilment program that also created high exposure for their products by being listed on the Amazon marketplace.
These microbrands are able to target specific niches with unique products and branding. Some of these brands have managed to grow significantly and reach millions in revenue—which is impressive considering that many of these brands are run by just one or two entrepreneurs.
Another more traditional path for microbrands is to sell directly to consumers (D2C) via their own website. These brands are usually a bit more mature, having some full-time employees and more complex operations.
Many of these microbrands now have an interesting choice. Either they continue to grow their business on their own by hiring, raise capital, and adding complexity. Or they sell their brand to someone like Rainforest, allowing the entrepreneurs to move on to a new project.
After acquisition, Rainforest is able to professionalize the brand and take the next steps needed to grow. For example, by improving the supply chain process, growing into new countries and marketplaces, and leveraging technology to get an edge in marketing, data, and operation efficiency.
Even though a lot of capital has been raised recently to acquire microbrands ($15bn), it should be put in relation to the addressable market which is much bigger. The GMV of 3rd party sellers on Amazon alone was estimated to be around $390bn in 2021.
Rainforest’s niche brand focus is in the maternity, baby care, kids, and home categories. What are the e-commerce growth trends and predictions for these categories?
Ola: Our focus on these categories did not stem from the belief that they will outperform the market in terms of growth. Instead, we strongly believe in the fundamentals that make up these categories, like a high loan-to-value (LTV) – and customers valuing quality, safety and sustainability over price, which is something that aligns with our values.
We also believe that any focus will make us a better acquirer and operator.
With an audience and category focus, we are also able to be more targeted in terms of product development, marketing, and compliance. We want to build a house of brands that caters to this audience and deliver high-quality products that align with their needs and values.
Coming back to the question of growth, the underlying growth of global e-commerce is expected to reach 11% per year by 2024 – our portfolio of brands is outperforming that average.
How do you see the potential and opportunities for e-commerce platforms and brands developing over the next few years?
Ola: With the incredible success of Amazon’s online marketplace in recent years, much thanks to third-party sellers building brands leveraging Amazon’s fulfilment programme (FBA) – I think we will see other online platforms try a similar approach.
We have already seen Walmart developing their own fulfilment programme and even Shopify exploring similar solutions.
I also think we will see continued innovation in cross border fulfilment and logistics – enabling simplified international expansion. The future looks very promising for microbrands in the coming years.