Multi-niche ecommerce: is it a business model worth the excitement?

Rumours abound of Hayneedle looking at an IPO.  CSN stores just reported a record quarter. 4 European multi-niche ecommerce businesses are getting funded (disclaimer: I have invested in one).

Why the excitement? Well, in short, the business model is working.  

The model is much better explained here, but in short, it is operating a ton of very specific retail sites rather than one big throbbing etailer.  For example would you rather buy tubchairs (yes, people do) from 

1. a specialist tubchair retailer which has with a huge selection in depth, specific customer service, and price range or
2. go to Argos.com and choose from a range of two? 

Even better, what if you found this tub chair specialist via the left hand side of google which you trust more than the right side? 

Well, irrespective of your answers to the above questions, consumers do like to buy from these specialists and the evidence is in their growth.

However, there’s another story here: most interesting for entrepreneurs and VCs: the business model. 

1) CoCA

Its clear to me that the scene of the fight for the next 10 years, for all businesses and in particular ecommerce is Cost Of Customer Acquisition.

If you’re an entrepreneur and you share my view on CoCA, then I bet that you’re focussing on a couple things: 

a)    smart web-marketing (SEO, adwords & viral) and 

b)    driving return / repeat visitors from systematic email marketing, offers, blogs etc.

Multi-niche ecommerce businesses have the benefit of customers who find the stores via natural search easily (Google recognises their depth and authority). They also benefit from high customer service expertise, which is (arguably) the single biggest driver of return repeat.  

These factors both reduces CoCA. 

All businesses have challenges and multi-niche retailers have to leverage their database of tubchair buyers to make inferences on sending them other offers.  Its difficult but can be done.

2) Stock costs.

All traditional retailers struggle from tying working capital up in stock.  From an investor or entrepreneur’s perspective, this is not capital efficient which is a BAD THING (I have another post on this coming).

Holding stock also means you are subject to inventory risk: buying the wrong blouses for this season, or not getting your channel working quickly enough to sell-through at top-price.

Multi-niche models are attractive because it also opens the door to drop-shipping directly from suppliers.  This is not simple: supplier management is not easy (who is going to recruit and manage all those dart-board manufacturers?). Operations and logistics can create some thorny issues around availability and delivery, but again, not insurmountable.

Taking a step back, most interesting for me as an investor today is that there are so many smart models around retail: all piggy-backing on ecommerce market growth BUT adopting smart strategies around CoCA and stock. 

Now I’m back in the blog saddle, I will write again soon on these.

Comments

[Jambaroo]

I definately think a niche is key, i started with Children's clothing as a drop ship idea, i then refined it to british made cottage industry clothes. It's a niche - gives me better search keywords but does not alienate anyone.

[Jonathan]

Interesting to read the jeremyliew post,thanks.I note some leading financial models in North America and now the UK are using première keyword verticals to expand the brand offering to new customer segments.This (IMO) is a smart move that ticks all the seo boxes when each offering is authoritative stand alone. The fact that the financial markets are simple online transactions makes this a very smart strategy that will be replicated.
http://www.insidermedia.com/insider/midlands/42395-moneysupermarket-buys-online-rival/

[Jonathan]

Ref: Groupon & Living Social
Facebook is not a search engine. It is a community and should / will be the real economies of scale to become its own (new brand name) social group deals broker. Groupon & Living Social are the Emperor’s New Clothes, you sign up with hotmail only to mark in the junk folder looking intermittently out of greed in case you need teeth whitener on the cheap. Bad investment they should have sold. Google can do it through FaceBook !!

[Jkfitcustomshirts4]

Great Post !!!
Thanks

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