As online marketplaces such as Flipkart and Amazon burn money while expanding business, there is increased interest among investors in vertical or specific segment focused e-commerce firms that generate higher margins and are carving a niche in their business.



Firms such as Lenskart, an eye wear firm, Zivame, a lingerie company,
Livspace, which offers customised interiors and furniture, and Firstcry,
an online baby care firm, are focusing on specific segments and trying
to dominate their market.  These firms, known as vertical e-commerce
companies, are generating gross margins between 30 per cent and 50 per
cent.



“We get to design products and offer it our customers. Our margins are
around 50 per cent. We can sustain the margins by bringing in more
efficiency even as we grow scale,” said Anuj Srivastava, founder and
chief executive officer (CEO) of Livspace. In December, it raised Rs 29
crore from investors Bessemer Venture Partners and Helion Ventures.



Zivame gets
60 per cent of its revenue from products that it has designed for
customers. “The private label strategy requires lots of investments and
people. This offsets the higher margins that we get,” said Richa Kar,
founder and CEO of Zivame. It raised Rs 79 crore from IDG Ventures,
Kalaari Capital and Unilazer Ventures.



“It depends on how much private labels you sell. You can get higher
margins as you increase their sale,” head of digital consumer
investments at IDG, Karan Mohla, said. “Lenskart and Zivame have gross margins of 40 per cent.”



Big horizontal e-commerce firms such as Flipkart and Snapdeal are yet
to make profits as they spend more to attract customers. Analysts say
there may be exceptions, but most are bleeding money. “I don’t think any
vertical e-commerce firm is making more margin than horizontal ones,”
Technopak chairman Arvind Singhal said.



However, investors are optimistic. “Once the horizontal players are
established, most will look at vertical plays to improve bottomlines and
that is where the acquisitions and mergers are going to happen,” says
Amit Prakash Anand, partner at Jungle Ventures.

Source:http://www.business-standard.com