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Sep, 2020     

E-Commerce: Is D2C the next leg of evolution?

Vertical players have faced multiple challenges in scaling up and finding the right segments to target in the face of strong competition from the much larger horizontals. The funding inflow also has been relatively low.


1. Early adopters of e-Commerce have matured over the years and tend to command more differentiated product/service offerings…

As e-Commerce becomes more mainstream, the most digitally active users, usually the early adopters of e-Commerce seek more niche offerings. Their demands may not be met by e-Commerce horizontals or verticals which are accessed by majority of the population.

2. …which niche D2C brands are able service by virtue of strong focus towards branding and innovation, enabled by lesser # of intermediaries in value chain

D2C brands have the potential to serve those needs of niche offerings. These brands have a higher margin spread which they can utilize for aggressive branding, trendy assortment and providing premium feel at affordable pricing.

D2C brands who succeed in finding the right product market fit create a community of much more loyal customers than other e-Commerce channels.

3. Scale of D2C brands in Indonesia is still low but the stage is set for this space to boom

D2C e-Commerce sales have been corelated with overall e-Commerce sales in both high income developed economies as well as low to middle income developing economies. In countries like US and China where overall e-Commerce has entered the maturity stage, D2C brands have been able to make a strong case for themselves. In India also, we see close to ~1% sales share of e-Commerce coming from D2C brands.

Indonesia is expected to follow a similar trajectory and we should see quite a few D2C brands springing up in the near future.

D2C e-Commerce sales vs Total e-Commerce Penetration

Note:

We have accounted for sales of D2C brands only from online channels. A lot of these brands are multi-channel and have high share of sales from offline channel as well

4. Certain niche brands are already rising in popularity and investor interest is also rising – Go-Jek’s latest accelerator program comprised of a few D2C brands

D2C brands in Indonesia are the most prominent in Fashion and Beauty categories. Fabelio is one brand in home and furniture category to have made a mark.

Prominent accelerator programs such as that of Go-Jek are betting on D2C brands in fashion and beauty as well.

Existing D2C brands in Indonesia

Go-Jek Xcelerate’s Start-ups – Strong focus on Fashion and Beauty

5. Although Fashion & BPC are sectors where D2C brands have emerged in more mature markets, in a post COVID era, essential categories also have potential to see winners emerge

Fashion and BPC generally witness the entry of maximum number of D2C brands because these categories are marked by higher discretionary spending and thus higher demand for niche products.

D2C brands do figure prominently in other long tail categories as well in more developed and digitally mature economies.

In a Post COVID era, “essentials” segment also has immense potential to see the emergence of D2C brands. We already see signs of this in certain segments like health & wellness, Baby Care etc.

Do reach out to us if you find these insights useful and would like to have further discussions.

D2C Brands – Category focus

Notes:

  1. Middle to high income countries with high digital penetration such as US and China
  2. Low to middle income economies such as India
  3. Others include pet care, health & wellness, etc.