When online retailer Fashionandyou bought UrbanTouch a couple of weeks ago, it joined a small but growing club. A club of ambitious players who seem to say ‘Why start from scratch again?’

The online retail industry is still in the investment phase and most players are yet to break even. But it has already seen a spate of acquisitions. Early this year, Flipkart acquired mime360, followed by Letsbuy.com for $25 million. Recently, Snapdeal bought eSportsbuy, while baby products retailer Hushbabies snapped Mangostreet.com .

“Acquisition is an easier way to expand, since one does not need to create the portfolio from scratch or build the supply chain again, which can be extremely complex in e-tailing,” says Rachna Nath, Executive Director, PricewaterhouseCoopers.

While Letsbuy helped Flipkart expand its electronic goods basket, mime360 gave it an edge in digital distribution. eSportsbuy not only added sports goods to Snapdeal’s portfolio, it also came with a huge supplier network, “which would have otherwise taken us lot of time to build,” says Sandeep Komaravelly, VP – Marketing, Snapdeal. Fashionandyou hopes UrbanTouch will expand its product offering in the personal care segment.

With dozens of entrants into the e-tailing space in the last couple of years, this consolidation was bound to happen.

“Given the price wars and crowding with many undifferentiated players, small or niche players will either get acquired or shut shop, leaving behind clear leaders. The entry of Amazon (through junglee.com ) into India’s e-tailing market has also brought some urgency into the space,” says Pragya Singha, Associate Director, Retail and Consumer Products, Technopak Advisors.

Consolidation also happens if the seller is looking for an exit at a good valuation, like in the case of Letsbuy.

At a time when online retailers are struggling to make profits, do acquisitions make sense? “Some of the acquisitions may prove costly – especially those that are done at unjustified valuations and the post-acquisition synergies are not realised,” says Singha.

But for the moment, the cash is flowing freely. “We have the full support of our investors to pursue strategies aggressively to acquire market share,” says Harish Bahl, Chairman, Fashionandyou, which is backed by Norwest Venture Partners and Intel Capital.

Last year, the e-commerce sector raised over $500 million from 67 investment deals, a big jump from $112 million from 18 deals in 2010.

Also read: >E-tailers click with private labels to boost profits

>Swetha.kannan@thehindu.co.in

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