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With the bankruptcy of Benitago, Perch looking for a seller, and Thrasio hiring a restructuring lawyer, there’s been a lot of “I told you so” comments about how the aggregator model never made any sense, the founders weren’t True Operators™, low-interest rate phenomenon, bla bla bla, and there’s merit to that, but I wanted to make a post in the other direction, because ultimately the people who founded and funded those companies are smart, hard-working people, and they must have seen something in the model before putting their time and money into it.

I want to explain why I think aggregation STILL makes sense and how an “Aggregator 2.0” should go about implementing this.

IMO, aggregating multiple e-commerce brands (be it by acquisition or by incubation) has 3 big advantages over running a single brand, these are:

1. Economies of scale: If you have multiple brands that share assets and employees, you can spread out your fixed costs, thus creating value. For example, you can centralize your third-party logistics with a single company and negotiate better warehousing rates. Another example, you can use the same marketing team to promote those brands instead of having one team per brand.

2. Synergies: Your brands can feed off each other to generate more revenue, for example, you can cross-promote products from one brand to customers who are already buying from another one of your brands.

These two are super obvious and are the usual justification for M&As, but I also want to bring attention to a third one that doesn’t get mentioned much:

3. Risk Pooling: By combining multiple brands together, you reduce the risk of an individual brand’s performance tanking your entire company. This is critical if you’re selling on Amazon. At any point in time, the platform will mess up and misclassify your items as a “pesticide”, lose your inventory, or go down for whatever reason, you have to accept that this is a very real possibility even if you’re doing everything right.

If you’re running a single brand, this can literally kill your business; stories of this happening abound in this space. When you have multiple brands, a single brand being affected will suck, but it won’t bankrupt you.

Now, if I were building an “aggregator 2.0”, how would I go about exploiting these advantages?

Two words: Category focus.

Buying a bunch of unrelated businesses that happen to all sell on Amazon is like buying all the businesses in a given street. What synergies and economies of scale can you find by owning both the Papa John’s and the nail salon sitting next to it? Not that many, I think.

Likewise, if you own an Amazon FBA brand that sells plastic toys made in Vietnam and another one that sells industrial chemicals made in the US, you’re not going to find much in common.

But if you’re focused on a specific category, then you can create value by:

1) Sourcing from the same suppliers: If your brands are in the same category, it’s likely that they share some suppliers. You can negotiate larger orders from fewer vendors and get better terms that way.

2) Consolidating your supply chain: If you share suppliers for multiple brands, you can likely also share your supply chain, again cutting costs all the way from importing, to warehousing, to shipping to FBA.

3) Selling the same products under different brands: e.g., if you own both a premium brand and a value brand, you can capture both types of customers.

4) Cross-promoting from one brand to another: If two brands are targeting a similar customer avatar, then it’s likely that each brand’s respective customer would be interested in the other brand’s products.

One drawback to the category focus, though, that I want to mention is that the “risk pooling” advantage of aggregation will be reduced. Imagine that you had a travel-related aggregator in 2020; you would have been wiped out.

Still, I think that a category focus is worth it if it’s aimed at less cyclical sectors like household products or industrial ones.

What do you think? Do aggregators still make sense? Which product categories would be ideal for one?