A new trend emerging for e-commerce companies is the elimination of middlemen. Many online companies are now trying to build premium brands at lower costs by going straight to manufacturers. These companies offer products that range office supplies to nail polish and the products are generally cheaper. The result is higher profit margins for these companies.
The problem with startups in the past is that they have struggled with brand recognition. Consumers are reluctant to buy a product that they don’t know as opposed to one that has been clearly established. However, the web’s ability to reach a large consumer base without having to convince retailers to carry lesser known products. And with the recession, Chinese manufacturing companies were more willing to open their factories to small companies, thus allowing these e-commerce companies to flourish.
So far these e-commerce companies have raised a huge amount of capital from investors. These companies have advantages in that they can update their products quickly, make products that are unique, and use their manufacturers as research centers to see what bigger companies are doing. However, these companies also face challenges. The first is building brand recognition, which can be very difficult. The second is building an efficient supply chain, which is difficult to do as a small company.
The final question is will this trend last or are these companies a passing fad? The amount that investors believe in these companies should indicate that this is a trend that will continue. Will there be e-commerce companies that get in way over their head and fail? Yes. Will big time retailers become obsolete because of this trend? No. However, it appears that the way people shop will not necessarily change dramatically, but will be altered to accommodate these new, cheaper brands.