Overview and predictions for the sector

As the world went into lockdown last year, most people turned to online shopping, which accelerated eCommerce adoption and increased its share of total US retail sales by 75% last year (from 8% penetration in 2019 to 14% in 2020).

Retail giants such as Walmart, Best Buy, and Target saw their market capitalization nearly double in 2020 on the back of enormous eCommerce sales growth. Industries that power the eCommerce ecosystem also heavily benefited from this trend, with companies like FedEx (logistics) and Shopify (eCommerce platform) seeing incredible growth.

In particular, one industry was a significant beneficiary: ‘Buy Now, Pay…

A breakdown of the industry’s dynamics in MENA

Image for post
Image for post
Picture from partner.talabat.com

As cities worldwide went into lockdown last March, most businesses were forced to shut their doors and forgo revenues for a few tough weeks. You would think restaurant owners had an easier time, given they worked with food aggregators to power the on-demand food economy. You would be wrong.

Let me explain. Since its inception, the “food economy” hasn’t been good to any of its stakeholders:

  • Restaurants complain of the astronomically high commission rates (up to 30–35%) paid to food aggregators, feeling stuck with no clear alternatives.
  • Customers often complain of inconsistent quality and delays.
  • Food aggregators (and their investors)…

Gymshark, Huda Beauty and the wonders of negative cash conversion cycles

Image for post
Image for post
Photo by Omid Armin on Unsplash

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He, who understands it, earns it, and he, who doesn’t, pays it.

In business, a negative cash conversion cycle is the ninth world wonder, enabling companies to grow without the need for external capital.

I have previously explored unit economics in the eCommerce industry and discussed what it takes to make money in the space. In this article, we’ll take a look at the financials of the industry from a different lens: Cash.

Cash is King’ is the most widely used expression in the startup world, given…

Outsourcing distribution is the recipe for disaster

Image for post
Image for post
Photo by Kurt Cotoaga on Unsplash

Lord Harold Samuel, a British real estate tycoon, coined the expression: ‘There are three things that matter in real estate: location, location, location.’ In business, it’s distribution, distribution, distribution.

COVID-19 has forced years of digital commerce transformation in a few weeks. As a result, businesses rushed to build new partnerships with demand aggregators and marketplaces to enable online buying. While this was a rational move dedicated to keep customers and generate extra cash, it will quickly turn sideways if business owners are unable to build online capabilities and retake control of their distribution.

The business world is full of stories…

Part 1: Evolution of marketing funnels

Image for post
Image for post
Instagram Shop

The most fundamental construct in marketing is ‘the funnel,’ which stipulates that consumers go through four decision phases when making a purchase: They learn about your brand (awareness), they decide they want to explore/ buy your product (intent), they buy the product (purchase), and they return to repurchase it in the future (loyalty)

Amazon, Facebook, and Google built trillion-dollar companies by centering their business models around this funnel, initially focusing on one part, but rapidly expanding to cover other areas, generating 470% (Google), 710% (Facebook), and 1,130% (Amazon) returns for their shareholders over the past eight years.

How eCommerce economics change during the pandemic and what are the implications for founders and investors

Churchill once said: ‘Never let a good crisis go to waste,’ and COVID-19 was the perfect crisis for eCommerce. Once suffering from slow growth and weak economics, the industry witnessed a sudden spike in popularity, as governments around the globe instituted stay-at-home orders forcing people to go online to buy their essentials.

Investors took notice and allocated a lot of capital to this space. Shopify, the eCommerce platform that helps brands sell products online, saw explosive growth in its market cap, closing April at 55% up on the year, all while the S&P500 is down 13%.

Image for post
Image for post
Shopify emerges as a clear winner.

Suddenly, the number of…

Direct to Consumer Economy

A simplified assessment model.

COVID-19 had a tremendous impact on accelerating the adoption of eCommerce in our region, creating a perfect storm for the proliferation of eCommerce companies in our region. As I’ve said before, It’s the best time to build a D2C in the MENA region!

So naturally, we’ve been busier than ever, looking at and evaluating investment (and incubation) opportunities. When doing so, we look at multiple critical areas for success, such as the business model, value proposition, and team. However, the first question we always ask is: How attractive is the category/ industry you want to play in?

That’s because, along…

Direct-to-Consumer Economy

The curse of VC money and unsustainable growth

Image for post
Image for post
Venture Capital investments in the past decade eight years

Following the global economic meltdown of 2008, central banks around the globe loosened their monetary policies, embarking on a money-printing frenzy and using their newly minted cash to buy government bonds and increase liquidity in the markets.

The increased demand for government bonds led to an increase in their prices (or decrease in yields), making them less attractive to investors. As such, private and institutional money managers turned their eyes towards equities (driving the longest bull market in history) and riskier asset-classes, notably venture capital which received $1.5 trillion in the past ten years (see above graph)

Money as a Moat

With more cash…

Direct-to-Consumer Playbook

Disruptive innovation in Direct-to-Consumer

Image for post
Image for post
Professor Clay Christensen

January has never been my favorite month, but this one was DISASTROUS! 1+ billion animals dead in Australia, US-Iranian tension escalation, the loss of Kobe and Gianna, and of course, the deadly coronavirus. All were extremely painful and anxiety-inducing, but none moved me as much Professor Clay Christensen, whom I had the privilege of taking a couple of classes with, passing away.

Professor Christensen is the father of the disruption theory, which challenged the notion that innovation is the result of big R&D budgets and gradual improvement in product performance. He instead argued that disruption takes place when smaller, more…

Brand-building playbook

Part 1: The time is right for MENA DTCs to emerge

Image for post
Image for post
Daisies by Nudwear (a Dubai-based DTC company)

Value creation in the consumer-goods industry has historically been centered around economies of scale and high barriers of entry in distribution and marketing. ‘Big’ brands captured a significant share of voice, through spending hefty amounts on TV/ offline ads, and built deep partnerships with retailers, guaranteeing premium placement for their products.

However, over the past decade, a new breed of online-born companies, armed with low overhead and high customer acquisition efficiency, disrupted consumer retail and gradually stole market share from incumbents. …

Imad El Fay

Partner & Venture Builder @HBInvestments | @McKinsey alumn, @Harvard alumn | Nutella lover!

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store