Home / Companies / Start-ups /  Urban Ladder’s loss widens as marketing expenses bite

Bengaluru: Urban Ladder, the online furniture retailer, reported a wider loss in 2014-15, hurt by a spurt in advertising and marketing expenses and an enlarged wage bill. The lacklustre results of the firm backed by Ratan Tata and venture capital firm Sequoia Capital come at a time when many investors are clawing back on fresh funding, prompting sta-rt-ups to focus on profitability.

Losses at Urban Ladder Home Décor Solutions Pvt. Ltd grew eight times to 58.51 crore in the year ended 31 March from 7.62 crore in the year-ago period, according to data available with the Registrar of Companies. Revenue rose 60% to 19.21 crore from 11.88 crore.

Advertising and marketing spending accounted for more than half of its expenses of 77.72 crore. The online retailer spent 40.24 crore on marketing, a whopping 11-time increase from 3.57 crore a year ago. Employee costs surged to 16.58 crore from 4.69 crore.

Heavy marketing expenditure are a necessary evil for e-commerce firms because they need to stay on top of their shoppers’ minds, industry experts said.

“Their biggest cost has been around customer acquisition. The major challenges will be getting more customers to buy furniture online," said Anand Ramanathan, director at KPMG Advisory Services, a consultancy firm. “Though there is a certain amount of audience by now, the biggest spend will go towards customer acquisition and retention."

Urban Ladder declined to comment.

Founded in 2012, Urban Ladder is one of the early movers in the online furniture segment along with Rocket Internet-backed Fabfurnish, and Pepperfry, which is run by Trendsutra Platform Services Pvt. Ltd.

Urban Ladder had raised $27 million in three rounds until March from a clutch of investors such as Indo-US Venture Partners, Kalaari Capital, SAIF Partners and Steadview Capital. It also roped in Tata Group chairman emeritus Ratan Tata as an investor in November 2014.

In April, Urban Ladder mopped up $50 million in a round led by Sequoia Capital and TR Capital. While the investment gave it an edge over Pepperfry, the tables soon turned when the latter secured $100 million in July in a round led by Goldman Sachs and Zodius Technology Fund, with participation from existing investors such as Bertelsmann India Investments and Norwest Venture Partners.

Pepperfry has been spending heavily since then on discounts to gain a significant lead over Urban Ladder, which has been traditionally conservative on discounts. These companies are also striving to stave off competition from younger rivals such as Homelane (Homevista Décor and Furnishing Pvt. Ltd) and Livspace (Home Interior Design E-commerce Pvt. Ltd), which are enticing shoppers with customized end-to-end home services.

India is home to about 170 start-ups in the segment, who have together raised more than $280 million from investors, according to Tracxn, a start-up tracker. Urban Ladder and Pepperfry, with $77 million and $128 million, respectively, in their kitty, are the most heavily-funded companies.

Though furniture is a big-ticket, high-margin category—industry experts pegging gross margins at anywhere between 25% and 50%—companies in the segment face challenges around offering unique products and managing inventory.

“The biggest challenge is inventory management. Besides, the replacement cycle is also higher, compared with electronics," said Pinakiranjan Mishra, head of the retail and consumer products practice at EY India, a consultancy firm.

Experts peg the Indian furniture industry at $30-35 billion.

However, with the emergence of new rivals, Urban Ladder and Pepperfry are looking beyond furniture. Both have started dabbling in modular wardrobes and kitchens, big-ticket items that boost the value of goods sold, as well as home décor

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