Online furniture retailers rethink strategies as growth slows

Bengaluru: The expansion of online furniture sales has slowed over the past year, prompting incumbents to change their strategies and raising speculation about merger and acquisition (M&A) activity among speciality furniture retailers.

Pepperfry (Trendsutra Platform Services Pvt. Ltd) and Urban Ladder Home Décor Solutions Pvt. Ltd, the two most well-funded furniture e-tailers, are investing heavily in offline stores and introducing lower-priced products to attract new customers and boost sales growth.

Furniture, thanks to large ticket sizes and high margins, was considered the next big thing in e-tailing, with investors such as Norwest Venture Partners, SAIF Partners, Sequoia Capital and Kalaari Capital taking early bets.

Gross monthly sales at Urban Ladder currently stand at Rs20-25 crore while Pepperfry clocks about Rs40-45 crore per month, according to four people aware of their financials.

The two companies have been struggling to increase sales since January, these people said, on condition of anonymity.

Urban Ladder and Pepperfry declined to comment on the sales figures.

According to consulting firm RedSeer Management Consulting Pvt. Ltd, mobile phones and fashion accounted for about 42% and 20%, respectively of overall gross sales by e-commerce firms in India in 2015. Furniture comprised less than 1% of the total sales. In 2016, the share of mobile phones rose to about 48%, while fashion remained almost flat at 20-22%. The share of furniture increased marginally to 1-1.5%.

Industry experts say furniture e-tailers have very little play in home furnishings, a high-repeat purchase category dominated by marketplaces, while the home improvement category hasn’t caught their attention. A large fraction of heavy furniture purchases is still offline, leaving online furniture stores dependent on small furniture, RedSeer chief executive Anil Kumar said.

“I don’t see them as a major GMV (gross merchandise volume) driver for the e-commerce industry,” said Kumar.

Some of the online furniture start-ups could also become potential acquisition targets for larger firms such as Amazon and Flipkart Ltd. Flipkart is expanding its private label business to 35 new product categories, including furniture and home decor.

“Furniture consumption cannot be enhanced significantly. There is only a limited space in your house for furniture,” said Sreedhar Prasad, partner, e-commerce and start-ups at KPMG in India.

“Consolidation will certainly happen. Every vertical category has hit a roadblock at Rs100-150 crore of topline. Beyond that, they have to get consolidated with a larger company with an allied model or get into a differentiated omni-channel play. The larger players will acquire smaller players,” he added.

“For categories to enter a hyper-growth mode, there has to be a tipping point and furniture is awaiting that tipping point. This is a complex category and not structured like mobile phones. Across markets, you will find that furniture adoption happens at a later stage of e-commerce,” said Ambareesh Murty, co-founder and chief executive at Pepperfry.

Pepperfry, for instance, plans to invest at least $6 million to expand offline stores from 17 to 50 by December.

Urban Ladder, which last raised Rs100 crore from existing investors in February, is in the middle of transforming itself from an online furniture store to a brand.

According to research platform Tofler, Pepperfry posted revenue of Rs98 crore in fiscal 2016 while its losses stood at Rs154 crore. In comparison, Urban Ladder clocked Rs56 crore in revenue in the same period, while losses stood at Rs175 crore.

“There will be times when we will have to make a choice to build a sustainable business and shift our business model in way that provides for a slightly lower growth. When we are building a consumer brand, a 50-60% growth year on year is fantastic,” said Ashish Goel, co-founder and chief executive at Urban Ladder.

While both Urban Ladder and Pepperfry have ventured into home furnishings and home interior designs as well, sale of furniture still accounts for at least 80% of their sales.

In the home interior design segment, Urban Ladder and Pepperfry face stiff competition from Livspace. The segment is deemed particularly lucrative given the high ticket sizes that run into a few lakhs.

“The online home design market is governed by new home possession and today, every month, 10-15,000 new homes are handed over across metros. We are also seeing thousands of people who are renovating homes, getting various rooms designed and opting for modular kitchens etc.,” said Anuj Srivastava, chief executive at Livspace.

According to Srivastava, Livspace is poised to touch Rs20 crore in monthly gross sales within the next two months.