Home interiors is struggling. Can Livspace get its act together and go public?

While Livspace has always made headlines for consumer complaints, its latest challenge goes beyond the consumer experience. The company’s revenue growth has slowed. On a positive note, it managed to cut losses substantially (see chart).

Livspace last got a funding infusion in February 2022, when it raised $180 million at a valuation of $1.2 billion. The funding was around nine times the company’s revenue at the time, said an industry executive, requesting anonymity. This, he said, has become its biggest problem. “You have raised at such a high value and even three years later, you are not there," said the industry executive.

While investors have been optimistic about the growth in the sector, expecting a 50% compound annual growth rate (CAGR) in the next few years, industry experts feel this optimism may not align with reality. Amid all this, Sharma is looking to take Livspace public in the next 18 months. In a two-and-a-half-hour interaction with Mint, he outlined how he aims to get the company there amid the slowdown in its pace of growth.

The beginnings

Sharma, who studied metallurgical engineering from IIT Kanpur, worked with a few startups before he joined Myntra as VP of engineering. Myntra, according to Sharma, is where he learnt about ecommerce and Indian consumers. “From a cultural and learning perspective, as well as understanding the consumer internet of India when it really began, it (his stint) was fortunate," Sharma said. Myntra’s success helped him realize new entrepreneurs could succeed, and so he decided to take the plunge.

After studying at Indian School of Business (ISB), Sharma started a beauty and fashion ecommerce startup called Violetbag. But it could never raise capital and had to be shut down. “We were getting good traction—about 500 orders a day. But cosmetics was a low-average-order-value segment at that time. The cost of logistics, payment gateway, and packaging was higher than our margin," he said, noting that investors stayed away for that reason.

Sharma continued looking for a complex problem to solve and found one when he bought a home in Bengaluru and was doing the interiors. “That was the largest money I have ever given to anyone. The interior process, even if I didn’t want anything fancy, just basics—curtains, bed, dining table, couch and a living room—was not easy," he said.

“I realized Indians spend almost $20 billion every year on home renovation, furniture and interiors, and there’s not even one company attempting to solve it," he said. That’s how Livspace, cofounded by Sharma and Anuj Srivastava, was born in 2014.

Sustainable growth

The home interiors segment has seen muted investor sentiment in recent years and all the big names have been struggling with losses. HomeLane, Livspace’s direct competitor, recently acquired smaller rival DesignCafe as the latter could not raise capital to survive.

Over the last 12 months, Livspace has focused on reducing its cash burn. In a major shift, the company has hired in-house designers instead of outsourcing projects and charging a commission, as it did earlier. Today 90% of Livespace’s designers are on the payroll. This has helped with control over quality and execution, and kept costs in check.

The company has also been hiring freshers and training them to cut some costs, according to over half a dozen employees who spoke to Mint. “They have reduced the salary bracket for new employees. For example, the salary of an assistant general manager was around ₹14-15 lakhs, now they are hiring for a pay of ₹10-12 lakhs," said one former employee.

Discounts have come down from about 30-35% to about 18-20%, according to current and former employees. The CEO confirmed that discounts have indeed been slashed.

Pulling the plug

In another major decision, last year, the company shut its business-to-business (B2B) vertical, which was a category bigger than ₹120 crore, according to former employees.

The average ticket size was at least ₹30 lakh and the category was not restricted to offices. There was retail, hospitality, healthcare and many more sub-segments making it a complex category, according to a second industry executive.

“The vertical did not take off because they tried to implement the same process into commercials and adapt the same technology," said the executive cited above. “Also, it is a very price-sensitive market, so you have to be very competitive with the pricing. Plus, the profit margin is very low compared to residential," the executive added.

Sharma confirmed the closure of the B2B vertical. “We discontinued most low-margin businesses. Last year, growth was lower because we shut down the one business that actually could have grown. So, it was largely a year for profitability and optimization," he said.

While residential has 55% margin, commercial has a single-digit margin or so, Sharma said. “A B2B business, I believe, is never going to make money in this industry. It is a very thin margin business and requires very hard negotiation," he added.

On the other hand, HomeLane founder Srikanth Iyer believes the company’s commercial vertical, branded Cubico, has the potential to become a ₹1,000-crore business on its own in the next five years.

Livspace also experimented with providing individual services such as painting and false ceilings to customers, as Urban Company does. But that, too, did not take off and had to be shut down, according to former employees.

“We are already offering these services to Vesta and Vinciago (top-end verticals) customers in a bundled format. We thought of selling them as individual services. That hypothesis is still there but we have paused it," Sharma clarified.

Livspace has four verticals: Bello (budget offering with a ₹1-3 lakh price point), Select ( ₹3-8 lakh), Vesta ( ₹8-30 lakh), and Vinciago ( ₹30 lakh-1 crore). Another business, Casantro, a B2B vertical, sells modular interior solutions, including cabinets and wardrobes, to designers or stores, which eventually sell it to the end consumer.

Vesta and Select are the biggest categories. While Vesta covers designing of the entire house, Select includes the kitchen and wardrobes.

Tier 2 and tier 3 expansion

The company, having fairly penetrated metros, is now looking to expand into smaller towns and cities, largely in the franchise format. A successful expansion is important to drive growth in the core business.

Sharma is confident the expansion will work. “We have four different offerings based on the same technology and supply chain. Let us say we have to go to a new city; we can choose to launch all four of them or just one of them. We can open in even the smallest city, where I can go with Bello," he explained.

At the moment, tier three cities only have the Select model. The launch of Bello six months ago seems aimed at making the tier 2 and tier 3 expansion work.

Livspace currently has a presence in 65 cities with 105 stores and plans to hit 250 cities in the next two-three years. “With the four solutions we can even go to 300 cities," Sharma declared. “At the moment 35-40% is coming from tier 3 or 4 cities and 60% from the large cities. Some day, I think we’ll see a 50-50 situation."

In a sense, Livspace may have no choice but to go to lower tiers. “Metros/tier-1 cities account for the majority of demand today, but have started saturating, with key players observing lower growth in these cities," said Mit Desai, practice leader, consumer and internet, at Praxis Global Alliance, a consultancy. “That being said, tier-2 and tier-3 cities, contributing 30-35% of demand, hold immense potential, driven by urbanization and the rising affluence of an aspirational middle class," he said.

But there are challenges too: small-ticket-size projects, lack of resources, logistics and perhaps a lower appetite as compared to metros.

“Maintaining quality and service consistency across diverse product categories and geographies is a key challenge as they scale up operations across cities. A shortage of skilled labour could further complicate timelines and budgets," said Desai.

Riding the brand

The company is now into the biggest experiment it may have ever seen, launching its own branded products, specifically furnishings and appliances. This is the first time it will retail Livspace products.

Furnishings, according to Sharma, will include about 4,000 stock keeping units (SKUs), including bedsheets, pillows, pillow covers, quilt covers, and blankets. Last month, Livspace launched hobs and chimneys in Bengaluru for Livspace customers and plans to launch furnishings and appliances such as dishwashers next March.

Earlier, Livspace sold kitchens and asked customers to buy chimneys from a third party. With the recent launch, it is selling chimneys to Livspace customers, and plans to open up to customers outside the platform as well.

Sharma believes that furnishings could become a ₹1,000 crore business by itself.

“We are creating dedicated showrooms and retail showrooms in malls and high streets, so furnishings is going to be a full-fledged business in itself," he said. There will also be a separate website, which will launch sometime by March, for a pure-play e-commerce business with furnishings.

Optimistic outlook

According to Sharma, since October last year, Livspace has been a cash-flow positive company. “Operations have not burnt money at all. In our business, consumers pay 50% advance and then we deliver. So, we are operating cash flow profitable because of the working capital, which was in our favour. Next quarter, we will be a fully Ebitda profitable company," he asserted.

While the pace of growth has slowed, Sharma is confident it will pick up. “When we talked about the platform, the fundamental thing is the capability to spawn new businesses and grow them independently. This is what we have been doing," he said. “There is a lot of leverage of the infrastructure, including the same supply chain, same warehouses, same logistics, same packaging, and same technology. I think this will keep multiplying for the next 15-20 years."

The Livspace founder said the company has $95 million in the bank and isn’t actively seeking funding, nor is valuation a primary concern. However, Sharma is far from stress-free—the company’s top priority is ensuring the success of its new initiatives. “If we go public, we really want to say that this thing is working," Sharma said. Livspace’s customers, no doubt, will want to say the same thing.