Pepperfry’s acquisition by TCC Concept exposes deep cracks in online furniture retail
The struggling sector, plagued by commoditised designs and a heavy reliance on offline sales, seems to have room for only a handful of winners. Pepperfry’s recent sale, shrinking revenue, and deferred IPO are further proof of this.
Bengaluru: Pepperfry’s sale to realty services firm TCC Concept is likely to expose further cracks in the online furniture retail, with systemic problems such as commoditised designs and supply-chain hurdles coming to light, leaving very few winners, industry executives told Mint.
Last week, small-cap realty services firm TCC Concept announced its acquisition of a 100% stake in Pepperfry for an undisclosed amount, saying it aimed to broaden its e-commerce and digital marketplace presence beyond its real estate management offerings and leasing services. “This acquisition is in line with TCC’s vision of building scalable and technology-enabled consumer platforms," TCC said in a filing with the stock exchanges late on Friday evening. While the size of the deal could not be ascertained, a person close to the company said it was valued at much less than its July 2023 valuation of $352 million.
India’s online furniture industry is struggling, with only a few innovative companies. With most companies relying on commoditised designs and a costly offline crutch, Pepperfry’s plummeting revenue and abandoned IPO weren't just signs of trouble, they were proof of a rapidly changing landscape.
Even the world’s largest furniture retailer is struggling to scale up profitably. Ikea India’s losses widened to ₹1,299 crore in FY24 from ₹1,133 crore a year earlier. The furniture giant entered India in 2018.
“Organising the largely unorganised sector is proving much more difficult in a price-sensitive and moat-less market. Venture capital funding is unable to do the trick either. The industry is prepared to see only one or two success stories – much like the Swiggy-Zomato duopoly in online food delivery," said a late-stage investor who watches the consumer space closely.
“It is unclear how TCC Concept will benefit from Pepperfry. Digital content play is the only obvious strategy here but we’ll have to wait and see how Pepperfry evolves. TCC's flexible office space vertical could synergise with Pepperfry's furniture portfolio," the investor added.
Another one bites the dust
Pepperfry’s acquisition marks the latest consolidation in the struggling sector. In 2020, troubled furniture retailer Urban Ladder was acquired by Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries Limited, for ₹182 crore – a fraction of the ₹800 crore the startup had raised since its inception in 2012 from investors such as Sequoia Capital India & SEA (now Peak XV Partners), SAIF Partners and Kalaari Capital.
In 2016, Kishore Biyani’s Future Group bought online furniture store FabFurnish for no more than ₹15-20 crore after the firm failed to make a mark because of major operational challenges despite its early entry.
Chinmayi Lanka, senior consultant at Redseer, said, “In our analysis, only two models in this tricky category are showing success. One, having a full-stack model to control every step of the sourcing, manufacturing and assembly process. Two, being present across multiple categories through a healthy mix of online and offline access." Only those companies that are able to crack designs, manufacturing, price points and accessibility will make the cut, Lanka added.
Pepperfry said about the acquisition announcement, "Pepperfry Ltd has entered into a term sheet to explore a potential sale of 100% of its stake to TCC Concept Limited, a company focused on technology-driven platforms. The proposed transaction is subject to completion of satisfactory diligence of Pepperfry Ltd, subject to execution of definitive agreements, and fulfilment of applicable conditions. We are constrained in offering any further comment in this regard presently."
The company declined to comment on this story.
From clarity to clutter
Pepperfry was among the more prominent online furniture retailers from 2010 to 2018. It was known for its modern designs, especially those that brought a taste of Ikea-level products to India, said the founder of a home furnishings company, who asked not to be identified.
The company raised more than $300 million from investors such as Norwest Venture Partners, General Electric Pension Fund, and Pidilite, according to data from Tracxn, and commanded a valuation of $352 million in July 2023 as a result of its competitive advantage over distressed rivals such as Urban Ladder.
But the entry of Bengaluru-based Wakefit in 2016 stirred chaos in the online furniture retail as its first few affordable products such as mattresses and bedframes garnered plenty of attention. “Wakefit’s standardised products and stable price points had a real impact in the segment. Pepperfry’s products are far more costly. Moreover, marketplace listings feature various sellers, which make quality and product uniformity questionable," said the home furnishings founder quoted above. Wakefit is now preparing for a public-market listing to raise ₹468 crore.
For context, some of Pepperfry’s highest-rated dining tables and sofa sets start at ₹50,000, while Wakefit’s range starts at ₹30,000. “Customers are price-sensitive and rarely brand-loyal. Home and furnishings is still a tactile segment. Building a scalable business in the luxury furniture space is a tall task. The premium segment is the fastest growing at the moment," said Redseer’s Lanka.
Needed: a better business model
Moreover, Pepperfry’s marketplace model presents additional challenges such as quality concerns, a lack of standardisation, and variable price points – much like what Amazon and Flipkart face. However, the two e-commerce giants tend to see decent traction from their home and furniture segments, and the number of sellers on their platforms has grown substantially over the past few years.
In FY24, Pepperfry’s operating revenue fell 30% to ₹189 crore, marking its second consecutive year of declining revenue. Nearly 90% of its income came from marketplace services (listing fees from sellers) and the rest from product sales, both of which declined year-on-year.
The firm deferred its IPO after transitioning into a public company in 2022, as it prioritised growth and profitability. It has also faced personnel challenges in recent years, following the death of chief executive Ambareesh Murthy in August 2023 and the exit of chief financial officer Anand Batra in September 2024.
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