Fall of a unicorn: Why did ShopClues implode?

Indian e-tailer ShopClues announced a merger with Singapore's Qoo10 Pte Ltd in a stock deal reportedly at a valuation of $100 million. That's a fire sale considering that ShopClues was once a unicorn that reportedly turned down higher acquisition offers over the past three years.

To be fair, ShopClues did build up some equity over the years. It has a huge network of small merchants - more than 700,000. It has 40 million products in its catalogue and is a recognisable brand among many online shoppers in India. Nevertheless, the company appears to have lost out in India's fierce e-tailing battleground dominated by two multinationals. Flipkart and Myntra which are now Walmart companies had a 36.6 per cent market share in calendar year 2018, according to data from Forrester Research. Amazon had 31.2 per cent, while Paytm Mall had 3.3 per cent. ShopClues accounted for just 1.6 per cent of India's e-tailing pie. "This share has further fallen now to less than 0.5 per cent," Satish Meena, Senior Forecast Analyst at Forrester Research says.  India's e-tailing pie is expected to cross $30 billion in 2019.

So what went wrong?

Also read: End of the road for Shopclues?

There are many reasons why ShopClues couldn't maintain or grow its share. Here are four of them:

ShopClues ceased to be disruptive: It had a cost advantage versus any other e-tailer as it was ahead in the managed marketplace model when it started in 2011. Flipkart and Snapdeal were yet to become a marketplace; Amazon hadn't launched.  But over the years, every e-tailing company became a marketplace and ShopClues' edge dropped. Meena thinks it has to do with not evolving to what customers wanted - a better experience. "Every company evolved in the past five years. But ShopClues did not. The buyer also evolved during this time. They became more confident online shoppers and wanted an experience. That is something ShopClues wasn't able to do. Amazon and Flipkart reached out to customers with a better service," he explains.

Diminishing value proposition: ShopClues, along the way, lost its value proposition. Amazon's strength is books, electronics, and every standard item. ShopClues, when it started, differentiated by focusing on unstructured categories such as clothing, shoes, accessories, health and beauty, garden and flowers. Over the years, ShopClues started selling mobile phones and electronics. One of the sources Business Today spoke to said: "You can lose a lot of money selling refrigerators - they often don't reach the consumer in a good condition and you pay twice in logistics when it is returned."  Data from ROC shows that ShopClues managed to cut losses by 40 per cent in year ending March 2018. But sales remained small compared to other e-tailers. The sales growth appears inconsistent. Sales grew 109 per cent to Rs 161 crore in year ending March 2016 before dipping significantly to 12 per cent to Rs 180 crore in March 2017. Sales revived in March 2018, by 50 per cent to Rs 271 crore.

Less funding: The company couldn't raise enough required to sustain a brutal battle. "Adding new buyers is expensive; it needs continuous funding. That stopped. With Tiger Global completely backing Flipkart and Amazon around, other smaller players found it difficult to raise big money," Meena says. The company raised about $257 million, from investors that include GIC, Nexus Ventures and Helion apart from Tiger Global. One of the sources Business Today spoke to said that ShopClues found itself "orphaned". Tiger Global's focus shifted to Flipkart whereas Nexus Ventures tilted towards Snapdeal. Both these companies raised way more capital than ShopClues could. While Flipkart, before its Walmart acquisition, raised nearly $8 billion, Snapdeal raised $1.8 billion, according to data from Crunchbase.

Founder's role: Often ignored point but important nonetheless. The vision, passion, and obsession of a founder are not transferable. While vision can be followed, both obsession and passion are difficult to ape. ShopClues was founded by Sandeep Aggarwal who left to start automobile marketplace Droom in 2014. Although he remained a shareholder, he stopped being actively involved in guiding affairs at the company.