Rajiv Srivatsa, co-founder of online furniture retailer Urban Ladder, speaks with Ajita Shashidhar about the difficulties the company faced and its expansion plans, among other things. Excerpts:
Q. How is e-commerce furniture doing as a category?
A. E-commerce furniture is taking off massively. The category, from being zero three years ago, is anywhere between Rs 750 crore and Rs 1,000 crore today. This is the e-commerce home decor space, out of which furniture would be around Rs 600 crore.
Q. What kind of challenges did you face when you got into this category? How did you overcome them?
A. The product wasn't available, the supply chain was broken, customers didn't have trust in buying furniture online, and overall, there was very low market expertise. It's not that we have overcome the challenges completely. Everything is still in works. Our focus has been three-fold. One is the product itself - the nuance of the product, the manufacturing, the finish, the quality of the wood. We believe that we are more a product brand than a marketplace, which most of our competitors are. In a marketplace, one can easily take hands off when it comes to quality by saying that the supplier holds the responsibility. We can't, as we are a product brand and this category revolves around trust of the product and the quality.
Q. You say that you are a branded online furniture company, but how are you different from [your] competition? Just as they source their products from third-party vendors, you also do the same.
A. We do a huge amount of curation. We only work with 10 to 15 suppliers and we go in depth with them. They don't work with any other online retailers, they only sell through us. We work closely with them from design to quality to raw materials used. We are not about having 10,000 products, 5,000 suppliers. It's a very hand curated offering, completely different from [our] competition. We don't put anyone and everyone who wants to sell a product.
Before our products are produced, we have three levels of quality check. After it is produced, we have another three levels of quality check. Our customer satisfaction scores are higher than even Amazon, globally. People see us a brand than just a marketplace...
Q. How many pieces of furniture did you manage to sell in the first year?
A. We sold less than 100 products in the first year. It was a challenge in the first year, we had a team of just five to seven people. We actually launched all-India, but rolled back to just three cities (Bangalore, Mumbai and Delhi). The customer service in Bangalore, where we were servicing ourselves, versus everywhere else we were not servicing, there was a big difference. There was a challenge in products, in suppliers. The suppliers wouldn't entertain us as we were nobody.
Q. How do you plan to scale up into a Rs 600-crore brand?
A. It took us 18 months to stabilise [in] the first three cities. The last nine to 12 months and the next 24 months are going to be all about scaling up. In the first 18 months, we literally set the bare bones of the brand, the product, a team that people would join. In the last 12 months, we have grown rapidly on every front. We have grown revenues five times, we have grown people five times. We are in eight cities, but this year  we are going to grow that to 30. We have launched decor, wardrobes, we have a mobile app. So, there is a bunch of scale-up things happening. We want to be a Rs 600-crore brand in the next 12 months, from being a Rs 200-crore brand today. For that to happen, we need to scale up on multiple levels. We still have to do a lot of work on physical products, need to scale up to more cities. We need more categories. We have launched decor, we have launched carpets, but we need to have products such as mattresses, bed linens, etc. We need to do a lot more on mobile and technology. We are doing a massive push on brand advertising on TV and outdoors.
Q. Is there any particular reason why you chose a vertical and not a horizontal?
A. In horizontals, there are a few clear winners. There is no point going after a price war or an assortment game. There is no differentiation you can do. For us, the vertical seemed to be the only long-term proposition to be building a sustainable business. There was also a massive consumer need for furniture. We would rather go after something where there is a strong need than trying to manufacture a need.
Q. Branded furniture has never done well even in the offline space, wasn't that a concern when you decided to do online branded furniture?
A. Furniture is a heavy, big product. Since the real estate costs are so high, the companies try to price up the product, so less consumers buy. We believed that online will come and serve that part the best. But the question mark was will consumers buy furniture online. But in the last three years, if the industry has grown from zero to Rs 1,000 crore, it essentially means Indians are leapfrogging. The offline economics don't hold well.
Q. Are you also planning to set up brick-and-mortar experiential centres just as [your] competition has done?
A. Not right now. I don't think consumers are asking for it and we will do what is right for the consumer. We actually take three sofas to the consumer's house for trial and allow the consumers to sit and try out.
Q. By carting three sofas to a consumer's house, you must be incurring huge transportation costs. Won't it impact profitability, especially when you are not sure if the consumer will end up buying the sofa or not?
A. We charge the consumer a small amount for it and that is weaved into the customer acquisition cost of the consumer, who buys the sofa. It's not such a big deal, because consumers convert 40 per cent on a trial and the cost of doing a trial is not more than Rs 700. We charge Rs 300 to the consumer and once the consumer converts it is baked into the cost of acquisition of the consumer anyway.
Q. Can you tell us about how your manage your inventory?
A. We are moving to make-to-order, especially when it comes to sofas and wardrobes, so that we don't carry too much inventory. It is only [for] the core products such as tables, chairs, etc., [for which] we carry inventory. But because they are core products, they always keep selling.
Q. What about your logistics and supply chain costs? How does it compare with that of horizontals such as Snapdeal?
A. We work with smaller parties and not the bigger guys. That's another big call that we took. The last mile is owned by us. We only outsource the intercity transportation, but to very small people who work only with us.
Our logistic cost is high because the size of our products are big. A Snapdeal or a Flipkart can do 100 deliveries a day, but we can't do more than 10 deliveries a day. That make logistic costs higher. But the margins are way higher compared to horizontals. The average ticket of our products is Rs 20,000. Horizontals work on razor thin margins.
Q. How far away is profitability?
A. Our target is to get to $100 million by December . We can aim to get to $400 million the following December . We can think of profitability in 18 months from now.
Our profitability will come way faster than horizontals. It's proven globally that verticals become profitable faster than horizontals. The gestation period for a vertical would be four to five years, while for a horizontal, it is five to seven years.