To win the home space, you need to be a variety player: Ashish Shah of Pepperfry

The online furniture market has witnessed exponential growth in the past two years. The market has seven players and each company is trying to trying to dominate the market by investing heavily on product innovation, logistics and brand building.

Business Today's Manu Kaushik spoke to Ashish Shah, founder of Pepperfry, about his growth plans.

Q- Can you share your views about the online furniture market in India?

A- There are various spaces in the e-commerce-classified, search, horizontal and vertical. The classified business runs on network effect, therefore the top player rules the market. Buyers would want to go to a place where there are a lot of sellers and sellers would want to go to a place where there are several buyers. Classified is a winner-takes-all market. In the search space, the same fundamental applies.

The horizontal e-commerce can be divided into the inventory-based model and the marketplace model. The marketplace model that eBay runs is about enabling small and medium enterprises. E-commerce will continue to happen in such marketplaces because the small and medium enterprises are not able to list their product on, say, Amazon. In an evolved economy, you will have a marketplace winner and inventory winner.

In the vertical e-commerce space, whether there could be one or two large players that will survive will depend on how large the vertical is. The home and furnishing market is quite huge-Rs 1,20,000 crore. In such a big market, if the online players have less than one per cent market share, we are talking about at least two to three companies becoming more than a billion dollars in size in three to four years.

Q- What is your business model?

A- We follow the marketplace model. The opportunity is immense because over 90 per cent of the market is unorganised. The home and furnishing business is not about a particular bed or a sofa. It is about variety. When you are buying a mobile phone, you already have an iPhone 6 or a Samsung Galaxy S6 in mind. But when you buy a bed, if I show you 100 beds, you would want to see 100 more because you are not fixed into your mind on the design you want to buy.

In the electronics business, 90 per cent of the sales come from 20 per cent of SKUs (stock keeping units). In fashion, 60 per cent sales from 40 per cent SKUs. Home furnishings is a long-tail business where 100 per cent of the sales come from 80 per cent SKUs. For instance, in a building, if there are 50 flats, each home would most likely have a different bed. If you want to win the home space, you need to be a variety player.

On Pepperfry, I can show you 400 beds. To have 400 beds, I need to be a marketplace player because I cannot have 400 beds in inventory. I have about 9,000 unique pieces of furniture, and 70,000 in non-furniture category.

Talking about variety, I have wardrobe starting from Rs 3,999 to Rs 1.5 lakh. I can cater to a BPO employee who has moved from Bhopal to Mumbai for his first job. I also have a wardrobe for Shah Rukh Khan. Anyone who is between 25 and 45 years of age, and is in the home-making stage, would buy on Pepperfry.

My marketplace is a managed marketplace. Every item that is sent to the customers first comes to my warehouse. I am the only player right now who has a distribution network. I distribute to 150 cities using my vehicles. I have carpenter services in 34 cities which are available within six hours. My business is about reaching out to more customers across the country. As a marketplace, I am in full control of experience. We work with around close to 1,000 merchants. Over 95 per cent are Indians. In spite of being on a marketplace model, I ship out 70 per cent of my furniture items in one day. I don't keep inventory but my sellers do.

Q- People in India still prefer to buy large-ticket items like furniture in brick-and-mortar stores. What are you doing to make that shift from offline to online?

A- Furniture players have to do a lot more to build trust. We know that trust building in very important in this business. For instance, I have a 30-day, no-questions-asked money-back guarantee. We refund the money in the same instrument. Secondly, I am opening studios-experience zones-across the country. These studios are 2,500-3,000 sq ft store where people can see every material of furniture sold on Pepperfry. We have already opened one in Mumbai in December. By the end of this year, we will have 20 studios across the country. These studios are not for sales. We don't sell anything there; we help them to make purchase online. People who man these studios will be interior designers and architects. People can check about prices, finish and the quality of the furniture.

Q- Tell us about the kind of furniture sold on Pepperfry.

A- I reach to the manufacturers directly. A bulk of my furniture comes from Rajasthan-Jodhpur and Churu. I work with small artisans and handicraft makers and they sell on my website. A lot of my products would be similar to offline stores such as FabIndia or HomeTown. I will be at least 25-30 per cent lower priced.

As a marketplace, I have to ensure that my suppliers deliver consistent quality. We specify our own designs and colours to our suppliers. We don't do tie-ups for raw material directly but we help our suppliers in negotiating the best price to procure raw material. We specify some 50 different kinds of raw material to our suppliers.

Besides Rajasthan, the two other regions we are evaluating are North East (for sourcing Rattan and cane furniture), Pondicherry and Kerala (for rosewood furniture). Right now, we are sourcing cane furniture from other brands - GEBE India and Alcanes. I have two parts to my business - my own label business, and second is branded business. I work with 80 brands today such as Durian, HomeTown and HomeStop. Both segments roughly contribute equally to the revenues. Furniture margins, on an average, are 35-55 per cent. Margins are better in private labels. Our average ticket size for furniture is over Rs 14,000 per item. In home dcor and kitchen categories, it is around Rs 2,000 per item. Furniture contributes around 70 per cent to our revenue.

Q- How has been your journey so far?

A- We started in January 2012. We were the first entrants. Everybody started around same time. Our sales grew 350 per cent in 2014 over the previous year. My current run rate is Rs 400 crore.

We are in the market to raise money. We have raised $28 million in three rounds. We are looking at raising $60-80 million which will go into strengthening logistics. By the end of this year, I will deliver in 400 cities using my own vehicles. We deliver on all seven days. I am single-mindedly focused on building distribution for large furniture items. My average logistics cost per item used to be Rs 3,000 which has gone down to Rs 450 today. If you ship out wardrobe from Delhi to Mumbai with, say, Gati or Blue Dart, they would charge Rs 6,000. My distribution network is designed in a way that it costs me much less.

A lot of our business happens after 7 pm and on weekends. That is the nuisance of the category; it's a highly engaged purchase. E-commerce landscape is going to change in the next five years. India is about consumption. In five years, the size of furniture market would grow to Rs 1,80,000 crore. Even if online furniture becomes 10 per cent of it, we are talking about big numbers.

Q- Do you think large players like Snapdeal and Flipkart are forcing smaller vertical players to increase their marketing spends?

A- Over the last two years, the growth in the e-commerce has happened because large players have spent huge money. If players such as Snapdeal, Flipkart, Myntra or Amazon had not spent huge money, we would not have been able to sell furniture as well.