New Delhi/Bengaluru: Urban Ladder’s proposed buyout is likely to trigger consolidation among online furniture retailers and create a few large dominant brands, as smaller retailers get squeezed between the might of the e-commerce behemoths and the unorganized sector, which operates outside the tax system.
Reliance Industries Ltd (RIL) may buy a 75-90% stake in Urban Ladder, according to three people aware of the negotiations. The online furniture retailer was valued at around ₹1,200 crore in 2018, which dropped to around ₹750 crore in 2019. The startup has now agreed to a 66% cut in its valuation in the ongoing acquisition talks with RIL, which will value it at around $30-40 million, the people said on condition of anonymity.
With Urban Ladder set to sell its business, the sector would now largely be dominated by e-commerce marketplaces like Walmart-owned Flipkart and Amazon along with market leader Pepperfry. The last two years have been challenging for the e-furniture market as funding in this sector remained subdued and investors pressured them to turn profitable.
“It’s a difficult category and is ripe for consolidation under larger horizontal players. A stand-alone model in e-furniture would require dollops of funding which has dried up," said Rajesh Sawhney, founder, GSF Accelerator.
“The e-furniture space has two big issues: cost of customer acquisition is much higher than the horizontals and secondly, developing and managing reliable and robust supply chain requires massive investments," added Sawhney.
Urban Ladder, in particular, has had a rough ride in recent years. Founded by Ashish Goel and Rajiv Srivatsa in 2012, the company raised more than ₹700 crore from top venture capital funds such as Sequoia Capital, SAIF Partners, Kalaari Capital and hedge fund Steadview Capital. But after its Series E round two years ago, it struggled to raise capital. Last November, it raised ₹15 crore, though some of its existing investors did not participate in the round.
The startup also hit a rough patch with several high-level exits and employee layoffs. Urban Ladder’s chief operating officer (COO) and co-founder Rajiv Srivatsa resigned last year. Vani Kola, managing director of Kalaari Capital, also stepped down from the board.
Urban Ladder didn’t respond to queries.
Data by RedSeer Consulting shows the online furniture market in India grew at an annual average pace of approximately 80-85% to touch $700 million in FY20. But online has less than 3% share in the overall furniture market pegged at $17 billion.
Squeezed by competition from Flipkart and Amazon, which have introduced their private labels in furniture, Urban Ladder was caught in a bind. It had traditionally stayed away from discounting to lure customers and offered high-quality furniture.
While Pepperfry managed to trim its losses through cost-cutting and adopting an omni-channel approach, Urban Ladder suffered because of its delay in launching experience stores.
In fact, Urban Ladder’s strategy of focusing only on online became its Achilles Heel. The company opened its first brick and mortar store in 2017, by which time rival Pepperfry and others had already taken the lead.
“While Urban Ladder had a solid proposition, it was slow on the physical space and needed to set up more experience centres quickly and also invest in stores in tier 2/3 towns where the real growth lies," said Sanchit Vir Gogia, co-founder of Greyhound Research.
Currently, Urban Ladder has around 12 stores in metros while Pepperfry has more than 60 in over 20 cities.
“We plan to continue expanding our Studio footprint to Tier-2 and Tier-3 markets...aim to open at least 20 more studios by March 2021," said Ashish Shah, co-founder and COO at Pepperfry.
While the e-furniture business suffered a setback during the nationwide lockdown, the business has picked up since June.
“We are crossing ₹12 crore every month as people are ordering online.. we are hiring and are even opening more factories," said Lokendra Ranawat, chief executive and founder, of online furniture store WoodenStreet.
Pepperfry has also seen a steady uptake in demand and a swift rebound. Shah is confident that with the approaching festive season, demand will sustain.
One of the major challenges for furniture e-commerce is competing with the unorganized sector, which accounts for about 90% of the overall sales.
“This non-tax-paying sector is difficult to overcome, especially for organized e-commerce for whom the 18% GST slab is a tight leash," Ranawat added.
A Flipkart executive said furniture is one of the key categories for the online retailer.
“The demand for furniture comes from across India, including emerging cities that have been under-served until now. To serve the vast demography, we have a separate supply chain," said Manish Kumar, senior vice-president, furniture, grocery and general merchandise, Flipkart. Flipkart has over 250,000 furniture products and offers delivery and installation across 80% (over 16,000) of the pin codes across the country.
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