The Indian e-commerce saga started with travel and electronics, and was followed by fashion and cab. However, in the recent past hyperlocal services and home-furnishing have been the new buzzwords in the startup arena. The initial success of Fabfurnish, Urbanladder, and Pepperfryhas caught the attention of young entrepreneurs who have started evangelising various niche segments.
Urbanladder and Pepperfry started with a niche offering– furniture, and then gradually added other ancillary categories. Fabfurnish has followed a horizontal approach right from itsinception. The Gurgaon-based company has come a long way since its humble beginnings in February 2012 with co-foundersVikram Chopra and Mehul Agrawal.
At present, the company has 300 plus employees and more than 1,00,000 products on the platform. “Till last year we had 65,000 products and we have added 35,000 products in less than five months,” says Vikram. The Rocket-internet backed venture has also launched its own logistics network,Fabone, in 6-7 cities.
Talking about the idea behind launching its own logistics, Vikram says:
Logistics in furniture and home furnishing is very different from logistics in electronics and fashion. We ship heavy goods like furniture, which require delicate handling in transit. Whereas fashion and electronics don’t need extra care (if well-packed). To avoid damages and provide a seamless experience we decided to own the logistics part too. Additionally, with our on-ground logistics team, we are able to do on- arrival installations.
Currently, Fabfurnish does close to 1,00,000 orders a month with an average transaction size of Rs 14,000. Though the company is making a profit at the transaction level, marketing and supply chain management are causing losses.
Besides, the large average transaction size, margins are a significant factor for startup interest in this industry. Home decor (including furniture) primarily offers a 35-50 per cent margin as opposed to branded fashion which gives a profit in range of 5-15 per cent. Investors who have been funding horizontal (product-centric) players are still distant from profitability.But home furnishing (including furniture) is more like likely to bring profitability and swifter exits.
At present, over 90 per cent of the home furnishing market is unorganised and there is ample opportunity for startups to make it big in this category. “Even if a startupcaptures 10 per cent of the $35 billion overall market, it will become a $3.5 billion revenue-making entity,” explainsVikram.
Unlike horizontal peers, home furnishing-focused startups are value-driven (volume mattersfor the follow-up VC round in horizontal play). “Average transactions and healthy margins give us the liberty not to focus much on volume,” quips Vikram. While most horizontal players get more than 60-70 per cent of the orders from tier twoand three III cities, home furnishing-focused ventures, including Fabfurnish, garner the same percentages in metros and bigger cities too.
Convincing vendors was a big challenge initially
When Fabfurnish first started, the top challenge was to convince vendors about the sales channel called Internet, says Vikram:
Initially vendors didn’t understand the online channel. We were turned down by most furniture and home furnishing vendors in Delhi. But things improved when they saw customers transacting with us.
Vendors were initially skeptical about e-commerce’s capability to drive sales.“Vendors were right to some extent as consumers were not willing to buy furniture when we started. But soon consumers discovered that online players like us were offering new designs at affordable price-points,” adds Vikram.
Fabfurnish also has four brick-and-mortar stores in Delhi and Bangalore. “Offline presence gives us a good brand recall in these two cities. And we are thinking of openingstores in Mumbai, Pune, and Chandigarh to create brand awareness,” reveals Vikram.
Pricing is a big challenge in this segment as customers always look for discounts, though raw material cost has gone up by 15-20 per cent in the last two years. “Negotiation with vendors and a bit of compromise on profit marginshelps us offer better price-points toour consumers. Also owning logistics helps save costs, which we transfer to consumers,” adds Vikram.
The online home furnishing market
Over the past one year, home furnishing has attracted the interest of niche players and horizontal e-commerce players like Flipkart and Snapdeal.
Flipkart entered the category in March this year, and has been promoting home-furnishing with TV ads. Softbank-backed Snapdeal plans to reach close to $2 billion in gross merchandise value (GMV) by March 2017 through home-furnishing. Other niche e-commerce companies like Pepperfry, Urbanladder and FashionandYou are also in the fray.
Going forward the home-furnishing market will see consolidation as bigger players have already started acquiring small startups. In November last year, Urbanladder acqui-hired Delhi-based BuynBrag for expanding its home decor range.
The segment is going through exciting time. Stay tuned for more updates.