The quiet and stupendous rise of Shopclues – India's online bazaarAthira Nair
Founders Radhika Aggarwal and Sanjay Sethi speak about their future plans for the profit-making e-commerce unicorn, in an exclusive interview to YourStory
When I first walked into the ShopClues office in Gurgaon, what hit me was their oft-repeated claim that they are the online version of Delhi's famed Sarojini Nagar market.
Compared to the swanky offices of online marketplaces such as Flipkart and Myntra, the ShopClues office is glaringly simple, the company choosing a more sober ambience over flashy colours and foosball stations.
Employees—across tech, sales, and marketing departments—are seated across three floors. Chief Executive Officer Sanjay Sethi and Chief Business Officer Radhika Aggarwal’s cabin is elegant, fitted with glass doors, a big table, and a comfortable couch. Their office aesthetics mirrors the company's story in silently becoming a unicorn to watch out for in the Indian startup ecosystem.
Launched in 2011 by Sanjay, Radhika and Sandeep Aggarwal, ShopClues has kept itself apart by focusing on the burgeoning tier-II and tier-III cities in the country. This underdog of Indian e-commerce—backed by GIC, Nexus Venture Partners, Helion Venture Partners, and Tiger Global Management—joined the unicorn club in January 2016, with a valuation of $1.1 billion, after it raised over $100 million in a Series E round.
But, unlike the big daddies of Indian e-commerce—Flipkart, and till recently Snapdeal, or the US-based mammoth Amazon—ShopClues has been quieter in terms of marketing, known for minimal cash burn and efficient spending.
In an exclusive interview to YourStory last year, Radhika had stated that they were all set for an IPO in 2017. Eight months later, when I met them in their Gurgaon office, Radhika confirmed that it should happen by Q4 this fiscal year.
Radhika and Sanjay got talking about further plans for the year, and about how they got where they are today–with zero fund crunch, no employee layoffs, a smaller team of 800 compared to the bigger players, and, most importantly, about their current state of profitability.
Following are the edited excerpts of the interview:
Path to IPO
YourStory: The last time we spoke, you had stated that ShopClues will go for an IPO this year. What is the current situation?
Radhika: We are ready for an IPO by the end of this year–Q4 that is or Q1 next year. The business is growing very profitably.
For the last one year, we have focused very strongly on making the margins better, getting costs lower, and improving net promoter score (NPS). Customer experience is our key area of focus. Over the last year, our NPS has grown by over 30 points, primarily driven by customer experience initiatives like the ShopClues Surety programme.
The focus on just getting new customers has partly been the downfall of the Indian e-commerce industry. Over the last one year we have focused on retaining customers, making sure that we give them the best quality products, and giving them exactly what they are looking for.
We will do one small pre-IPO round–possibly later in the year. It will be anywhere between $50 million and 100 million, just enough to be comfortable.
(ShopClues has so far raised more than $200 million.) We have not decided who to raise it from. For now, we are very well capitalised. We have very low burn rate. When we go for an IPO, it will be a reflection of the market itself.
New points of focus
YS: What are you focusing on this year? Will you be introducing more categories?
Radhika: We will focus more on Lifestyle, including clothes, shoes, and accessories. Home is a different segment for us, as is Fashion. We want to own the market completely. We divide fashion into two blocks–branded and unbranded. It is in the unbranded, local, regional fashion market that we want to dominate. Our consumers buy offline as well, so we will give a larger selection of the line on our platform. We have 50,000 merchants catering to the fashion category, so we give the selection one does not see anywhere else.
Another category we want to build on is Refurbished and Unboxed Electronics—across mobile phones, computers, appliances etc.—with warranty provided by the merchants. That is still in a nascent stage for us. It will grow significantly by the end of this year.
If you can’t afford a brand new iPhone, an unboxed one is more affordable with a great deal. We are launching a lot of smartphones in under Rs 4,000 category. Lot of merchants are giving many exclusives for that market.
Discount sales vs making money
YS: Every e-commerce player runs some discount sale without exception. So do you. How will you ensure margins, and make money if you keep doing discount sales so frequently?
Radhika: At ShopClues, we have always used merchandising as a strong marketing tool. Value for an e-commerce buyer is at stake—whether it is in buying the latest model iPhone or a Rs 3,000 smartphone, you can pay the lowest price possible. Sale events give us an opportunity to curate selection for consumers for that particular season.
Our Sunday Flea Market is hugely popular. Those products are available on the platform on other days too. But the pricing and clubbing presented to the consumer on those particular event days is far better.
More acquisitions on the way
YS: You acquired digital payments startup Momoe last July. Are there more acquisitions planned?
Radhika: We are looking at a couple of interesting startups for acquisitions. It’s too early to say more. But it will be for category expansion. You’ll hear about it soon.
This is a good time for consolidation for our consumer segment because now more of them are coming online in a very big way with Jio and Bharatnet. This year will be different from 2016; last year saw flattening of buyers in the Indian ecosystem. This year, we will see a spike in that.
Avoiding lay-offs with 4 Ts
YS: ShopClues is one of the few Internet startups that have not had mass layoffs. Why so? How do you build your HR culture?
Sanjay: We define culture as the stories we tell, the people we see as heroes. Do our actions align with the stories we are telling? Our culture has sustained itself in the basic framework we have laid out. Wherever possible, we give the 4 Ts—the freedom to choose your Team, Task, Time, and Technique. So people are empowered to do their own job. We make sure that HR is a partner, not the police.
We now have around 150 managers. About 100 of them are first-time managers who have joined us and have grown here. That is important because you can’t keep hiring all the time. As we get ready for the next phase of growth, it would come through our managers.
Targets in numbers
YS: It won’t be wrong to say that ShopClues was always treated as the underdog in a hyper-funded e-commerce ecosystem ruled by Flipkart and Amazon. So what are the metrics you follow?
Sanjay: Nobody is watching us. So we don’t have to prove anything to anyone. For us, a brand resonance with Bharat is very important. It can be measured in terms of the number of orders, demography, frequent, and loyal buyers, etc., not GMV.
By itself, these numbers don’t create value; what matters is that the right demography of consumers is listening to ShopClues. Our most loyal buyers buy up to 25 times in a year.
Some only come to ShopClues; if they don’t find the right product they might go somewhere else, and others who go somewhere else and don’t find it will come to ShopClues. We have to build the organisation for those people who come to ShopClues first.
Number of frequent buyers, frequency of their buying, segment of business that comes from unstructured categories, and the segment from structured categories too matter to us. The unstructured segments have no large brands or catalogues.
The percentage of business that comes from unstructured categories and also the percentage of business that comes from tier-III and tier-IV cities with annual household income of less than Rs 8 lakh, matters to us. If you are moving in the right direction, then GMV, orders, and NPS show the speed at which you are moving.
Evolution of the ecosystem
YS: How do you look at how the e-commerce ecosystem is evolving—with all the funding, new entrants and investors, and more consolidation? How will it affect ShopClues?
Sanjay: We should be a very large beneficiary. I think it is a very logical move that Flipkart got funding from those who routinely take on Alibaba. But private equity investors or financial funds may not want to take on Alibaba.
On the other hand, Flipkart and Amazon are very similar—both are going after the same customer and trying to beat each other in terms of the convenience they can offer. Flipkart getting funded only intensifies that fight.
YS: Do you see a possibility of them extending more towards tier-II and tier-III cities, which are your markets?
Sanjay: I am not taking any competition less seriously. We have been around for five years. More than $8 billion has been raised against us. I am not saying that this money cannot hurt us. If somebody wants to get into our market they can. But they don’t, why? That is not their primary objective. It is to capture the market of structured categories.
Amazon has built a brand on very similar concepts in the US also. It will take 15-20 years here also. Today, to seriously go after the unstructured categories and Bharat consumer and to build a business that will scale to make money—it has to be done very differently from how Amazon and Flipkart are doing now.
The way you run a Sheraton is very different from how you run OYO Rooms. Both are very valuable businesses; each caters to different consumers. If you have Sheraton in a smaller city, it does not mean that OYO is not needed there.
Everyone has to get deeper into India. The segment you are targeting and the value that you are giving them has to be similar to what you give a metropolitan customer. That psychographic profile exists in tier-II and tier-III cities also. So they can make money there too.
The reason why currently we have no direct competitor is that the consumer mindset of a bazaar is not captured by Amazon. I am talking about cities where Bata and Liberty are still major brands with large showrooms. Puma and Adidas are not there yet. That segment is mostly invisible to people. That is Bharat. For a segment like that, you don’t build it like Amazon; you have to build it like ShopClues. It has to be a very large base of regional merchants. Otherwise how will you make money out of a Rs 300 item?
We also sell in tier-I cities; but somebody who is looking for a Rs 4,000 phone is my most important consumer. That is not the consumer that Amazon is attracting. These are secondary consumers for them.
Once this current battle is won, they will start looking at tier II and tier III also. That has to be done under a different brand. The same brand cannot be used to cater to someone who routinely goes to Sarojini Nagar for shopping. Existing brands will not scale.
Multiple players have to be present for the Indian market. We have to make sure that we are catering to Bharat; it is a large business and it is going to be much more important in the coming years. With Bharatnet and Jio, more consumers will come online—especially younger and women shoppers, who are very important for ShopClues.
At a time when e-commerce players are facing more pressure than ever before to make profit, ShopClues seems confident in its plans to show the world how efficiency can create an outcome that so far has been eluding the industry.