Our Disadvantage Was That We Were 7-8 Years Ahead Of Time: Indiaplaza CEO
Launched as early as 1999, Indiaplaza is perhaps the first major e-commerce company to come up in India. After securing a total of $3 million in angel funding during 2004-2011 (it happened in tranches) from Indigo Monsoon Group, the company raised a series A round of $5 million in 2011 from NEA-IndoUS, a venture capital fund with India focus. Probably in the middle of the next year, Indiaplaza will look at raising a series B funding. Once that is done, it will decide if it wants to go for an IPO.
Indiaplaza has always projected itself as a general e-commerce firm and dealt in pretty much everything. But this year, it wants to go deeper into the segments and focus more on the lifestyle category, as well as books and electronics.
In a candid conversation with Techcirle.in, K Vaitheeswaran (http://www.linkedin.com/in/kvaitheeswaran), founder and CEO of Indiaplaza.in, reveals that his biggest fear today is not online competition but offline retailers venturing online and becoming successful. He also discusses the ups and downs the company has faced, its business strategy, fundraising, focus, target audience and new offerings for 2012. here are the excerpts.
Indiaplaza entered the e-com space way back in 1999 and you have managed to sustain the business with external funding of sub-$10 million. What has been your strategy and learnings? Do you think being an early mover is a disadvantage?
Indiaplaza is actually India's first e-commerce company. When we started in June 1999, the company was called Fabmall.com. But in 2000, there was a massive dotcom bust and things became challenging after that. In fact, it was hard to continue the business. But we did realise one thing when we started â€“ we were far ahead of times. E-commerce had not happened in India then and we were 7-8 years ahead of time. So beyond a stage, there are disadvantages at times.
The fact is that we have pioneered something which is a very large industry today. In 2001-02, we realised that it would be very difficult to arrange capital and resources for online commerce. So we changed the company from Fabmall to Fabmart. We established offline grocery stores along with the online portal. In December 2006, that business was acquired by the Aditya Birla Group and renamed the 'More' chain of retail stores. Since then, we have rebranded our online store as Indiaplaza.com. It is the same online shopping that we started in 1999. It had just changed its names and is now one of the leading online destinations in India.
As for going slow on funding, we have realised that it is a long marathon and the trick is to conserve energy. We have been receiving funding from the Indigo Monsoon Group (approximately $3 million). We did our first US series of funding in 2011 from IndoUS Venture Partners. So far, we have raised approximately $8 million in a period of 13 years, which gives us an idea of how to grow a business without investing too much in advertising & marketing and without spending too much of cash.
But to scale up from here and catch up with other startups who have expanded swiftly and possibly moved ahead of you, you would need more funding. When are you planning to raise the next round of capital?
Retail, by its very nature, requires a lot of capital. So there is a lot of capital supply in this field. But as our track record also shows, we prefer to go for capital only when we have a solid story. And the story we are trying to build at Indiaplaza is that we are trying to see how to become a financially robust and sustainable model. We are trying to find out whether we can make money in this business and we think that we have a solid story today. It's probably in the middle of next year we will look at raising a series B funding.
How much money will you raise? Will that be a precursor to an IPO?
We have not decided yet. We have to put multiple elements together before we can arrive at an amount as to what we need to raise. If we have to guess, I think it will be something between $5-10 million. The amount we raise in the next round should last till we are a net profitable company. We are not looking for Series C, Series D, Series E or Series F. We just want to stop at B.
We do not want to go into multiple series of funding till we prove to ourselves and to the stakeholders that it will be a profitable and sustainable model this time. Once we do that, we will decide if we want to do an IPO or stick to series B.
So, if we look at the business now, how has been the transaction traffic for Indiaplaza?
From beginning of 2011 to the beginning of 2012, we have seen 6-7 times increase in our traffic, 5 times increase in our merchandise sales and 8 times in the number of items shipped. We are consistently doing 100,000 items per month or 3000-4000 items per day.
Which product segments are driving the business for the portal?
Books comprise 50-60 per cent of the volume and electronics contribute to 50-60 per cent of the value. So broadly, these are the two segments doing well. We will use books to drive our volume and electronics to enhance our value.
Doesn't that make you compete head-on with Flipkart and Letsbuy who are now part of the same group and specialising in those segments? Also, what would you do next to expand the franchise?
Yes, competition is there. Many new companies are coming out and some of them have gained good traction. But in Indiaplaza, we have a clear notion that we are not competing with the online stores at all. Since the beginning, our completion is with offline stores. If you compare the organised online retail in India to that of offline retail, it is probably 0.0001 per cent of the latter. And the challenge for all of us is to make more and more people transact online. In the books category, I would say we are competing with Landmark and Crossword; in electronics, we are competing with Croma and E-Zone whereas in lifestyle, it is Shoppers Stop and so on. The fact is that if we can make people buy online, our industry will grow at a significant rate.
We started with music, moved to books and by introducing new categories, we are aiming for breadth and not depth. But during the past one year, we have created a lot of depth in electronics and books, and it has always been a strong thing. Over the next 6-9 months, we will create depth in lifestyle categories including apparel, perfumes, etc.
What is your view regarding the consolidation happening in the e-commerce space?
I am not surprised to see it happening and we will see a lot more consolidation happen in the coming years. A lot of these business models are sustainable only if there is an uninterrupted flow of VC capital which is not easily available. So consolidation will stay. In my opinion, it's not only true for e-commerce but for every industry which is growing at a rapid pace â€“ all of them will experience consolidation. Many new companies will come to make it big, many will close down and others will get consolidated. So consolidation is a natural law.
Earlier you mentioned the competition from offline stores. How serious is that for e-tailers?
In reality, my biggest fear today is offline retailers venturing online and becoming successful. Fortunately, the online business is a difficult proposition. Over the last 12-13 years, we have seen many offline retailers coming online, creating a nice, interesting website, putting up their inventories and expecting business to come their way. But online business is a different ball game. Customers are not easy to acquire online. To me, the tipping point of e-commerce will actually come when offline retailers will successfully grow online. Right now, they are not successfully growing online; they are just going online so there is nothing to worry about. But sooner or later, they will realise what it takes to be successful online and then our competition will start. We have 3-4 years to make our base solid before we see successful offline retailers evolving into successful online retailers.