Founded in 2011 by ex-eBay employees Ambareesh Murty (CEO) and Ashish Shah (COO), e-commerce portal Pepperfry.com is trying to tap the nearly $2 billion niche furniture and home decor space in India as part of its broader lifestyle e-com venture. The Mumbai-based company claimed to have crossed Rs 100 crore in gross merchandise value (GMV) in January this year soon after completing a year of operations. It raked in $8 million more from existing investor Norwest Venture Partners (NVP) in April this year, taking the total capital put into the company so far to about $13 million. In an exclusive chat with techcircle.in, Murty talks about the company's road to profitability, why inventory led e-commerce would not work for Pepperfry, its investment plan, and more. Here are the edited excerpts from the interview:
You started as a lifestyle portal. Why did you shift your focus to the furniture & home dÃ©cor space?
We started as a lifestyle platform offering products to consumers for all aspects of their lifestyle. But over the last year and a half we saw success in our furniture & home dÃ©cor category; it contributed to 80 per cent of our overall revenues. We came to realise that our selection and the variety we offered were far superior to what was offered in the online or offline furniture market.
We also noticed that there are no really large online players in this space. Add to it the fact that it is a large market opportunity—almost $7 billion in furniture and $20 billion if you add up all the other components of home dÃ©cor. Consumers' wallet sizes are increasing every day and hence we decided to focus on this niche space.
You have said before that you don't follow either an inventory based model nor a consignment model. What is Pepperfry's business model?
We follow what we call a managed marketplace model. The platform enables over 1,000 sellers to showcase their inventory while we manage and keep their items live on the site. When an order is made, we go to the backend supplier who in turn ships the product to us at our fulfilment centres where we package, brand and pass it through a number of quality checks, before sending it to third parties for last-mile delivery.
Doesn't this model put you at a disadvantage because you are reliant on your merchants' efficiency for sending their inventory on time?
It would put us at a disadvantage if we have our own fleet of last mile delivery. But we don't do last mile delivery; instead we outsource that to third parties. So essentially we only focus on sourcing and selecting the products—we are present where the merchants are, and work with them. By using third parties for last mile delivery, we are benefiting from cost savings. Moreover, by shipping our orders in bulk, we are saving money and reducing costs.
Delivery of items like furniture can take four-five days to reach the customers; but they are willing to wait as long as the service and quality are good. Every e-commerce marketplace is dependent on the merchants for stock; our advantage is that our merchants are mostly small and medium enterprises (SMEs); only roughly 20 per cent of items sold on Pepperfry are big brand items. These people are amazing at bringing out quality and value, which is what the customer is looking for in a product. While they work on the products, we bring in expertise in sourcing and delivery.
How much commission do you charge?
We take a commission from every transaction made on the site. Our margins are now closer to 30 per cent which is largely because of the categories we are in. Furniture and home dÃ©cor as a whole is a large margin space and the ticket sizes are also large. Our average order value is upwards of Rs 2,000. The fact that we have less than 5 per cent coming from cash on delivery and 95 per cent from internet banking also ensures that the return rate is very low. This in turn also enables us to offer discounts to be competitive.
You raised $8 million from NVP earlier this year. How are the funds deployed?
We will be making significant investments in increasing the number of fulfilment centres (hubs) across the country. We are around three-four times the size of our nearest competitor in the furniture segment, but furniture is a large and bulky item and its transportation is not very easy. So we will deploy funds to create avenues for surface transport of furniture and make our supply chain smoother. We have four fulfilment centres as of now and plan to increase them to seven, along with expanding the existing ones. The rest of the money will be used for online and offline marketing.
In January 2013 you were at Rs 100 crore in GMV and 45,000 SKUs. What would be future milestones?
I see the business doing 2-4x (up to Rs 400 crore) of what we did in January in the next 12 months. This will be in GMV and not in revenues. SKUs should increase from 45,000 to a lakh in that time frame and we should see an annual run rate of two million transactions.
(Edited by Joby Puthuparampil Johnson)