Hit The Mark Inc., which runs Mumbai-based curated baby and kids products flash sales site Hopscotch.in, is one of the few startups that have managed to survive as the market consolidated among its heavily funded peer FirstCry and BabyOye had to join hands with Mahindra Group. The company recently raised $11 million in its Series B round of funding led by Facebook co-founder Eduardo Saverin's VC fund Velos Partners. Techcircle.in caught up with Hopscotch's founder Rahul Anand, who had previously worked at Diapers.com (later acquired by Amazon), discussed in detail about where the company stands as of now, its differentiating factors, as well as how it plans to grow going forward. Here are the edited excerpts:
The online baby & kids products space has witnessed several shutdowns and buyouts with only three survivors- FirstCry, Hopscotch and BabyOye. What did the other startups do wrong and what is the secret sauce to survive in this domain?
There were about seven players in India that had copied the Diapers.com model. Today, five of them no longer exist. One of them, BabyOye, has been acquired, but it looks more like liquidation than a happy ending. Many have pretty much moved into the offline space as their online presence did not really grow.
The problem with all the seven companies was that they copied Diapers.com blindly, without understanding why it had succeeded in the US market. The reason why the company (Diapers.com) succeeded for US customers was not valid for Indian customers. This is because in India, you can pick up the phone and order almost anything in a major tier I city from offline 'kirana' stores. Hence, the only way to compete is not convenience, rather pricing. Each of the currently surviving companies in this space has already raised quite a bit in funding and there is a lot of capital erosion in the segment.
The silver lining for me was the fact that every time I came back to India, people would ask me for baby products from the US- since I was in the business previously. I got fed up of getting back suitcases full of presents but realised that these products were cheaper in the US and companies there had better quality and assortment. In addition, the market in India for such products is also large as about 3-4 million kids are born to upper middle and middle class parents every year. The age group of 0-7 years old constitutes about 35 million kids and so there is a critical mass who don't have access to the same pricing, quality and selection as in the West.
Hopscotch's value proposition is that we source the best merchandise from around the world through sourcing offices in four countries, and travel to even more countries to identify great options for moms. From a vendor's standpoint, if they want to enter India to sell their products, there is major fragmentation and so they have no way of engaging with mothers.
And while they can sign agreements with Tata or Reliance and get into a joint-venture to sell their products in India, or test selling on a marketplace like Flipkart.com- in both cases nobody has any awareness of their brand and so there is no chance that their brand will ever show up on their listing. They need a platform where you not only give people access to these products but are also to build a destination where you can tell stories about each of these brands.
On our portal, there is a constant newness and freshness every day. It's just like a shopping mall trying to provide a window shopping experience and build engagement that ultimately leads to a purchase. We found a real need for this as babies needs to be fed every 2-3 hours and hence moms can't leave their home- but they can keep checking Hopscotch to entertain them and figure out what's new.
You acquired Skoolshop sometime back. Was it even required, since you just shut it down and could have just hired some of the people working there?
As entrepreneurs, we often ask ourselves whether we should build a business or buy it. We are a product and tech-led business and are solving a big perennial problem that moms in India have. We are not trying to recreate something that already exists. You cannot get the same vision if you are just hiring some employees. What we got from Skoolshop is their vision, customers, vendors and more importantly some of their best employees who are really driving the show as a consequence of the acquisition.
A bulk of your business is apparel & accessories and you have stayed away from commodities like diapers, why is that?
We wanted to build a business that would solve a problem for Indian moms. We realised that they don't have a problem buying diapers. Also, in case of commodities in India, we needed to be faster and cheaper as the only way you can win is either on price or service. In terms of service, we cannot win from 'kirana' stores, and we don't want to get into a business where you have to compete on price. So we chose the differentiated option which is the core of the game for us.
How many orders you are doing on a monthly basis and what is the average ticket value? How is it distributed between your key categories?
We do over 1,500 shipments daily. And while I cannot disclose the exact average ticket size, it is much larger than the industry average of Rs 1,000. A major chunk of this comes from apparel & shoes category, and the rest is evenly distributed. We currently feature about 240 different brands from 1,000 vendors and are looking to grow this number to 700 brands from 10,000 vendors in a year.
Both your competitors have over 100 offline branded stores. What is your take on going hybrid whether franchisee led (FirstCry) or as a sister concern (BabyOye now with Mahindra's Mom & Me))?
Our digital business on desktop and mobile is extremely successful. We see no need to go offline to justify our existence. Also, offline stores spend about Rs 500 to acquire a buyer and make Rs 70-80 of profit on an order. On an average, each customer places just two orders a year and so they have to wait for 3-4 years to recover their money. We don't have these problems as we are able to recover our marketing cost very quickly. We are not forced to go offline to justify the marketing cost.
Where is the money from the recent funding being spent? By when will you require more funding?
The goal is to invest in technology, management team, marketing and customer acquisition. We plan to grow 5x this year.
We will start scouting for our next round of funding in six months even though we have capital for another year. We start early as we believe in raising 'smart' money from people who can also help us strategically.
FirstCry in particular is now the market leader and quite heavily funded. What's the strategy to tackle them?
We are building an entirely different business. FirstCry wants to be the biggest company, while we want to be the most profitable one. We have higher customer retention because we are solving a real need for Indian moms. Businesses world over that look at solving problems for their customers end up winning. We have a customer centric approach and by focusing on them we will achieve success.
What about horizontal players? When Unamia closed, their VC backers said its going to be very difficult for niche baby products firms to stand up to these biggies. Is the end-game to be acquired by one of them?
It's very dangerous to build a business to sell it as you start to take decisions that are not good for the company. We are not building the company to sell, instead building a business for transforming the experience of mothers. We want to be one of the top retailers in the country for them. We are not going on a road where we will raise a lot of capital. We are capital efficient in comparison to most of the other folks- not just in this space but also in the horizontal e-commerce space.