E-commerce will mirror physical retail market dynamics: ShopClues co-founders

22 Aug, 2016

ShopClues, an ecommerce marketplace that focuses on non-metro markets, has so far raised around $200 million and half of that amount is still in the bank. The company has plans to expand organically through one or two double-digit million buyouts and smaller technology acquisitions. ShopClues believes catering to the needs of its sellers will be good business which could account for a third of its revenues going forward. In a chat with VCCirce,  Sanjay Sethi and Radhika Aggarwal, co-founders of ShopClues, explain the company's strategy to build an ecosystem of services for its half a million merchants and its plans to list on NASDAQ.

You raised close to $100 million early this year in a round led by GIC. How are you spending the money?

Sanjay Sethi: Most of the money is still in the bank. There is a certain amount of burn we have to support. We are not cash flow positive just yet. And we had raised some amount of money to do some strategic acquisitions. We did the Momoe acquisition recently using the money from that round. You also need to have a certain safety net. Nothing has changed from the GIC round. We have been very frugal and thoughtful of our spend before the GIC round and even after that. We were interested in GIC at that time because our line-up of investors became more robust. You get the right players to align with you. We have ambitions to go public and that requires us to have good backers.

You have set a target of 35% revenues from outside ecommerce transactions. How do you plan to achieve this?

Radhika Aggarwal: Our non-transactional revenues are from traffic and platform monetisation. For example, we have a merchant mobile banking solution from Momoe and there are different products.

Sanjay Sethi: The ecosystem of services will be the right strategy for anyone to adopt. Google is known for search but it is actually the largest marketing company. Apple is known for iPhones but it is the largest music company in the world. When you start creating certain assets you can monetise them in many different ways. All of us will have to figure out what consumers we are catering to. Different people have taken different bets. We are betting on micro, small and medium businesses—it is the nature of the marketplace we have created. I have to give my consumer the largest selection at a certain price point. It has to be through an aggregation of small and medium businesses. The value I want to give to consumers can be created only through a large aggregation of merchants. This aggregation of merchants will have certain needs and the question is whether I will be able to cater to those needs and monetise my services. The only paying guy in the entire ecosystem is the merchant. Our mind-set is very merchant-focused.

What is the timeframe to achieve this?

Sanjay Sethi: It will take us 18-24 months to get to that number. We have half a million merchants now. That is a potential business opportunity in itself. Every merchant gets a website which is powered by ShopClues and an app which is also built by ShopClues. He can sell on his physical store; the point of sale is powered by ShopClues. My loyalty is with that merchant. I enable him on all channels. Our site allows us to create an aggregation of merchants but our value is generated by creating value for merchants to run their businesses wherever they run it.

Will you invest in building services for your merchants?

Acquisitions and partnerships will help us. We recently created Adzone through a partnership. We invested in HeyBiz, which is a chat app for merchants. We have a partnership with GoDaddy. Momoe, the payment company we acquired, also fosters our efforts in this regard.

You earlier talked about your plan to go for an IPO. Can you elaborate?

Sanjay Sethi: We believe that our aim is to build an institution that survives any of us. You can't decide to do IPO today and go for it tomorrow. You need to be audited by Big Four (accounting firms PwC, Deloitte, EY and KPMG) at least three years continuously and show a clean record. We have done that. We registered our company in Delaware with a clear intention that we will do our IPO on NASDAQ.

When do you plan to go for the IPO?

Sanjay Sethi: No specific timeline yet. A few indicators will tell us whether we are IPO-ready. One, either being profitable or having a clear path towards profitability. We will become EBITDA-positive second quarter next year. Whether we want to ring the bell is a different matter but the ability to ring the bell should be there.

How is the Indian ecommerce market shaping up? Where do you see yourself in the evolving scenario?

Sanjay Sethi: Those who expected a hockey stick kind of growth curve is having the shock of their life. It is a Canadian hockey stick kind of growth—slightly slower but steadier. If you think the Indian ecommerce battle is to be fought in the next two-three years, you are mistaken. You have to prepare yourself for a marathon. There will be cycles like the one we had in 2011 and the second one that we are going through right now which will last for 12-18 months.

We believe that the last three-four years of greed came from a belief that the winner would take all. If you don't become that winner you won't exist. In the US, you have Walmart, Meijer and Target—all horizontal marketplaces and they coexist. The dynamics of ecommerce in India is going to be that of retail commerce where you will have multiple brands that will coexist.

You have positioned yourself as a marketplace for non-metro customers. How is this niche evolving?

Sanjay Sethi: We target the customers whose household income is Rs 4 lakh to Rs 10 lakh. We have 25 million registered users. We are currently doing $700 million annualised GMV. We have half a million merchants on the platform. We have 20 million products. About 90% of business is from unstructured category. About 70% of our sales is from non-metro cities. Merchants who sell in the range of Rs 5-10 lakh account for 70% of our sales. We do not give any discounts.

Radhika Aggarwal: We have been focused on our path to profitability as well. We are looking at being profitable next year. We are loud and clear about it and sticking to our goal. Our monthly burn is one of the lowest in the industry. We will end the fiscal year with $1.2 billion GMV.

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