Virtual reality will be focus of future acquisitions: Pepperfry's Ambareesh Murty
Furniture e-tailer Pepperfry received a funding boost last week when its parent, TrendSutra Platform Services Pvt. Ltd, raised Rs 250 crore ($38.4 million) from US-headquartered asset management company State Street Global Advisors.
The fresh infusion meant that Pepperfy has now raised more than Rs 1,200 crore ($180 million) in six years of operation.
When Pepperfry set up shop in 2012. India had an estimated internet user base of 121 million, according to Internet and Mobile Association of India (IAMAI). By the end of 2017, this number had quadrupled to over 481 million. E-commerce companies including Pepperfry are vying for a piece of this ever-growing pie.
In a telephonic interview with TechCircle, Pepperfry co-founder and chief executive Ambareesh Murty says that while an omnichannel approach is the way forward, his startup remains an online player at heart.
He also lists Pepperfry's targets for the next couple of years and discusses ambitions of going public.
The fresh funding looks like a bridge round and not a full-fledged one. Why did you go in for it?
It is a fresh round of funding from a new investor. We have indicated in the past that we will be in the market for a $20-30 million round but ended up raising a larger round.
When we needed $100 million, we raised that much and now we need only this much. Our losses are down, our business is growing at a CAGR (compound annual growth rate) of more than 80%. We will turn profitable in the next 12-18 months. So the money we need is reducing.
How did State Street Global Advisors come on board?
All of our investors are always trying to connect us with potential future investors. We started the process [of fundraising] in last October and we got a lot of interest from multiple investors.
We had several meetings with the State team and they came down to our offices and had conversations with the team in detail. They understood our business and we had great chemistry and we decided to move ahead with it.
What will you be using the latest funding for?
Logistics expansion is going to be a key area of focus. Second is going to be our continued expansion of our studio business and third is going to be the investments in technology related to augmented reality and virtual reality.
We have a very strong house-brand portfolio which we will continue to invest in. In the longer term, I think we will continue to derive a lot of equity from each of our house brands which are large sustainable brands in their own reckoning.
Do you have a big lead in terms of market share? Is your next target an initial public offering (IPO)?
We have close to 60% market share in our segment and have consequently got validation from our investors. It is also a reflection of how we have managed to stay true to our strategy and consistent in execution too. We opened our first offline store four years ago. Every e-commerce player is now copying us.
A public market listing is on the cards. I request you not to pin me to a date on that yet. As we get closer to profitability in a large market category and a differentiated business that is running very well, we will make for a good IPO candidate and will try to build towards that goal.
Could you tell us about valuation? How close or far away are you from being a unicorn?
We don’t comment on the valuation. Let me state this that we are very happy with the valuation of this round. We never wanted to be a unicorn and never aspired for that. If we build a valuable business, we will become one. Why stop at a unicorn? Ten years from now, we will be manifold of that.
What are your revenue and Gross Merchandise Value (GMV) targets, or where do you currently stand on those fronts?
We haven’t released our financials this year. According to our financials last year (2016-17), our topline grew by over 30%. Our losses reduced by close to 20%. As a business, not only did we generate more money, but also we kept our strengths in the finances very prudent.
Consequently, the way things are panning out for us is that over the next 12-15 months, we expect to cross the profitability threshold. We expect this year, potentially, to reduce our losses by 30-40% and we would continue to grow at a rapid pace.
Will you be focusing more on the offline segment from now on?
I wouldn’t say more or less. We are an omnichannel business. As an omnichannel business, experience centres are an important part of our overall offering to customers. So we will continue to expand our foot print. But along with that, we will continue to invest in areas such as logistics, technology and especially technology related to virtual reality.
At our core, we are an online company, but we are an omnichannel business in the way we attract our customers. Our principle in this matter is the following: there is no one called as an only online customer or an only offline customer.
A customer can be online sometimes on mobile (phone), or walking down the street or in a mall. Our goal as a business is to interact with customers through whichever mode they wish to be contacted. It is not a trade-off between offline and online.
Now that you have been running offline as well for three to four years, which segment is more profitable and growing faster?
People who walk into our experience stores contribute around 20% of our business. The remaining 80% continues to be people who are not visiting our experience stores.
Even if you pan this out for the next couple of years, I think people who walk into our experience stores will contribute only 30-35%. Most of the people that we reach are folks who come to pepperfry.com and buy. I think that mix is going to continue.
Do you face challenges when you work with other brands given that you have your own brands?
No, we treat our marketplace as a level-playing field. All brands are presented equally to customers. We leave it up to our customers to choose.
What percentage of revenue comes from private labels?
Half of our business comes from our private label business.
That is a significant amount...
Yes, it has been part of our core strategy for the last two to three years. Today, we have 10 house-brands which cover various designs and various price points.
The important thing is that we don’t manufacture anything. Even our house-brands are manufactured by the merchants who are on our marketplace.
But because we work with small merchants who don’t have their own brands, we provide them opportunities to work with us and produce and sell them under our house brands. That is a philosophy which has worked well for us.
Will you be going in for acquisitions this year and how big are you compared to Urban Ladder, your biggest rival?
Let me answer your second question first. When it comes to online traffic in the space, we have 60% of all the traffic, in the furniture and home space. This is data which is readily available from SimilarWeb. We are the largest by far.
Coming to your first question, normally there are two things which we look for from an acquisition standpoint. One is whether there are skills or competencies that a company brings to the table which we do not have in ourselves. Or we would look for product categories or areas of service where we do not today operate.
Given those two yardsticks, if we do make acquisitions, I think they will be more in the technology space, especially in the virtual reality space.
Do you think horizontal e-commerce players such as Amazon or Flipkart pose a big challenge to you?
I think it is great when you have multiple players in a particular market. The more people try to sell furniture and home products, the consumers will make sure the market grows further. It is not a challenge.
Collectively, everybody will grow the market and the biggest win for everyone will be in terms of market growth, not market share.