Furnishing a new buying experience

Rajiv Srivatsa (left) and Ashish Goel, co-founders, Urban Ladder
Rajiv Srivatsa (left) and Ashish Goel, co-founders, Urban Ladder

Ashish Goel and Rajiv Srivatsa were neighbours at the Indian Institute of Management-Bangalore. Three years ago, when the duo decided to settle in Bangalore, they bought apartments next to each other. But they had a tough time furnishing these: After a furniture store did a pathetic job, they were forced to cancel the order. For 14-15 months, Goel’s family slept on mattresses on the floor.

The duo, which was considering venturing into e-commerce, zeroed on furniture. In July 2012, they founded Urban Ladder, a furniture marketplace. “There was a need for aesthetically good, quality furniture and dependable customer service, at reasonable prices. That solution just did not exist,” says Goel. “The range was limited, the designs weren’t good, or the vendors were not dependable.”

Recently, the start-up raised $5 million in the second round of funding from Saif Partners. In May 2012, it had raised $1 million in angel funding from Kalaari Capital. “It was customer experience, positive word-of-mouth reaction and a strong team that got us excited about Urban Ladder,” said Deepak Gaur, managing director, Saif Partners.

The opportunity
While India’s furniture market is estimated at $15-20 billion (Rs 93,000-1,24,000 crore), the largest furniture business in the country. (Godrej Interio, which primarily sells office furniture, is estimated at only $80 million or Rs 496 crore.) Goel and Srivatsa saw a mismatch here. The category could see the emergence of a few billion-dollar businesses, they felt.

The duo bet e-commerce would see the emergence of a few large horizontal players such as Flipkart, Snapdeal and Myntra. The second set of companies will be sharply-focused vertical players that need to operate in defensible categories, in terms of customer engagement and supply chain. “The category needs to have break-out economics. The unit economics of such a category has to be significantly different,” says Srivatsa.

The ticket size for such a category has to be 12-15 times higher. Urban Ladder’s ticket size is Rs 15,000-16,000, against Rs 1,000-1,200 for many horizontals. Similarly, margins have to be different and the verticals have to record profitability quickly. “There has to be strong profitability story at the sub-scale. You can’t say ‘I will be profitable when I am $1-billion’. You have to be profitable at one-twentieth the scale,” says Goel.

Category dynamics
The furniture category is big and offers a great opportunity, in the absence of any large player. But it is a tough nut to crack, as managing the product and supply chain isn’t easy. Take the case of real estate – the nature of the category requires more floor space (to display furniture), and this requires one to set up huge stores. Setting up stores out of town is an option but considering the travel and the distances involved, that’s not feasible either.

Therefore, players are often forced to look at high-street locations, where rentals could be Rs 120-150/sq ft. It’s estimated a third of a furniture store’s revenue goes towards meeting basic costs -rentals, common area maintenance, staff and electricity. Besides, the category generates the lowest revenue/sq ft – Rs 4,000-7,000 against Rs 15,000-20,000 in watches and jewellery.

The challenge in building a large footprint in furniture is real estate costs, which adds to the attraction of furniture e-commerce. But how comfortable are consumers buying furniture online? It’s a high-ticket purchase that involves complex decision making. Agrees Goel: “For a lot of consumers, there’s discomfort when we start the conversation. It’s a question of trust, which we have been able to build with the right kind of products, quality, service and some hand-holding.”

The promoters knew it couldn’t be a one-way conversation; to build that trust, the right chord had to be struck with the customer. So, when it was launched, Urban Ladder started by selling a small assortment of products at lower price points, gradually adding other categories. This paid off: First-month sales were five times the projected number.

Urban Ladder has to compete with offline players such as Home Town, Lifestyle Home Centre, Godrej Interio, Fab India, Style Spa, DLF Pure and Evok (Hindware), as well as some online players that sell furniture – Pepper Fry, Fab Furnish and Zensaar. Soon, Urban Ladder will have to compete with a global player such as Ikea, which plans to enter India with physical stores.

Making a difference
Urban Ladder’s customer engagement and web experience have made a difference. E-commerce firms use a matrix called net promoter score (NPS) to gauge customer satisfaction. This shows how willing a consumer is to promote the brand to his/her friends and family. On a scale of 10, only if a consumer gives a brand a score of nine is it taken as positive. The NPS captures a host of aspects such as product quality, quality of buying experience and after-sales.

In e-commerce, an NPS score of 60-65 per cent is considered very good; sector leader Amazon is believed to have a score of 60-65 per cent. Urban Ladder claims it is clocking an NPS of 83-92 per cent. This has earned it some brownie points (and brickbats as well) on its Facebook page. All this has translated into a strong set of metrics, in terms of ticket-size, margin structure, month-on-month growth and capital efficiency.

Vani Kola, managing director of Kaalari Capital, which pumped in $1 million into the company, says, “Not only have they scaled up well, they are also focused on making margins. They have managed to create a customer experience that is unique and far more efficient.”

Urban Ladder is cagey about numbers, especially margins, but claims it has an average ticket-size of Rs 15,000-16,000 and dispatches of about 100 orders a day; by March 2014, it hopes to double that number and achieve $1 million a month in GMV or gross merchandise value (about Rs 6 crore a month). It hopes to clock a monthly GMV of $6-8 million in two years.

Currently, the company takes orders from, and delivers in, five cities – Mumbai, Delhi, Bangalore, Chennai and Pune – and sources furniture from vendors in Jodhpur and Jaipur in Rajasthan, as well as from the cities where it delivers. The company has teams for sourcing and delivery operations and for managing the front-end/website.

It is this attention to details that has helped it strike a chord with customers. For instance, when its delivery team makes an installation, they unpack and check the furniture, install it neatly and clean the house. On receiving a query, its customer service reverts within 24 hours. The company has laid down standard operating procedures for loading and unloading.

Road ahead
For Urban Ladder, growth will be largely organic, as it continues to see headroom for growth through the next 15-18 months. It plans to expand its range and emerge as the leader in each of the sub-categories in which it operates – beds, sofas and dining tables. “In terms of consumer experience, there’s an opportunity for us not just to be the best in India, but at the global level, too. We have barely scratched the surface; a lot can be done on the digital experience to provide a touch-and-feel experience far superior than any physical store can deliver,” says Srivatsa.

Entrepreneur-turned-angel investor Bala Parthasarathy (who co-founded Snapfish before it was sold to HP) has been Goel’s mentor and has closely tracked Urban Ladder. “Goel and Srivatsa are outstanding promoters. Entrepreneurship is about creating something out of nothing. They started with an idea and executed it well,” he says.

Asked what impressed him the most about Urban Ladder, he said, “They have done an excellent job of delivering a complicated product, both physically and visually on their website,” he says. He, however, concedes, “Their range is limited; they need to add products. They went for depth, not breadth.”

The company is aware of this; now, range and design will be one of its focus areas.

Source: Business Standard

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