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India’s Furniture Etailer Pepperfry Diversifies

Posted on Thursday, Oct 5th 2017

According to consulting firm RedSeer, mobile phones and fashion accounted for about 68% of the overall gross sales by e-commerce firms in India in 2016 while furniture accounted for about 1%. Online furniture marketplace Pepperfry is a leading player and one of the most funded startups in the sector.

Pepperfry’s Offerings

Mumbai-based Pepperfry (Trendsutra Platform Services Pvt. Ltd ) was founded in 2011 by former eBay executives Ambareesh Murty and Ashish Shah. It started out as an online furniture store but today offers over 12 million products in the furniture and home vertical with various categories like Furniture, Home Décor, Lamps & Lighting, Furnishing, Kitchen, Housekeeping, Hardware and Electricals.

Pepperfry claims to have over 4 million users. It has 480 employees, 1,000 contract staff, 10,000 merchants, and a delivery fleet of 400 vehicles that operate from 17 hubs across India and serve customers in 500 cities. It also provides free assembly and installation support through its team of more than 250 carpenters.

In 2014, Pepperfry opened its first offline store in Mumbai. These stores essentially act as experience centers and also provide home design consultation for free. It currently has 22 such studios across major cities like Mumbai, Bengaluru, Hyderabad, Delhi Chennai, Pune, Ahmedabad, Cochin, Chandigarh, Faridabad, and Gurugram.  It plans to increase the count to 50 by March 2018, part of which will be through a franchisee model.

Pepperfry has also ventured into home furnishings and home interior designs, but furniture sales still account for at least 80% of its sales. The average ticket size for furniture is Rs 18,000 ($275) and other home products is Rs 4,000 ($61). It has around 20,000 stock keeping units (SKUs) with a gross margin of 47%.

In September 2017, Pepperfry launched its furniture rental services for younger customers in metro cities. Through this rental service, it will be looking to offload its less popular items and inventory from its offline studios. It has also launched an exchange program in partnership with Zefo, an online marketplace for pre-owned goods.

Pepperfry’s Competition

Pepperfry’s main competitor is online furniture company Urban Ladder, which has recorded revenue of Rs 56 crore ($8.5 million) and a loss of Rs175 crore ($27 million) in fiscal 2016. UrbanLadder has raised $92 million in total funding and it last raised $15 million early this year at an estimated valuation of $126 million. Like Pepperfry, Urban Ladder has also expanded its offline presence and entered the home interior design space. It has even started listing on Amazon and Flipkart.

They both face stiff competition in the home interior design segment from Livspace, which has raised $27 million and is targeting $100 million revenue in 2017. Silicon Valley-based Houzz , which dominates the online interior design and furnishing space globally, ventured into the Indian market early this year. Houzz has recently raised $400 million at a $4 billion valuation.

In the rental space, Pepperfry’s chief competitor is Furlenco. Furlenco has shipped furniture to over 15,000 homes for over $20 million and has a high furniture utilization rate of about 95%. It is looking to break even by March 2018 and has raised $21 million in funding.

In the retail space, Pepperfry will be competing with Future Group’s HomeTown. Swedish furniture maker Ikea, which had revenue of over $35 billion in 2016, will be launching its Indian operations next year. Ikea recently acquired gig economy startup TaskRabbit.

Pepperfry’s Financials

Pepperfry’s revenue in fiscal 2016 increased about 300% to Rs 98 crore ($15 million) while its losses increased about 200% to Rs 154 crore ($23.5 million). It aims to achieve profitability by the end of 2018. Its gross merchandize volume (GMV) crossed Rs 1,000 crore ($152 million) in March 2016 and it expects to triple it to Rs 3,000-crore ($456 million) by March 2018.

Pepperfry is venture funded and has raised $159 million from investors including Goldman Sachs, Norwest Venture Partners (NVP), Bertelsmann India Investments, and Zodius Capital. It last raised $31 million in September 2016 at an undisclosed valuation. In an earlier round in July 2015, it had raised $100 million at a valuation of $280 million.

I like the concrete profitability target by the end of 2018. Revenue to funding ratio is low, so I would like to see this target achieved without further funding rounds. The category is cumbersome and heavy in logistics, so streamlining that creates sustainable barriers to entry. Doing so profitably will be sound long term strategy.

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