Manmohan Agarwal knows the systems and processes that need to be established to run an organised e-commerce venture like the back of his hand. This is not surprising given that he started his career as an entrepreneur by establishing one of the first few private sector gold mines in India. The venture did not scale and Agarwal went on to work for companies like Xerox and Vishal Retail. At the latter, he was the CEO, responsible for managing over three million square feet of retail space. In the middle of 2009, Agarwal was convinced that there was a large opportunity to sell shoes online. “We knew it wasn’t an easy category to start selling online but the market size for shoe retail was just so large,” he says. BigShoeBazaar (the parent company behind Yebhi.com) was born with the intent of selling shoes online. The company had a two-pronged strategy: sell to consumers through an online portal and also act as a wholesaler of shoes to sell to smaller retailers through an online catalogue. Today, BigShoeBazaar is seeing rapid growth in a crowded space. And in recognition of its progress, it was voted the ‘Hottest Internet Company of the Year 2012’ by CNBC Young Turks.

According to a recent CRISIL report, shoe retail is a Rs. 50,000 crore market. Indian consumers buy more shoes than they buy mobile phones. And this number is despite the fact that in India, per capita consumption of shoes is pretty low at 1.1 pairs per person.

The category advantage

Even in the early days, Agarwal was extremely kicked about making a dent in the shoe retail space. He rattles out a bunch of numbers. “According to a recent CRISIL report, shoe retail is a Rs. 50,000 crore market. Indian consumers buy more shoes than they buy mobile phones. And this number is despite the fact that in India, per capita consumption of shoes is pretty low at 1.1 pairs per person. There is tremendous opportunity to grow the market,” he says.

In 2010, BigShoeBazaar raised Rs. 10 crore in Series A funding from Nexus Venture Partners. The company, in the first year, focused only on footwear retail. “The plan to stick to one vertical was intentional. We wanted to control the whole process – sourcing, buying, inventory management, shipping out and delivery process. Thanks to this approach, today, we are comfortable both on the supply as well on the consumer side,” explains Agarwal.

Over the last two years, the company has grown to include other categories. The top three are footwear, apparel and personal fashion products (like watches and fragrances). Recently, it ventured into selling home ware and innerwear. “Even in our newer categories, chances are we are among the biggest retailer for several brands,” says Agarwal. The company also raised two more rounds of funding – a Series B round of Rs. 40 crore led by N.R. Narayanamurthy-owned Catamaran Ventures in 2011 and a subsequent Series C round of Rs. 100 crore from Fidelity Growth Partners India, Qualcomm Ventures, Nexus Venture Partners and Catamaran Ventures in June 2012.

Earlier this year, BigShoeBazaar acquired Stylishyou.in, an online retailer of fashion jewellery, to expand into this segment. It stayed away from segments like books, which are commodities where operating margins are typically low.

Nuances of e-commerce

Agarwal lists out several factors that are crucial to make an e-commerce venture successful. “For us, the focus was on operating margins from day one. We are working towards being profitable within the next 12 months. We will probably be the first e-commerce venture in India to do so,” he says. Thanks to his experiences at Vishal Retail, Agarwal has laid tremendous emphasis on capital efficiency. On the marketing expenditure front, the company lowered its cost of new customer acquisition to Rs. 250 per person this quarter from Rs. 500 per person a quarter earlier. “In this business, every quarter is like a year. We need to execute on our iterations and changes extremely fast,” he adds.

On the supply chain side, Agarwal equates his fulfilment centres (warehouses though Agarwal prefers to use the word fulfilment) to a factory. “It works 24×7 and every order is shipped out within 100 minutes.” At present, BigShoeBazaar manages over 1,00,000 sq. ft. of warehouse space and is working towards scaling this up to half a million sq. ft. within the next six months. It manages over 10,000 orders a day with an average ticket size of Rs 1200 per order. The company has established direct partnerships with over 400 brands including Tommy Hilfiger, Calvin Klein, Puma, Reebok, Aiva, Saks Fifth Avenue, Rockport, Woodland, Florsheim, Adidas and several others. Agarwal says that each transaction is fairly long in the e-commerce space. It starts when the order is received and closes only after the company knows for sure that a particular order is not going to be returned. The company’s systems are tailored to manage such a prolonged transaction.

On the top management front, it has built a team of over 20 people, each a specialist in a different domain. BigShoeBazaar makes sure that each of these people across departments, from sourcing to consumer behaviour, is in tune with the overall vision and culture of the company. An approach to focus on capital efficiency and constantly improve operating margins in ingrained across the company.

Through the backend

The secret behind all the cost-effectiveness lies in the workflow adopted at the company’s fulfilment centres. One can feel the excitement in Agarwal’s tone as he explains the process. “The whole organisation gets ready to ‘fulfil’ an order the next second after a ‘Buy now’ button is clicked,” he says. At the dispatch stage, coloured flags are used to ensure that first ordered goods are dispatched first. Proprietary algorithms are used to decide which courier service to use depending on the zip code of the customer (Yebhi.com currently services 11,000 zip codes in India). To move goods within the warehouse, pulling trolleys (not conveyor belts) are used keeping in mind energy efficiency (and hence, cost effectiveness). At the customer service stage, for some products, like shoes, customers have the option of ordering two pairs, trying both pairs on and then selecting one and returning the other to the delivery agent. Agarwal says, “The kind of thought that has gone into designing the transaction process is top-notch.” It is this process (patents have been filed for some parts of the process) that he is banking on to turn profitable within the next one year and take BigShoeBazaar into the big league.

What next?

• Building capacity and establishing a 500,000 sq.ft fulfilment centre
• Grow 100 times over the next five years. It is focused on expanding the market (of people who buy online) to make this happen.
• Continuous focus on super-fast delivery and one-call customer service. Systems are being enhanced to ensure customers do not have to call multiple times to receive answers to particular complaints or queries
• Today, 40 per cent of last mile delivery happens through its own delivery network. This number is slated to touch 80 per cent by 2013.
• Cash on Delivery (COD) continues to be an important area of focus. According to the company, COD is considered a payment gateway, and processes are being established to make this a sustainable, effective, reliable payment gateway in the years ahead.