Consumer Tech

Norwest Venture Partners-backed, which encourages artisans and SME suppliers through its market place, aims to grow the online home and furniture segment and cross a gross merchandise value of US$ 1 billion by 2017

When Ashish Shah and Ambareesh Murthy set up Pepperfry in 2012, the company’s vision was to be the place where modern Indians shopped for their homes. In the years of working towards this vision it has achieved many milestones. Pepperfry helps SME suppliers and artisans, who are highly competent in this segment but do not have an Internet presence, by offering its platform to them and taking their business online. “We have established a specialised process to enable them to scale their business significantly,” says Shah, co-founder and COO. Currently, more than 80 per cent of Pepperfry’s sales are by SME suppliers and artisans. In fact, commenting about the company’s financial performance, Shah proudly says, “We have tripled gross margins with close to 3x top line growth on a year-on-year basis.”

Pepperfry currently has more than a 1,000 merchants working with them on the marketplace and has a supply of 1,00, 000 unique live listings. It reaches almost 500 cities directly through its own network of more than 400 delivery trucks, giving it the largest capacity for delivering goods right up to the last mile in the home and furniture segment. Thus far, customers from more than 1,000 cities receive its products.

The furniture and home products segment in India is a US $32 billion market. “The long tail nature of these categories synced well with our marketplace business model. Strong margins and good unit economics in this segment also helped create a strong foundation for building a profitable business,” adds Shah. By the year 2020, this market is expected to touch US $71 billion. While the total market is growing at 10 per cent to 15 per cent on a year-on-year basis, the online component is growing at 300 per cent Y-o-Y. “Over the next four year period, we expect the online home and furniture business to become 9 per cent of the overall e-commerce business and 6 per cent of the home and furniture market,” says Shah. According to him, these projections are in line with the global trends seen in the segment – 10 per cent of e-commerce in markets across the globe; 13 per cent in the U.S., 19 per cent in China, 20 per cent in Brazil and 17 per cent in Russia. “All of these are testaments to the fact that we are a dominant player in the segment and have positioned ourselves to hit a billion dollar gross merchandise volume by 2017,” states Shah.

Over the next four year period, we expect the online home and furniture business to become 9 per cent of the overall e-commerce business and 6 per cent of the home and furniture market

An experiential model
Pepperfry operates on a managed marketplace model where it is able to monitor the entire process of how a sale is affected on the platform, right from when an item is listed for sale, till it reaches the customer’s home. It starts with first empanelling merchants on the platform based on a set of criteria which confirm that the merchant either manufactures or has trading access to high quality products and merchandise. The specific product lines are picked based on the product groups or categories. After the merchant is registered on the platform, he/she can list their items for sale. Almost all of the items sold on Pepperfry first reach its logistics hubs where they are checked for quality, before being packed and shipped either through its own delivery network or third party logistics partners. “In the case of our private brands and made to order items, we have on-ground quality control teams that inspect and monitor products while they are being manufactured,” says Shah.

The company launched its first experience zone called Studio Pepperfry in December 2014 in Mumbai and later, took the concept to New Delhi, Pune, Hyderabad, Kolkata and Bengaluru. It showcases its furniture range and provides advice on design and offers tips. “This will act as a sustainable model to drive traffic to the website and eventually translate into online sales,” opines Shah.

This apart, the company recently launched a mobile app with augmented reality features and an open design platform. It is aimed at simplifying the furniture and home shopping experience through innovative product discovery and easy payment options. “Additionally, with mobile phones increasingly becoming the preferred medium to shop online, our app enables us to further complement user experience and provide a seamless shopping experience,” adds Shah.

Not without challenges
The biggest challenge for the e-commerce industry is poor infrastructure and supply chain management. “The industry can grow exponentially provided the infrastructure and the ability to scale up and deliver products to every corner of the country develops at the same rate,” says Shah. This apart, poor last mile connectivity due to missing links in supply chain infrastructure is limiting the access to areas where a significant portion of online customers reside. He continues, “For a specialised business like furniture large item distribution poses a huge challenge. There is no prototype in the online industry for a vertical like furniture that can be imitated.” The company got over this challenge by setting up its own large item distribution model, a hub and spoke model that covers a majority of its orders.

On the road ahead
Pepperfry has raised US $129 million so far in four rounds of funding. The last round of funding was led by Goldman Sachs and Zodius Technology Fund with participation from its existing investors Bertelsmann India Investments (BII) and Silicon Valley based Norwest Venture Partners (NVP). The capital is being utilised to expand its logistics footprint in Tier-III and Tier-IV regions by adding to the company’s fleet of delivery vehicles. It also plans to open new distribution centres and expand its carpenter and assembly service network. Over the next year, Pepperfry aims to quadruple its technology and engineering team with a focus on leveraging augmented reality on mobile to enhance the buying experience. Additionally, it will continue to partner and advise consumers on their home interiors through its team of interior design specialists at its experience centers. With its plans well in place to capture the growing market, Pepperfry is confident of posting a 250 percent Y-o-Y jump in sales, in the calendar year 2016.

Poornima Kavlekar has been associated with The Smart CEO since the time of launch and is the Consulting Editor of the magazine. She has been writing for almost 20 years on a cross section of topics including stocks and personal finance and now, on entrepreneurship and growth enterprises. She is a trained Yoga Teacher, an avid endurance Cyclist and a Veena player.

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