Replying to Anil Mascarenhas of IIFL, Rahul Agrawal says, “Consumers are increasingly going online for their furniture and home décor needs. At MebelKart, the highest selling products are beds, sofas, shoe racks and kitchen appliances. Modular kitchens are the fastest growing category in furniture online.”
Give us a brief overview of the online furniture marketplace.
Furniture marketplace is a largely unorganized sector with 85% of it being unorganized. Online furniture marketplace is in its nascent stage in India. It is only over the last 3-4 years with the entry of the first few major online players like Pepperfry, Urban Ladder and MebelKart that furniture is moving into the ecommerce space. Furniture as a product is not easy to market and even managing its logistics is not a simple affair. Other challenges are sourcing the product, designing the furniture and ensuring quality.
According to recent media reports and industry representatives, furniture is a 25 billion dollars business opportunity in India of which 10 billion dollars is just the modular kitchen market.
Consumers are increasingly going online for their furniture and home décor needs. At MebelKart, for instance, the highest selling products are beds, sofas, shoe racks and kitchen appliances. Modular kitchens are the fastest growing category in furniture online. It is also increasingly becoming essential for companies to go hyperlocal. It means faster delivery at lower costs with lesser damages. We, at MebelKart have pioneered this trend and are moving from a 70:30 national: hyperlocal delivery model to a 80:20 hyperlocal: national model.
Besides selling furniture you say you specialize in making complete homes. Explain to us your business model. How much comes from selling products and other activities? What is the in-house expertise you have? What are your outsourced activities?
We have two business models. One is the retail business and the other is the interior design business. In the retail business, the customer visits the website to buy a specific product. He/ she can choose from the thousands of options available and can place the order online.
Post the manufacturing; the product is dispatched to the customer. Presently it is our partners that deliver the products. Our delivery timelines are better than industry average. Also, a range of our products are about 29% cheaper than Pepperfry or Urban Ladder. We further stand out from our competition as we have a hyperlocal business model in the online furniture space. In our business, the cost margins are about 35-40% and the net revenues are 15-20%.
When it comes to our interior design business, we showcase home interior designs to the customers over the website. As a platform, Mebelkart showcases designs from several interior designers; their previous projects, their works, as well as the comments and ratings they have received. Mebelkart delivers a complete home for its customers in 45 days, taking care of the timelines apart from the cost. The cost we offer is significantly lower than what the market offers.
We, at MebelKart make complete homes. If someone wishes to get interiors done and buy furniture, MebelKart does the entire process for you. We hire interior designers; get the materials procured and more. We have tied up with in-house design expertise, i.e., the best interior designers in the country and have a working relationship with close to 2000+ factories across India.
How many product listings do you have? How are the logistics being managed for next day delivery?
MebelKart has 1.75 lakh SKUs live on the portal and we are offering interior designing solutions for a ticket size of Rs 6,00,000. We will be focusing on the hyperlocal business model in the new financial year. Hyperlocal is a capital light model that has its set of advantages including faster delivery at a lower cost and without damages. If you look at Pepperfry or Urban Ladder, there is about 20% logistics cost involved. Additionally, there are 9% chances of the product getting damaged. The loss is multiplied if the product gets damaged as it involves costs related to returns to the manufacturer. More than a loss to the company it is a loss to the customer experience. Currently the industry average for damaged goods is 9% but for MebelKart it is only about 3% and the primary reason for the same is the hyperlocal business model.
Our hyperlocal model also ensures quality check of the product. We have four teams, Jodhpur, Nagpur, Mumbai and one in Bangalore and are in the process of setting up a team in Delhi and in 70 other cities to ensure quality checks are in place.
You recently tied up with 27,000 interior designers. How did you reach out to them? What kind of business translation has it resulted in? What is the revenue sharing model here?
Our vision is to bring better value to our customers by making designs more affordable. In order to bring that to fruition, we have tied up with over 27, 000 interior designers. We are responsible for the supply side of the business which includes material supply, material delivery and fittings. This is where we can provide better value to the customers by reducing the costs and also making designs more affordable for them.
It is a symbiotic relationship that we share with the designers. Whenever a design request comes to us, it is forwarded to the interior design team that evaluates the request, interacts with the customer and then does the designing. Based on the designs, we give a quotation to the customer that once finalized, we source the materials and the designer oversees the entire project.
Tell us about your geographical reach.
We have 2,500 sellers on our platform and deliver to 20,000 pincodes that translates to 200 cities across India.
You were targeting monthly GMV of US410mn by March end this year. By when do you hope to achieve break-even?
We have closed the FY 2015-16 with Rs. 6 crore GMV for the month of March 2016. We are targeting Rs. 1200 crores GMV by October 2015.
You first used to develop mobile cases. Share with us a little about your early days. How did the three of you get together to start this venture? What were your aspirations then and how has the business model evolved over the years?
Even while studying in IIT Delhi, I had an entrepreneurial outlook. In my very first year as a student there, after a 45 day internship in Delhi, I was making mobile games and sold them to Pizza Hut and Dominos. In order to scale it up further, I conducted workshops at IIT Kanpur, and with the best among the lot, formed ‘Young Engineers’. Young Engineers did workshops in about 150 colleges across the country in 3 years. I learnt a lot during this time about how to run a business. This included building business relationships and negotiating with people, money management, working on business documentation and more. I also learned how to take people along while running your own business. My outlook changed from believing that if you put in the hardwork, you will get the desired results to realizing that there are a lot of other factors involved. I continued to run Young Engineers even after graduating and did not appear for campus placements. Soon, thereafter, I joined a startup called PicSean Media in late 2011. It was here that I met my now partners Ranjeet Vimal and Nikhil Saraf. These two had a lot of industry experience and business knowledge.
We started out by selling limited range of furniture to the buyers. Initially, we were only selling bean bags to a select set of customers based in Bangalore. We have grown slowly yet steadily to add new product lines in the online furniture space, as well as expand our reach across cities. We have evolved over the years to become the one-stop destination for home décor requirements. We have 27,000 designers on board and are also in the process of rolling out new categories.
What is the technology edge you have or hope to have?
We are a tech focused enterprise and have always believed that it is the technological edge that can make all the difference for an online e-commerce brand.
What is the amount raised so far? What are your capex and fund raising plans? What is the existing shareholding pattern of the company?
Mebelkart closed March 2016 with gross merchandise value (GMV) of Rs 6 crores that translates into an annualised GMV run rate of around Rs 72 crore. We are targeting monthly GMV of Rs. 100 crore and a Rs. 1,200 crore turnover by the month of October. We are looking to raise US$100 million within the next six months. This money will help us expand our coverage area, hire more employees and test waters in countries like Malaysia and Kuwait.
What are the tie-ups you have in place with realty players? Is it more of a volume game there or are you able to extract better margins?
We are in the process of tying up with few of the biggest real estate players and online portals to push interior projects. We will keep you updated on the latest developments on this front.
You collaborated with Twinkle Khanna for a digital campaign. What has been the response?
Yes, we had collaborated with Twinkle Khanna for a digital campaign. She is an interior designer herself and hence, MebelKart partnered with her to launch its first series of videos. In these videos, she gave tips on how to decorate your home. We received 4.5 lakh Twitter impressions and the campaign was very well received online.
How many visitors do you get on your site on a daily basis? What is the average ticket-size of the furniture sold?
MebelKart has about 30,000 site visitors a day on its platform. The average ticket size in the furniture business is Rs. 10,000.
How do you view competition? What strategy do you have in place to show your differentiation?
Our market/ industry is extremely competitive. However, we believe that we have a differentiated proposition because of the end-to-end home décor solutions we offer. We are not only a portal the focuses on selling furniture online. We believe that a home is very close to every individual’s heart and we strive to be partners of our customers as they design their homes.
Your advice to start-ups and budding entrepreneurs?
My only advice to the start-ups and budding entrepreneurs is to believe in their idea and focus on getting their business model right. Once they have the business model in place, they should focus on scalability and growth.