Local niche ecommerce players gird up for an era of Amazon and Walmart in India

Sunny Sen July 5, 2018 9 min

Amazon had already entered India – the year was 2013. Flipkart was its biggest rival. There were others, too, backed by dozens of venture capital firms who had invested millions of dollars in Amazon replicas in the country. They were scared, now. Indeed, Amazon’s entry changed India’s ecommerce market forever.

Ambareesh Murty, co-founder and CEO of online furniture seller Pepperfry, remembers 2013-14. Fewer investors were willing to invest in ecommerce companies. Pepperfry needed money to expand its operations and run the show. So, Murty and 14 other top executives of the company had to take 50-60% salary cut. “That’s how we saved the company,” Murty told FactorDaily.

Pepperfry survived and is the largest furniture and home furnishing ecommerce player in India. Murty was lucky, many others weren’t. The competition has only heightened after SoftBank put in billions into Flipkart in 2017. And it is just the beginning: Walmart has picked up 77% stake in Flipkart and has decided to pump in another $2 billion into the company’s operations. The move is expected to wash out most of the many more ecommerce companies that want to compete directly with Amazon and Flipkart. Except for Paytm Mall (backed by Alibaba), none have the financial muscle to stand off Amazon and Flipkart.

Ambareesh Murty, CEO, Pepperfry
Ambareesh Murty, CEO, Pepperfry

The last two years have had several rivals go belly up. Snapdeal, ShopClues, and dozens of smaller etailers have either been reduced to insignificant competition or shut shop. Fashionara, Askme, Ladyblush, Roposo, FabFurnish, Kaaryah and ABOF are just a few names on the RIP list. Billions in venture capital money have been flushed down the drain.

But, it’s not the end of ecommerce in India – the market is just opening up. From $39 billion in 2017, the industry is expected to cross $200 billion in less than a decade, according to IBEF. “While there will be consolidation, some ventures will come up,” said Swati Bhargava, co-founder of CashKaro, a discounting and affiliate marketing firm, which has signed deals with most of the ecommerce companies including the two big ones. “The ecosystem is growing and maturing – there is space for vertical players.”

Amazon and Flipkart are horizontal ecommerce companies selling everything, from diapers to mobile phones. Vertical ecommerce companies choose one or two categories and try to build a better shopping experience around those products.

Verticals: Ecommerce’s new normal

Amazon didn’t regard India much of a market when it first set its foot on the country in 2004-05 (the ecommerce business was started only in 2012). India was for merely a technology back office. Yet Jeff Bezos, Amazon’s founder committed $5 billion of investment to build the ecommerce business.

Bezos had his own reasons. The number of online buyers in America has reached saturation, and Amazon has failed in China, where it has less than 1% market share. That leaves India as the only country with a large enough untapped buyer base. Thanks to Reliance Jio, India has the lowest data prices.

Every global company, which has anything to do with the internet or consumption, has a separate plan for India. Walmart is one of them. Regulations don’t allow it to open physical retail stores (multi-brand retail is not allowed for multinational companies). So Walmart bought 77% of Flipkart in what is the world’s largest ecommerce deal.

While Flipkart and Amazon have over 75% market share, there is a long-tail of ecommerce companies in India – many of whom are vertical players. Nykaa is a leader in beauty care, BigBasket specialised in grocery, Lenskart deals in eyewear, Pepperfry is a furniture retailer, Teabox is all about teas, Clovia sells lingerie, and Netmeds sells medicines online.

Rajat Tandon, president of Indian Private Equity and Venture Capital Association, said that after the storm investments in other marketplaces are not doing well. “Specialised ecommerce is doing extremely well,” Tandon said.

But not every vertical player will survive. They have less repeat value compared to horizontal marketplaces and have fewer moats for their business. Add to that, Flipkart and Amazon are spending a lot of money on building these verticals within their ecosystem. Also, vertical players will have to focus on unit economics, as they don’t have the deep pockets of the large ecommerce companies to fund discounts. “Earlier companies were raising funds to give heavy discounts,” said Tandon.

“The companies those went down did not have good unit economics,” said Rahul Garg, principal at Kalaari Capital, a venture capital firm. “The addressable market of vertical players is small… if you don’t have significant differentiation, you won’t survive.”

Neha Kant, co-founder of Clovia
Neha Kant, co-founder of Clovia

Nykaa has tied up with all the prominent beauty bloggers for campaigns, Lenskart looked at an offline-online model, Teabox has built its brand around fresh tea, Voonik wants to be successful in the non-branded apparel wear segment, and Clovia has a unique proposition for women who want to buy lingerie online.

Finding a niche

Selling lingerie online wasn’t an easy thing for Neha Kant, co-founder of Clovia. First things first. “There are marketplaces who sell brands. We wanted to create a brand,” she said.

From the very beginning, Kant concentrated, not on giving discounts, but build an affordable lingerie brand online. She also kept the inventory under control, not more than 45 days. In retail, the normal inventory cycle is about three months. She didn’t open many warehouses and managed with just a 30,000 sq.ft one.

The bra is a technical product – one millimetre here or there, the fit becomes a problem. “There are 64 components that go into making a bra,” Kant said. There were issues on the delivery front, too. Kant tracked each delivery and each customer in real time, their problems, complaints, and concerns. That became the feedback layer to Clovia’s suppliers. The suppliers would hardly understand English. So made the app and the platform pictorial.

Pradeep Dadha, founder of Netmeds, agrees with Kant. Medicines, too, is a very specialised category. “Pharmacy is our primary hook to roll out other services,” said Dadha. “We will evolve into a horizontal where we can make people’s lives healthy.”

It’s not that Netmeds will start selling clothes, watches and mobile phones. It will get into building communities around diseases, get into diagnostics and managing electronic health records.

Talk of horizontals, Dinesh Agarwal, founder and CEO of IndiaMart, has found a niche in remaining a horizontal player by being a business-to-business ecommerce company for over two decades. The company has filed for a market listing and Agarwal is hesitant in disclosing much about his future plans. In an interview, he said IndiaMart’s revenues last year were Rs 300 crore.

“There is much more than Flipkart and Amazon,” Agarwal said. “We named IndiaMart a marketplace in 1996 when the word marketplace did not exist in ecommerce.”

The company sells products in 52 categories, has 4.72 million sellers, 50 million stock keeping units (SKUs), 60 million registered buyers, and 290 million delivered enquires in 2018.

Agarwal remembers, in 2013-14 when all companies wanted to own up the complete experience of products, logistics, delivery and payments in the consumer market, IndiaMart had a unique opportunity to do it in the B2B space. Agarwal started Tolexo, an Amazon-like ecommerce company for industrial and office products.

For Pepperfry, the problems were very different – it was more of a logistics problem. These were big box products, and India’s logistics business was not quite equipped to handle the deliveries. Often the delivery boys would leave the bed on the ground floor and customers would have to arrange a lift-up to the floor he stayed on.

So, between 2014 and 2016, Murty went on to build his one supply chain and logistics network. Pepperfry owns 400 vehicles and has 1,000 people in the supply chain division. Transit damages went down significantly, and returns are down to less than 1% from 10%.

To make the experience hassle free, Pepperfry hired 200 carpenters to assemble beds, sofas, tables and cupboards that people bought on the platform. Murty is bullish, and not afraid of Amazon’s or Flipkart’s presence in the segment. “We have an opportunity build a multi-billion business in furniture and home,” he said. Of course, there’s a new challenge on the horizon in the form of Ikea, which is opening a mega store in Hyderabad soon.

Nimble on their feet

Along the way, lessons have been learnt – often, the hard way. IndiaMart’s Agarwal, for instance, wanted to solve four problems with Tolexo: payments, discovery, delivery and customer satisfaction. But soon, he realised that the money Tolexo will have spend a lot more money in customer acquisition. “Somewhere the profit and loss did not add up to the money we were spending… It’s very common in retail ecommerce,” Agarwal said.

Except for delivery, Agarwal decided to fold in everything that Tolexo offered under IndiaMart’s hood. It offered prices on products, gave better descriptions and pictures, allowed payments and escrow accounts for sellers, and focussed on customer satisfaction.

Swati Bhargava, co-founder of CashKaro
Swati Bhargava, co-founder of CashKaro

Tolexo was demerged and its assets were transferred to IndiaMart in January 2017. Since then Agarwal said that, despite economic hurdles like demonetisation and GST, traffic continued to grow on IndiaMart.

IndiaMart is not the only company that had to change strategy, other did, too. One of them is Voonik – a promising startup in 2016, which started facing problems soon.

The battle between Amazon and Flipkart had changed the investors’ perception. They did not want to put in much money into ecommerce ventures. They were scared about their investments. “Euphoria had picked up and billions of dollars had come in,” remembers Sujayath Ali, co-founder and CEO of Voonik.

2016 and 2017 were bad years for ecommerce. Companies like Snapdeal and ShopClues because of overspending couldn’t scale up their business and, finally, the funding tap closed. Voonik, too, had to quickly change its strategy and let go of its people. The company was looking for investments but none came.

“Access to cash had stopped. We were thinking of burning cash for some more time, but that wasn’t an option anymore,” said Ali. The company had to turn to profitability too soon, and focus on private labels rather than branded apparel.

Ali said that the company has been EBITDA positive since December, last year. Already 15-20% of its business comes from private label. In the next 18 months, Ali hopes that number to reach 50%.

Ali hired people who were designers and could handle manufacturing, and also decided to open stores. There are already two Voonik stores in Bangalore, and in the next three months Ali plans to open 10 of them, and 30 by March 2019. To Ali’s relief, the two stores are already profitable.

Kalaari’s Garg said that while 4% of total retail sales happen online, the medium influences 18-20% of overall retail sales. “That is where the omni-channel strategy comes in place,” Garg added.

For Pepperfry, Murty said offline will be ‘experience stores’, where consumers can walk-in, touch-n-feel the products and see the quality. “Furniture is a high-involvement purchase,” Murty said.

Four years ago that was not the case. The proof of concept (that furniture buying online will take off) was a question mark, remembers Murty. But Pepperfry’s top executives believed in his vision. The proof: none of the 15 people who took the salary cut has left the company.

Visuals by: Rajesh Subramanian


Updated at 08:33 am on July 5, 2018  to correct a few typos and add a snippet.
Updated at 12:41 pm on July 5, 2018  to correct typos. Netmeds was wrongly spelled as Nedmeds.

Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.