 "e-commerce")
Even as Amazon, Flipkart and Snapdeal hog the media limelight, there’s one e-tailer that has not just survived their combined onslaught, but has quietly carved a niche for itself in the highly competitive Indian e-commerce market.
ShopClues, backed by Tiger Global, which is also a leading investor in Flipkart, has grown by focusing on unstructured product categories, capital efficiency, and by staying away from price wars that are hurting the big boys in e-commerce.
No wonder, then, the Gurgaon-based company does 40 per cent of the business of what the number three player Snapdeal does with just one-tenth of the capital that Snapdeal has raised, and is already cash flow–positive. What has it done differently?
Unstructured categories
ShopClues has focused on unstructured categories like fashion or home and kitchen — they bring in 60 per cent of its sales, followed by electronics and general merchandise like toys, bottles, and FMCG (20 per cent each). Fashion offers higher gross margins but requires a more diverse range of products, which can be provided by a large number of vendors.
Take bedsheets, for instance. The top one or two brands may account for just one per cent of the market, while 99 per cent of it is unstructured, with no standard catalogues. Selection becomes important; so you have 10,000 merchants offering different styles, which adds value to the marketplace. Hence, ShopClues has the largest number of merchants — 450,000; Snapdeal has 100,000 while Flipkart and Amazon have 15,000 vendors each as they play more in the structured category.
Books are a good example of a structured category. If a portal ties-up with the top five publishers, it can get access to 12 million books, which practically covers every book that is sold or bought online. This makes the category well-defined and easy to access. But margins in structured categories tend to be lower.
For instance, in fashion, a merchant can earn gross margins of 40-60 per cent and the e-commerce firm makes 15-20 per cent commission. Against that, a merchant selling an Apple i-phone (a structured category product) makes a gross margin of just 2-3 per cent while the e-tailer earns 1-2 per cent, which is not enough to even cover the payment gateway costs.
ShopClues CEO & Co-founder Sanjay Sethi (left) and Co-founder & Chief Business Officer Radhika Aggarwal
Capital efficiency
Three e-commerce majors — Flipkart, Amazon and Snapdeal — have together raised $7 billion, and this doesn’t include the recent announcement by Amazon CEO Jeff Bezos to pump in $3 billion into the Indian market. In comparison, ShopClues has raised just $200 million, and has spent only 50 per cent of this money so far.
According to industry estimates, Flipkart, which has raised $3.5 billion in capital, does a business of $3.2 billion in gross merchandise value (GMV); Amazon which has invested $2 billion in India, does $2 billion in GMV while Snapdeal, which has raised $1.5 billion, does a business of $1.9 billion. Compared to that ShopClues does a GMV of $750 million with just $200 million in capital.
‘‘We are not competing against the dollar raised, nor we have the money,’’ says Sethi. ‘‘We decided not to be in the pricing battle. We are in the price point battle. We are like Sarojini Nagar market in Delhi, and not the Ambience Mall in Gurgaon,’’ he says. “If a person wants to buy a shirt for Rs 400, he will head to a market like Delhi’s Sarojini Nagar.”
Sethi points out that ShopClues has been a marketplace from the start, since it was founded in 2011. In comparison, Flipkart started as an inventory model, then shifted to a marketplace model and one of its entities, WS Retail, was the largest vendor with 80 per cent share of the total volume. Snapdeal started as a deal site like Groupon and then morphed into a marketplace.
ShopClues is already cash flow-positive and plans to be EBITDA-positive by the second quarter of 2016-17. ‘‘Our inventory, warehouse and capital needs are small. Our key expenses are in marketing and salary, which are leverage-able costs,’’ says Sethi. What he means is that when he doubles his top line, his salary expenses go up only 30 per cent.
Digitising merchants
Sethi says for merchants, ShopClues is an e-commerce operating system in the cloud. ‘‘We have never become a merchant, nor a logistics company. We are a neutral entity— a mall. There’s no conflict of interest with our merchants,’’ he says.
ShopClues enables its merchants to digitise their business by providing them a store front, designing their own website, Facebook page, android app, and a point of sales system, which enables them to offer different products at different price points. ‘‘We give them multiple channels, different marketing and merchandise tools to sell their stuff — ShopClues, website, store, Facebook page,’’ says Sethi. These help merchants increase volumes and reduce costs.
Merchant enablement contributes 10 per cent of its revenues and its share is expected to grow to 30 per cent in a few years. This is a high gross margin business for ShopClues as the cost of providing digital services to vendors is low.
ShopClues also focuses on tier II markets, which account for 70 per cent of its sales, and organises flash sales every Sunday, like flea markets or weekly fairs in rural or semi-urban India. Besides drawing customers to its platform, innovations like these have helped it standout in the market without getting into a price war.
