Urban Ladder is among India's fastest growing furniture e-tailers. Unlike competitors which operate as marketplaces, the Bangalore-based startup owns processes end-to-end, which means they control everything from selection of wood and designing the furniture to the delivery of the purchase.
The company raised $50 million in its last round of funding in April 2015, from Sequoia Capital, TR Capital, Kalaari Capital, SAIF Partners and Steadview Capital. It has raised a total of $77 million in four rounds since starting operations in 2012.
HuffPost caught up with Rajiv Srivatsa, co-founder and chief operating officer, about mistakes that the company made in its initial days which led to scaling back operations, training logistics staff so that they deliver on time, and how the company is gearing up to face Ikea, the Swedish furniture and home decor giant, which is expected to start operating in India by 2016. Hint: learning from mistakes and hiring from the Silicon Valley.
When you started Urban Ladder, you were in a hurry to expand to several cities, and used third-party logistics. Now you have your own team, with complete control from selecting the wood to delivering the furniture product. What led to this change?
Absolutely. We started all-India when we launched, and in just one month the consumer feedback that we got with third party logistics versus Bangalore where we had serviced ourselves was a sea of difference. Our Bangalore delivery ops were rated way better. Today we have the highest consumer satisfaction score in the industry, right? That is only possible if you are doing that yourself. Unfortunately that is the reality in this country. A marketplace model might have worked if there were a set of suppliers intent on upholding quality, but that is not the case.
So we decided to scale back then to just three cities in India — Bangalore, Delhi and Mumbai. We lost 30 percent of our business, but that was the right thing decision. Today we are still only in 15 cities after three years because it’s a mammoth logistical challenge. Our plan is to get to 25-30 cities by end 2015, and we will stop there, because dealing with infrastructure issues after that becomes a big pain point.
Managing the entire chain with your team obviously raised your costs. Other competitors are not doing so, which allows them to price products cheaper. Do you think this move was worth it?
Right now we own everything. From the design of the furniture to the guy coming to deliver, they are all part of our team. We control the entire experience. Any part of the chain breaking will be our own responsibility. If you depend on any part of the chain on someone else, then it becomes very difficult to maintain quality of product and experience.
Customers don't want to go through suspect quality experience. They are putting the furniture in their homes, which is a place of pride for them. It is not like apparel that I put on for three months and discard it. People expect their furniture to last for years, and for that it should be structurally solid. Essentially it means you cannot short change, short circuit quality. You have to go reasonably in-depth into supply chain ecosystem to see how to manufacture, how to finish the product, what is the quality there, how do you make sure that raw material is sourced well — all of that required a complete in-depth vertical integration, and that’s what we did. That took us time, but that is the right answer.
The furniture market in India is largely unorganised, carpenter-driven, and very fragmented, making it difficult for large players to emerge. What are the reasons for that?
There are multiple reasons for the way the market is today. One, I think is the indian ecosystem, more specifically, the mindset is not of a product. It is more tuned towards buying something cheap and selling it. Two, real estate makes up for around 30-32 percent of costs and sellers typically mark-up their prices two and a half times to incorporate that. And that makes furniture much less affordable, and customers buy less. Bigger chains have had plateaued revenues of $80-100 million for last 5-7 years because most people are unable to buy at the prices they sell at. The largest player in a $30 billion industry is less than $100 million which essentially means the market has remained highly fragmented, very carpenter-owned market.
High cost of real estate has also meant that there are super expensive furniture products, and cheap ones, but nothing in the middle, where you would want good quality at an affordable price. And Urban Ladder too is perceived to be expensive.
Many people who are not in the cycle right now think we are expensive. They get put off by our prices. The reason is that they've not gone to the market recently to see the prices being asked there. They are comparing us to the price levels 4-5 years ago when they last bought a sofa or a wardrobe. If they go to the market and see what high prices they have to pay for mediocre quality, suddenly they (will) realise that we offer a good deal. We are cheaper than offline guy. True, we are not the cheapest online. Because you could price cheaper than us online by giving more discounts and stuff. But we held our prices because we spend on ensuring higher quality of the product and the delivery experience. And compared with stores, we have far more data — clickthroughs, items that people favourited, and purchases. A store owner will only have sales data. And this information, which gets better as you go through the cycles, is becoming a key differentiator.
So what are you doing differently in a category where customers typically want a feel of the product before buying?
Our challenge was, can we resolve this issue digitally, because physically it's not sustainable. We had to also make the consumer buy us online. Essentially that meant the service and the product has to be fantastic. It is not about a really wide range — no one wanted to see thousands of furniture. Its not like apparel or accessories where you might want many choices to actually buy. We will do say, four products and spend on research and make a lot of those 4 products rather than launch 100 products.
Currently, when you go to a physical shop, you might see 20 items, out of which 18 items might look horrendously designed. You have to decide among the remaining two — which are probably mid to expensive range — and aren’t great but you don't have a choice. So that’s what we set out to address. Lets have a very sharp curated range. Rather than width of the range, the depth of the range should reflect in the quality, the aesthetic of every piece in that range and it should satisfy a real need. So if you see our product catalogue we are very focussed. For 2-3 years we only did furniture. And only now we are doing décor and stuff for the exact reason that it was a major pain point and unchartered territory.
You have raised $77 million so far. Are you planning to raise more?
First we have to use the current funds. We have enough to expand in next 18-24 months comfortably. I mean we might still raise money because the macro environment allows for it, and you can never predict – maybe 6-8 months later the environment takes a turn for the worse – and that might last another 12-18 months. That might mean curtailing our spending. That is the only reason we might raise now.
You told me you have had your share of screw-ups. What have you learnt from that?
That’s true, we have had our fair share. It is really tough to get back customers who were dissatisfied in the first instance. We are mighty honest with ourselves and the customers about where we failed, and that helps. The processes were not automated enough to keep pace with our growth - which was 5x last year. There are lot of things that slipped through the cracks. Where we are today is a huge improvement from 2 years ago.
I was just at a warehouse and asked what are the issues we can resolve, processes we can improve. For example, calling a customer multiple times for an order is a waste of time. Why should you do that? Send an SMS saying you will be there with the furniture in a time band. You should just land up and deliver at that time. Today, delivery guys call to ask about nearby landmarks, in the age of Google Maps! Customers are patient, but we can do a lot better on that.
You are now expanding into kitchens, which is obviously a more lucrative business, along with a host of other items. Are you able to maintain quality control like you do in the case of furniture?
We launched kitchens one year back, but we scaled it back because we had absolutely no clue of it. It was maybe 1-2 installations maybe. We are re-launching it again in August. So we have had our share of stuff that we launched but we felt that customers did not like it. A kitchen is more expensive at Rs 3-5 lakh compared with the average furniture ticket size of Rs 20,000. Our move to sell other items apart from furniture is less about margins and more about our strategy last six months to move away from selling single products to selling solutions and spaces. Now we sell everything from carpets to lamps to curtains, bedsheets and stuff because we want to sell furniture along with these add ons.
The starting point was to have millions of beautiful indian homes. You get a key from the builder and get a house that’s completely empty. You start with the kitchen and the wardrobe. That’s why we are getting into that. Then you come to the living room, bedroom, dining room. And this repeats over a 5-7 year period. There is a lot of repeat purchase which accounts for 30-40 percent for us.
One problem with delivery of goods is that often there is no certainty as to when they might arrive at your house. How did you tackle this problem with your logistics team?
That was a massive issue. We are very particular about time. We say we will come between 2-4. Still, errors happen. The guy might land up at 4.15 due to traffic and all that. But we are constantly trying to reduce such events. When we started it was really bad, the kind of people we were getting were the ‘so what’ type of culture. So we had to change that, and told them that if you commit to a particular time, you stick to that. So now the error rate is less than 5-10% that we won’t arrive on time. I want the customer to feel special, and not wait for hours.
What are your margins in the business, given that your costs are higher than competition?
Good gross margins in this category is anywhere between 40-50%. We are targeting 50 percent gross in the next 18 months, with 10-12% of net margins, at a scale of a million or so. That’s the target for 2016-17 financial year.
Ikea, the Swedish furniture giant, is set to enter India next year. The company has disrupted markets before, and it might have a bigger impact here, because of the fragmented nature of the market, and furniture that is often over-priced. Are you guys inspired by them?
We are similar. We are as vertically integrated, just that we don’t have a store. Their store itself is fantastic. We also go back to the roots with our design, have 2-3 threads in our design. We are slightly better on the product quality, because we use solid wood, they use engineered wood. And they are offline, we are online. Pretty much everything else is very similar.
So of course Ikea has been a big inspiration. And when they arrive here, they will be competition. We’ve been following Ikea for a long time. Store is another level experience. We can never beat Ikea’s store experience. But we can beat them in the digital experience. So thats our focus of the next 18 months before they arrive. We always thought why should we be called something of India? Let someone else be called Urban Ladder of that country.
What is the profile of your target customer?
Anyone buying a home in the Rs 40-50 lakh range, will go for furniture in the Rs 4-5 lakh range, including kitchen. That’s our target consumer. Anyone in the renovation cycle, who bought a house several years ago, might want to re-do a room or several rooms because they are bored of it. That is a big second audience. And a big third audience is anyone moving cities among the top 30 cities, who’s probably married but have still not bought a home where they are looking to do-up some part of their house. All these three are audiences that span across the board. This is usually the more well-read, educated, earning well, between ages of 23-45, who will buy online, and are used to online. This is reasonably massive, mass audience probably the same as what Ikea would also go after. They are design conscious, socially aware and active, digitally buy stuff, including lifestyle purchases from the likes of Myntra or Jabong. To them we offer a clear positioning in terms of quality of product and service, and doing this through a digitally social brand, which has excellent word of mouth.
You started advertising on TV earlier this year. How has the response been?
Our first TV ad didn't do well. Customers really thrashed us for it. So we made sure our second was much more active and engaging. The first happened in Feb, second one aired in May-June.
India’s big e-commerce companies have found it difficult to find the required talent when it comes to senior levels. Many of them are now hiring from the Silicon Valley. What has your experience been?
Talent is a big shortage. Massive challenge. We need senior and mid-level managers and there aren’t too many of them who have been there, done that. Startups in India are still new, in contrast with Silicon valley where startups have been there for 30-40 years. The number of startups that have come up is way more than the supply of talent. India produces a lot of engineers. But really employable, high quality engineers among that is a miniscule number. Same for design, communications - it's a big challenge. When we grow faster, the patience to groom people will be lesser because you can't make too many mistakes. You want to groom, train and coach, but there aren’t too many chances because you want to double your capabilities in 3-4 months. And there’s big competition with Flipkart, Ola etc who are hiring from the same pool, looking at the same tech people. We also hired from Silicon Valley. We need people who can handle scale, who can handle people in a startup. And how many startups have done that in India - 5-7 max?
With the entry of Flipkart and Amazon in furniture, won’t it be tougher for you to grow your business?
Flipkart or Snapdeal will do what Pepperfry is doing - put everything out there and let people buy. For them selling a bed and a novel is the same. That’s it, there is no really in-depth thinking behind it. And even Amazon has not succeeded in furniture and home decor in the U.S. Given that its a market worth $80 billion, they might still want to do $2 billion of it, but it's not a major category for them.
What is the employee strength now, and do you plan to hire more people?
Currently we are a 1,000-strong team with 700 people in logistics. The tech and customer service teams will expand, the others not so much. The customer service team will expand to 1,500 atleast because kitchens require installation. We are trying to move to products where the revenue per person will keep going up after one inflexion point. After that it should be scaling at the rate at which revenue rises. A lot of it is automated. On the service side, if we want to grow revenue around 3x, from the $100 million we made this year, we will need to scale up the service team to atleast 2-2.5x.