How ShopClues joined the Unicorn club

A few months ago, Sanjay Sethi and Radhika Aggarwal were walking out of Delhi airport when they saw a family waiting for someone, with gifts in ShopClues boxes. “Radhika and I were so excited that we took a selfie with them,” says Sanjay, Co-founder of the newest e-commerce entrant to India’s Unicorn club.

The country’s first managed marketplace, founded in July 2011 in Silicon Valley by Radhika’s husband Sandeep Aggarwal, ShopClues is run by co-founders Sanjay Sethi and Radhika Aggarwal. ShopClues was the 36^th entrant in India’s e-commerce market, when they started operations here in 2012, headquartered in Gurgaon. Becoming a billion-dollar company in less than four years was exciting. But as far as Sanjay is concerned, these are just numbers. “We have miles to go before we sleep. What we get today is the fruit of our efforts - what we do today will give us our future,” he says.

More growth in pipeline

Having raised $100million in their latest round, Series E, of funding led by Singapore-based GIC, ShopClues will focus on profitability for the next 18 months. While aiming to be the first e-commerce company of any size to become profitable, they are hoping to grow their current strategies rather than begin new ones.

“We have demonstrated in the past that growth and profitability are not mutually exclusive. We have been and will continue to be capital efficient, independent of the money we have raised,” says Sanjay. He adds that though other players have had 20 times more money, ShopClues grew rapidly by focusing on lower price points. “Categories and consumers in the upper income group don’t matter; we want those who are looking for a wider selection, and lower price points,” he says.

More Acquisitions?

Although ShopClues invested in hyperlocal services marketplace HeyBiz towards end -2015, there is currently limited funds for large cash deals. “But as in the past, we will continue to deploy money in some sectors and acquire or acqui-hire in two or three areas in M&A: mostly payments, data analytics, and mobility,” says Sanjay.

Sanjay adds that while logistics is crucial, ShopClues has no plans to enter the fray. “We have 40 logistics partners at the regional, local and national level. Delhivery, Ecom Express are all doing a very good job, so they can continue to do so,” he added.

However, there is some scepticism among experts. Arvind Singhal, Chairman of advisory firm Techno Pak, believes that investment in logistics and distribution centres is essential in the future. “Third- or fourth-party logistics partners are not the way forward for major players. For the likes of Craftsvilla or Jaypore, with small revenues, there is no point investing in delivery and storage. But for a pan-India marketplace serving a wider market, control over your delivery capabilities is essential,” he says.

Currently, most customers are comfortable with delivery in 4-5 days. But Arvind says that when more players start offering same day delivery (only Amazon does now), others will have to follow suit.

Expansion plans

Since ShopClues follows lower price points, expansion plans are based on it too. “We may not provide an iPhone or Samsung, but for a smartphone at Rs 4,000-8,000 like Lava or Micromax, we are the go-to place. We will now focus on refurbished electronics as well as fashion and furniture at lower price points for lower demographics,” Sanjay said.

But Arvind says that Flipkart and Snapdeal also offer various price points. They all offer discounts as they are better funded. By focusing on lower price points, ShopClues might get a larger volume of transactions. Yet, cost of operations is high, and unless transaction values are higher, there will be no profit. Sanjay agrees that he would make profit if he charges for shipping. “But nobody else is doing it; so we have to follow suit,” he says.

ShopClues investor Sanjeev Aggarwal, Co-founder - Senior Managing Director, Helion, believes that Flipkart and Snapdeal serve a different section and hence have a unique positioning. Most Unicorns are solving problems of urban India while ShopClues is solving the problems of real India, he says. “ShopClues has developed a marketplace for the masses by building a technology platform that connects Tier II and Tier III customers to regional/local brands. This in turn has led to best-in-class metrics on unit economics and capital efficiency,” he adds.

Will ShopClues benefit from focusing on lower income groups and smaller cities? Arvind says it is possible if they provide curated selections. “Flipkart’s revenue is 15 times that of ShopClues; all the players serve smaller cities and give lower opening price points. We don’t need another marketplace but a well-curated one –such as CraftsVilla or Zivame.”

Plans for 2016

ShopClues is not planning any drastic change with the new funds. So, 25 per cent of investment will be in product and technology; 25 per cent in acquisitions, mergers and partnerships; and 50 per cent in marketing and brand building.

ShopClues has tie ups with merchants in China and Korea to provide a wider selection and value for consumers. “We have partnered with DHgate - China’s second-largest wholesale player - 10,000 merchants in China are now selling to India. But Indian e-commerce is still only less than 2 per cent of total retail; so 98 per cent of retail market is yet to be captured,” Sanjay added.

Sanjay says that every city has a different market, so no single player can dominate. He says: “No one player can cater to all consumers. We targets households with incomes between Rs 4-10 lakh.”

Way forward

E-Commerce in India is flooded with funding, but not making a profit yet. “There is no reason to make money now. But, if we are to do business on our own money, we will weed out categories that are not making profit,” says Sanjay.

E-commerce is only five years old in India. We are still a long way from an eBay, which makes $5 million or Japan’s Rakuten which makes $2 billion, annually. Sanjeev says that the focus is back on employee satisfaction, world-class technology, delivering great customer experience and ensuring that unit economics are in place. It is yet to be seen if Unicorns, after all, can exist off-paper and find profit and sustainability in the real world.

[Now watch] In 90 seconds: Know about India's latest entrant in the Unicorn Club

Graphics by Gokul K