We want to focus on and dominate categories without a standard product catalogue: ShopClues
ShopClues.com is a horizontal e-commerce marketplace and one of a few which have managed to survive even as the market consolidated among the heavily funded peers Flipkart, Snapdeal and Amazon. Clues Network Inc, the US-based parent of Clues Network Pvt Ltd that runs ShopClues, has just raised $100 million in its Series D round of funding led by Tiger Global with participation of two of its existing VC investors. Techcircle.in spoke to its co-founder & CEO Sanjay Sethi and co-founder and marketing chief Radhika Ghai Aggarwal to understand where the company has reached and how it plans to grow further hereon. Here are the edited excerpts:
Where exactly is the money going to be spent?
Radhika: Our goal is to get 10 million sellers online. We plan to go ahead with complete category domination.
Sanjay: Our aim is to enable and empower the merchants and we do that by providing them technology and platform for services. ShopClues is a self service platform for merchants. Significant amount of money that we have raised will continue to be invested in product and technology and the services that we are providing to our merchants. We will also go for complete category domination. We have been the largest player so far when it comes with unstructured categories. These are very difficult categories to bring online. That is something we believe we are the best suited to do. We will also use the money for branding.
What do you mean by unstructured categories? Why did you decide to focus on that segment?
Sanjay: Unstructured categories are where large brands are not operating—where you will not find standard catalogues. For example, mobile, tablets, books are structured items. This isn't an area where we are focusing on. Our focus areas are categories such as home & garden, kitchen, fashion and jewellery.
By when do you think you will exhaust this and think of scouting for the next round of funding?
Sanjay: It is hard to answer. The fund is raised for growth and by 2016 we plan to be EBITDA positive; this could be the last round that we would raise but again what is unknown is that how would the market develop for us. What we have raised is what we need; we have a sufficient war chest.
What sort of gross merchandise value (GMV) are you working on?
Radhika: We are currently doing a GMV of about $250 million. So far we have spent $20 odd million to get here. Now we have to put in more money to increase awareness amongst consumers. We are never going to get into the blood bath that is going out there amongst the other e-commerce players. You will see an innovative platform from us. Mobile is going to be very big.
Sanjay: We are looking at the exit of financial year 2016 to be anywhere between $800 million to $1 billion.
What is the average ticket size of your products?
Sanjay: Our average ticket size for orders is Rs 1,200 across product categories. We get almost 1.5-2 million orders a month.
How much of your transactions happen through cash on delivery?
Sanjay: Only 20 per cent; rest comes through online payment. Also because the ticket size is comparatively lower. Our returns are less than 2 per cent.
As per our records you had net revenue of Rs 30 crore with net loss of Rs 38 crore in financial year 2014. Why should a zero inventory marketplace be so deep in the red? By when do you think you will be able to break even?
Sanjay: It is not deep in the red but a fabulous number. There is a fixed infrastructure cost and a variable infrastructure cost. There are costs such as the physical infrastructure that we have, the fulfilment capabilities that we provide. All of these are examples of fixed infrastructures. ShopClues continues to be gross margin positive. It is a matter of certain time and scale. So if you get to a certain scale, those numbers rapidly convert into positive cash flow of the company. So when ShopClues was doing Rs 38 crore in revenue you have to consider the fact that we have just been two years into the operation. For an e-commerce company to be solidly into the positive territory, it needs to acquire a certain scale and that is the scale we are working on. We will break even by mid-2016.
Tiger Global is also the lead investor in Flipkart, which is a competitor. How do you reconcile to that?
Sanjay: Flipkart is not a competitor for us. Companies such as Snapdeal and Flipkart are trying to find niche in structured categories like mobile, tablets and computers and primarily focusing on the classes or higher price point products. We are instead focusing on unstructured categories -- regional and local brands.
Beenos had come in for the Series B round but did not participate in Series C. Did they participate in this round?
Radhika: They did not participate in this round. We had very strong inbound interest in this round. We made a choice to go with Tiger, Helion and Nexus.
One view is that this deal is a precursor to an eventual deal where Flipkart buys you out to essentially get on board the vendors on your platform. How fair is that assessment?
Sanjay: We have two large investors -- Nexus and Tiger Global. One has investment in Snapdeal and the other has investment in Flipkart. When we had investment from Nexus I don't think people were talking about Snapdeal. There is no strategic alliance here. This is an investment in ShopClues; it is not a precursor to anything. Both our investors believe that this is a business which is very differentiated.
How do you look at the current scenario where the market is seen to have got consolidated around the top three marketplaces? Is there a space for a fourth player?
Sanjay: Of course there is a need for that. If you are looking for a working pair of shoes for a eight year old you would not probably find it on Flipkart or Snapdeal but on ShopClues because ShopClues is about selection to the consumer. Our aim is to get small businesses online, large selection of products online and because these are regional brands and local labels you get more value for your product.
What different strategy have you taken or plan to adopt to stand up to the heavyweights?
Sanjay: Their main offering is convenience more than selection whereas ShopClues' main promise to the consumer is selection and value pricing. Our key strategies would be the base of the merchants we have and the product selection we have and anxiety free shopping. Suppose you are buying an expensive handset, your trust in iPhone comes not from the portal you are buying from but from the brand itself; so you are not anxious. So when we are dealing in categories where brands are not very well established, anxiety comes into the picture. Products that we have elicit some trust in the regional market but not in other areas. So the trust for those products will be created by ShopClues.
But like some other peers, your site too was unwittingly party to an alleged counterfeit branded product being sold by a merchant and even had a temporary ban on selling L'Oreal products. How have you been tackling the issue?
Sanjay: We have launched ShopClues Intellectual Property Protection Programme through which we can take action quickly if we get complaints about merchants. We have penalised/barred over 400 merchants so far. This has been done on a case by case basis. The first reaction that came in (against the L'Oreal issue) was a blanket ban on selling of the brand. After we clarified our position, the Delhi High Court allowed ShopClues to sell it. This is an industry wide problem.
(Edited by Joby Puthuparampil Johnson)