Covid-19 blues, funding crunch, made Urban Ladder do a fire sale to RIL

The furniture industry in India is worth $32 billion and projected to double to over $61 billion by 2023, according to industry sources.
Online furniture and home décor store Urban Ladder had been struggling for fund for the past two years, and the Covid-19 pandemic worsened its financial woes, forcing it to have a fire sale to Reliance Industries’ (RIL’s) retail arm, analysts said. 

Reliance Retail Ventures this week acquired 96 per cent in Urban Ladder for a cash consideration of Rs 182.12 crore.

The Bengaluru-based company had raised about Rs 857 crore from marquee investors, including Sequoia, SAIF Partners, and Tata Sons Chairman Emeritus Ratan Tata. Also after an internal round of funding two years ago, Urban Ladder couldn’t raise significant capital.

“The company fired almost 40 per cent of its staff early last year. The overall volume of the firm had dropped. It had to shut down many of its verticals,” said a person familiar with the developments at the company. “The pandemic further hit the business, which forced the investors to exit at a very low valuation and do a fire sale to Reliance.”

“The capital shortage also affected the operations and growth of the company,” said Salman Waris, managing partner at technology law firm TechLegis Advocates and Solicitors. “The (deal) signifies a substantial markdown in the valuation of the company, which was only second to its main competitor, Pepperfry, in the online segment.”

Urban Ladder was co-founded in 2012 by IITians Ashish Goel and Rajiv Srivatsa. It operated a digital platform for home furniture and décor products and also had a chain of retail stores in several cities. However, the company was struggling as the past few years have been difficult for the e-furniture market.

Last year, the cash-strapped Urban Ladder not only laid off hundreds of employees but also saw its co-founder Rajiv Srivatsa resign. Ajit Joshi also quit as the president and chief operating officer last year.

Besides, furniture firms have been facing pressure from investors to turn profitable, according to analysts. What was missing in the Urban Ladder’s business model was value-based products and services for the masses and strategy to tap markets beyond metros, they said.

“Urban Ladder was a wonderful company. But there are lessons here. Although you may have a great product, (furniture is about) mass market,” said Sanchit Vir Gogia, chief executive of Greyhound Research. “Also, there is value beyond metro cities. At some stage (Uber Ladder) did not appeal to the mass market of Bharat (tier-2 and tier-3 towns, and rural parts)”.

Indian furniture industry is worth $32 billion and projected to double to $61 billion by 2023, according to industry sources. E-commerce and furniture players such as Amazon, Flipkart, Ikea, and Pepperfry have emerged stronger due to huge availability of funding and unique business models, which include a sharp focus on tier-2 and tier-3 cities.

Walmart-owned Flipkart, which started the furniture category a few years ago, has already become the biggest online furniture player in the country. Flipkart has increased its pincode reach to 100 per cent of the serviceable pin codes across the country through its supply chain to support consumers looking for affordable furniture. Besides demand in metros, it is seeing growth in smaller towns and cities such as Bhubaneswar, Gaya, Muzaffarpur, and Agartala.

The pandemic has also catalysed new demand patterns across products categories, including furniture, as people spend more time at home. A rising number of consumers from tier-2 and tier-3 markets are purchasing furniture online and larger players such as Flipkart and Amazon are capitalising on that demand.

Analysts said the biggest challenge had been touch and feel needed to buy, and hence omnichannel presence is required. “Both Urban Ladder and Pepperfry set up experience centres for the same reason but adding physical infrastructure is expensive and it takes time for economics to work,” said an industry executive having knowledge about the business strategy of Urban Ladder.

The other big challenges for Urban Ladder was logistics and warehousing. Because the products are bulky it was not easy to manage long-distance logistics. There was a shortage of working capital. They needed to have a reasonable level of inventory with them to be ready to supply as the furniture business cannot be based on just in time model. Urban Ladder had to spend a lot on inventory. The customer acquisition costs were also very high for the company.

“In this business you see a lot of people browsing but not buying,” said the industry executive. “So with Reliance, they (Urban Ladder) won’t have too much acquisition costs as customers will be acquired across the categories.”

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