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ShopClues on track to turn profitable by FY17; eyes US $2 billion in sales

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As .com, the e-commerce website which focuses on consumers in Tier II and Tier III cities, readies to celebrate its five-year anniversary next month, the countdown to turn profitable has now begun in earnest for the company.
ShopClues unveils a first-of-its kind Express Payout service for its merchants
Shopclues recently launched a range of financial services designed exclusively for its merchants including the Reach PoS, a software mobile POS which facilitates hassle-free digital transactions for offline retailers and Capital Wings, a loan program

The e-marketplace, which gets 70 per cent of its orders from Tier II and III cities, claims to be the first unicorn – venture-backed private companies valued at $1 billion or more – in Indian e-commerce space to turn EBITDA profitable in the next nine months on the back of higher margins, focus on ‘India 2’ consumers, a larger pool of merchants and affordable price points.

EBITDA profitable translates to Earnings before Interest, Taxes, Depreciation and Amortization.

“We are just nine months away from the point of profitability. Earlier, we were targeting anywhere from US $2.5-3 billion topline sales by 2017. But due to demonetization, we expect to break even with US $2 billion topline growth,” CEO and co-founder, ShopClues, told Indiaretailing Bureau.

The break even confidence dates back to January 2016 when the company managed to enter the unicorn club by raising $100 million from Singapore’s sovereign wealth fund, GIC Pvt Ltd., and that too at a time when investor interest in e-commerce was at an all-time low.

Sethi believes the company’s clear focus on going behind ‘India 2’, – which consists of 150 million people, residing in Tier II, III and IV cities – and its long-term vision to digitize and strengthen its merchants base has ushered in the growth.

Read More: ShopClues witnesses an increase of 153 pc mobile app downloads from Tier III cities

“We have always believed and infact demonstrated in the past that growth and profitability are not mutually exclusive. It’s important to have a clear focus on consumers and products you sell them to be capital efficient in the long run, independent of the money you raise. Our focus on merchants and consumers who wants a wider selection at a lower price points has differentiated us from other,” said Sethi.

Unstructured Categories For Structured Growth
The company, which was the 36th entrant in India’s e-commerce market when it started operations in 2012, is focused on taking unstructured categories online. The strategy is unlike that of large e-commerce firms , and Amazon who largely focus on structured categories. Snopclues counts the Indian middle-class – looking to buy unbranded goods – among its target clientele.

“Since the start, we have reserved our marketing dollars for the heartland of India. We always have and will target a consumer base that is online not because of convenience but for value,” said Sethi.

For instance, during 2015, when ShopClues’ competitors like Flipkart, Snapdeal, and were focusing on smartphones and branded apparel ShopClues reportedly sold millions of mosquito killers with night lamps and cow dung cakes during the Hindu festival Navratri.

From helmet locks to screwdrivers, and from unbranded apparel starting at Rs 199 to unbranded appliances, the company managed to hit the sweet spot and become a dominant player in low price-point and unstructured categories including lifestyle, home, kitchen, electronic and automotive accessories, etc.

The company currently ships over 3.5 million items and gets over 100 million visitors a month. It has 2.5 crore consumers registered on its platform out of which 1.5 crores has shopped at least once from its platform.

The right strategy has even allowed ShopClues to shore up its revenue and bring down losses. According to firm filings with the ministry of corporate affairs, companies revenue stood at Rs 79 crore in the last financial year, compared with about Rs 31 crore in FY14. The losses increased to Rs 100 crore from Rs 38 crore.

In comparison, the losses at Flipkart for the year ending March 2015 were at Rs 2,000 crore and that for Snapdeal was Rs 1,328 crore.

Strengthening Merchant Base For Growth
The company has not just targeted the Indian middle-class but has also always focused on enabling SMEs to digitise their businesses so that they can participate in the India’s internet revolution.

According to Sethi, the company currently has over 5 lakh merchants on its platform out of which 60 per cent are from Tier II and III cities – which in itself is unique for e-commerce companies in India, who largely focus on big brands.

“We have the largest pool of seller base and since the start we have been working with a mindset of putting our merchants first. It’s our constant endeavor to not only deliver an impeccable shopping experience to all our customers but also help our merchants grow by making them digital,” he added.

For Shopclues, the milestone of digitizing merchants has also arrived.

The company, which in March this year acquired Bengaluru-based mobile payments firm Momoe technologies, has launched a bouquet of services for sellers under its Business Edge initiative. Of many services, one such initiative that will allow brick-and-mortar retailers and consumers a hassle-free cashless transaction is ‘Reach’. It is an easy-to-set-up payment gateway that demands neither of the transacting parties (retailers and consumers) to download the application and can be used for payments of all scales and sizes.

The SMS-based three-step payment mechanism eliminates the intermediary digital wallet by directly transferring the payment to the beneficiary’s bank account at an introductory rate of 0 per cent TDR on transactions. The facility is available for both ShopClues-affiliated merchants as well as offline merchants who are not associated with the platform at a cost effective introductory rate of Rs 99 per month.

Must Read: ShopClues launches tools to digitize merchants; expects 30 pc revenue in 2 years

Apart from Reach, the Business Edge initiative is categorized under three buckets, namely, ‘Grow Your Business’, ‘Build Your Identity’, and ‘Manage Your Operations’. The three buckets offer the ShopClues’ retailers an array of premium services like the ‘Sales Booster’, ‘Capital Wings’, and ‘AdZone’, which retailers can individually subscribe to as per their business requirements.

The charges vary according to the type of services and the company offer assistance in terms of training and education to enable merchants to better navigate these services.

With these services, the company is looking at earning an additional non-transactional revenue from these technology services and improve merchant stickiness on its platform.

“The current contribution of the non-transactional revenue in the total revenue is about 10 per cent and with the addition of all these services, in the next 18-24 month, we expect our non-transactional revenue to go up to 30 per cent of our overall revenue,” Sethi said.

“Since these services are a high gross margin business, it might not add too much to the top line but it will add very significantly to our bottom line. Moreover, it will decrease the merchant’s churn on our platform and make retaining them easier for us in the long-run,” he concluded.

What Next?
After attaining profitability, the plans to file for public share listing at Nasdaq are also in pipeline.

According to a recent report, the company is expecting to file its documents with Nasdaq for listing by September 2017 but the IPO will depend on market condition.

Also Read: ShopClues eyes US $2 billlion sales; planning Nasdaq listing next year