Pepperfry to double offline studios by 2019, build India’s largest Omnichannel network

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Pepperfry, the brainchild of Ambareesh Murty and Ashish Shah, is aiming to be the country’s largest Omnichannel furniture retailer. In 2014, the brand pioneered the Omnichannel home and furniture business by establishing its first Studio in Mumbai. Currently, with its large product portfolio and the largest big-box supply chain, the brand caters to 500+ cities across India.

Studio Pepperfry are one-of-its-kind concept stores that showcase a curated range of furniture from its online portfolio and serve as a design inspiration. Here, one can experience cutting-edge design furniture, look at diverse wood finishes used by the brand, while getting an idea of the overall furniture quality. Interior design consultants assist in browsing the entire range and also offer free in-store design consultancy that are both aspirational and reflect the latest and best in home design trends.

According to Hussaine Kesury, Chief Category Officer, Pepperfry, “Currently, we have 32 Studios (owned and franchise) across 16 cities and aim to raise this number to 70 by April 2019. The average size of our studios ranges from 2,500 to 3,000 sq. ft., which is typically 1/10th of a normal offline furniture store.”

“We don’t sell products from the Studio because the idea is to showcase the large variety of – more than 1,00,000 – products from our online catalogue to customers. The Studio helps in building our specialist credentials with customers through relevant and specific advisory, while driving our Channel Partner Programs, involving architects and designers. This in turn helps us benefit from network effects, while not having to deal with the issues that conventional retail businesses face like high inventory and high related capex,” he adds.

Since these Studios have emerged as key touchpoints for consumer engagement the brand adopted the franchise model in 2017 to expand its reach in line with its strategy to build the largest Omnichannel network in the country.

“Customers who visit our Studios have a 150 percent higher average order value and buy 80 percent more times on Pepperfry. To enhance customer experience further, we have plans to introduce highly engaging VR experiences in the next few months,” adds Kesury.

Operating Model

The company’s franchise model is an opportunity for the brand to expand its reach by aligning with entrepreneurs across India.

“Our franchise model offers the advantages of low capex and zero inventory investments and focuses the energies of the franchisee entrepreneurs towards market expansion. It’s a win-win for all involved,” says Kesury.

“The Studios turn profitable in about 10-12 months’ time, depending on the location, size and market rentals. Those located on high streets and in prime spots typically turn profitable earlier (in 8-12 months) while locations in malls and airports typically take 12-14 months. A happy consequence of our Omnichannel approach is that all Studios are marketing beacons that eventually pay for themselves,” he explains.

A point to note is that online drives network effect for Pepperfry and provides the brand with the ability to achieve centralised distribution with an asset-light model at scale. It also lowers customer acquisition costs. Courtesy these benefits, the brand’s online business has grown faster than others.

Pepperfry’s USP

In a short span of 6.5 years, Pepperfry has entrenched its position as a market leader in the online home and furniture segment courtesy the robust financial architecture and the efficient business processes deployed. Its effective business model stands on the following differentiators/ pillars:

Omnichannel Network – In 2014, Pepperfry pioneered the Omnichannel approach by launching its first experience centre, Studio Pepperfry in Mumbai, that enables consumers to experience the material, quality and make of the product and interact with design experts who offer free in-store design consultancy on furniture products ensemble in the Studios.

Differentiated Catalogue – It offers a wide range of 1.2 lakh products, including top brands and house brands, which cater to specific product requirement of the customers. Having recognised that every customer has a distinct requirement, the company has developed a robust portfolio of 10 inhouse brands as well that cater to a wide range of design and style specifications of consumers and contribute to 50 percent of the overall business.

Managed Marketplace Model – Pepperfry has more than 10,000 merchants registered on the online platform who can sell the products to customers in more than 500 cities. In the highly unorganized segment, the brand operates through a managed marketplace model where it manages all aspects of customer experience starting from pre-sale merchant listings to post-sale logistics and customer service. This enables the brand to provide a standardized and superior buying experience to Indian consumers. The business model acts as an ideal platform for small and medium business artisans and merchants, who wish to sell merchandise. It also has over 1,000 merchant partners who showcase their design skills, craftsmanship and service orientation to customers across India and the world. For many merchants, it has become the primary source of their income.

Largest Big-Box Logistics Infrastructure – In an industry that largely depends on external service providers, Pepperfry was the first online furniture marketplace to build its own logistics network that has helped in not only rationing time and costs but also helped in overcoming sectoral challenges that existed before. It constructed a proprietary hub-and-spoke large item distribution model that significantly reduced per unit shipping costs, increased scale and operating efficiencies and achieved unprecedented service levels at negligible damage rates. The company also developed specialized packaging and delivery capabilities for differentiated furniture products and used ingenious technologies and instruments to deliver despite arduous situations.

Today, Pepperfry has built India’s largest big-box supply chain network with 18 distribution centres and 3 warehouses across the country. It owns its last mile delivery with over 400 trucks and a team of 250 carpenters. With the capability of delivering more than 1,00,000 large items per month, it caters to 500+ towns and cities in India.

Managing Different Categories

Pepperfry offers a highly differentiated portfolio of more than 1.2 lakh products across categories like furniture, home décor, lamps and lighting, furnishing, kitchen and dining, housekeeping, and hardware and electricals.

In the furniture segment, bed, coffee table and shoe racks are a popular choice and in the non-furniture segment, lamps and lighting is the largest category followed by mattresses, dining and baking, and hardware and electricals. The average ticket size for furniture is between Rs 17,000 – Rs 20,000 and for other home products, it is Rs 4,000.

The brand’s furniture sales currently contributes 80 percent of the total revenue while the décor and utility business contributes about 20 percent of the sale and 70 percent of the transactions.

“We work with more than 200 furniture merchants and 10,000 merchants overall across various sourcing hubs. Having recognised the varied requirements and design needs of our customers, we have established 10 house brands that cater to a wide range of style specifications of consumers. We are aiming to invest behind expanding our house brands thereby in turn expanding our product portfolio,” says Kesury.

Inhouse Brands

In furniture, Pepperfry has the largest collection of designs sourced from 150+ national brands including Hometown, Spacewood and Evok, and it has organised the non-branded furniture under its very own inhouse brands. Inhouse brands also cater to a wide range of design and style specifications of consumers and contribute to 50 percent of the overall business.

– Woodsworth – Woodsworth is characterized by a timeless, classic range of furniture. Reflecting designs that are sleek, contemporary and functional. It aims to deliver a blend of style and value, aesthetics and functionality as well as comfort and uncompromised quality.

– Mintwud – Mintwud is conceptualized for modern and compact homes – a rare combination of style and functionality. It follows a very minimalistic design language optimizing the material and cutting down excess to make sure the furniture is pleasing to the eye and easy on the pocket.

– Casacraft – The modern designs in the CasaCraft range represent the ideals of practicality, cutting excess and absence of decoration. This brand reflects the design philosophy of ‘form follows function’ prevalent in modernism. Replete in unique finishes and minimalist yet striking accents the unique range of furniture adapts perfectly to modern living.

– Amberville – Amberville is synonymous to a stately and gracious living. Taking inspiration from the classic colonial style of furniture prevalent during the 1,800’s, the Amberville Colonial product line reflects a design sensibility determined by the very genteel and cultivated European Queen Anne and Georgian style epitomizing the deep dark woods and warm spice colour polishes.

– Bohemiana – Bohemiana is a range of furniture that blends the free spirit of the eclectic with the rigid frame of the industrial pieces. They complement each other to have the right balance to add to home interiors. These ‘one of a kind’ quirky accent pieces add a splash of colour in dull spaces.

– Mudramark – Mudramark is carefully crafted furniture which is influenced by ethnic Indian art, architecture and culture. The Mudramark range of products are inspired from organic and ornate Indian forms; intricate paintings and distinctive motifs. The beautiful craftsmanship and details makes the house become a home with furniture that transcends generations.

– Mollycoddle – This brand aims to turn the four walls in the child’s room into their dreamland/ fantasyland. Mollycoddle is a versatile range of modern children’s furniture with a punch of vibrant and cheerful colours. Each piece by Mollycoddle is child safe, carefully designed, constructed and curated.

– Clouddio – Clouddio has good quality mattresses and additionally offers pillows, mattress protectors etc. at competitive price-points for Indian consumers. It comprises sub-brands such as – Stratus, Cumulus, Nimbus, Altus and Cirrus.

– Primorati – These are modular wardrobes that are functional and unique with a sleek factory finish. With best quality raw material, this brand offers a wide variety of finishes and colours. One can select shutter styles, internal configurations and fittings to create the ultimate coordinated look.

– Mangiamo – Mangiamo is a modular kitchen brand that is customized, ergonomically designed with high quality finish. It is a fusion of functionality and aesthetics that lends an international look.

Enhancing Customer Experience

According to Kesury, “We believe that AR/ VR technology is a game changer in the online furniture segment. Customers shopping online face issues like how the product will look or fit in their space, both physically and aesthetically. We address this specific customer need through an enhanced Augmented Reality feature on our app, which allows them to zoom into products, drag and place them against their room set-up, or their walls giving them a choice to easily mix and match the products with their home interiors. With high definition imagery, clutter-free layout and user-friendly options, the feature simplifies the process of buying furniture online.”

The brand is currently focusing on developing innovative and cutting-edge technology, which will provide the best in class online furniture shopping experience to the customers.

To add to the overall consumer experience, Pepperfry, through its own last mile delivery, ensures products reach a customer’s doorstep damage-free. It also provides free assembly for further convenience.

Expansion Plans

Pepperfry has set out a mission to be in 20 million beautiful homes by 2020 and hence is building multiple engagement touch-points for consumers.

“We will extend our Studio coverage into Tier II and III towns, and in keeping with Pepperfry’s sharp focus on customer experience, significant investments will be made in areas like supply chain automation and expanding the big box logistics network to 1,000+ cities,” says Kesury.

Some of the new cities the brand is looking to enter through its offline network include Lucknow, Siliguri, Hubli, Vizag, Imphal, Mysore, Coimbatore, Vijayawada, Nagpur, Guwahati and Jaipur. The investments in Studios vary depending on the location, size of the Studio and market rentals.

“The average initial investment made on each Studio is between Rs 40 to 60 lakhs, with Studios contributing 20 percent to the overall business. Our top 15 cities account for almost 90 percent of our business and our eight metros contribute to almost 80 percent of the business,” says Kesury.

The brand is growing at a CAGR of 83 percent courtesy a robust financial architecture and the efficient business processes deployed during the last 6.5 years.

“We make 45 percent gross margin and are already profitable at the pre-marketing level with the goal of turning profitable in the next 12-18 months,” concludes Kesury.

Boosting Micro-Entrepreneurship in India

Pepperfry is associated with more than 10,000 sellers. These sellers represent different components of the value chain – original manufacturers (large and small), craftsmen/ artisans, distributors/ dealers, traders etc. Some of the merchants have been able to build their business from Rs 5-10 lakh per annum range to Rs 50 lakh+ per annum range. While doing so they have also increased their employee strength (carpenters for example) from 1-2 to 20-30+. For many of these craftsmen, Pepperfry is the primary source of business. Today, Pepperfry is able to impact more than 25,000+ livelihoods in this industry segment and at the same time preserving and promoting Indian talent and workmanship.

Additionally, the brand adopted the franchise model to expand its offline network and to promote new-age entrepreneurs across the country. This unique model has immense potential to scale thereby making it a gainful proposition for interested partners. It is unlike any franchise business in the country, which does not require the partner to hold product inventory and is based on 100 percent price parity. It offers a lucrative commission structure where the franchise owners can benefit by earning commission on each online transaction made at the franchise Studio.

It is Pepperfry’s stated mission to promote Indian talent and craftsmanship, with that in mind, Pepperfry consciously built an operations and business model that performs as a bridge between traditional Indian arts and crafts and skills and the newly affluent markets in the metros and other urban centres.

“The combined effect of all these approaches is that we expand reach, gain from network effects, and benefit from partnering with the entrepreneurial ecosystem while continuing to leverage the benefits of a low-cost online business,” says Kesury, adding that Pepperfry has grown 116 percent CAGR over the last four years.

The company presently caters to 500+ cities across India with an aim to double its footprint by entering Tier III and IV markets.

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