Increasing number of double-income families, untapped market opportunity and lack of quality products in traditional retail formats are driving venture capital (VC) players to shop online for start-ups in the baby and kids products space. Sensing high potential for long-term growth, in the last couple of months, the online babycare category has seen investors like IDG Ventures, Accel Partners, Tiger Global and Helion parking their funds.
Last month, Pune-based Brainbees which operates FirstCry.com, an online platform for babycare, kids and maternity products raised $14 million from IDG Ventures India and SAIF Partners. Started in 2010, the
e-commerce company recently launched a beauty and wellness site GoodLife.com. Last May, SAIF Partners,
the existing investor in Brainbees pumped in $4 million in the company.
A few months ago, Bangalore-based Hoopos.com managed to rope in early-stage VC firm Helion Ventures Partners for an undisclosed amount. With the capital raised, the company plans to expand its back-end infrastructure and add more warehouse locations across the country. ?We have already seen demand from across the country with about 40% coming from smaller towns. We have seen very high repeat purchase rates, currently at around 60%. As more and more customers become aware of the possibility of shopping online for babies, we will see demand grow at a high rate,? says Vijay Jumani, CEO and co-founder, hoopos.com.
Last year, Mumbai-based Nest Childcare Services which runs an online babycare products store BabyOye.com raised $2.5 million from Accel Partners and Tiger Global. The online kids category has excited not only the investor community, but also Bollywood stars like Karishma Kapoor. In December, Kapoor acquired the largest stake in BabyOye.com. However, the actor has not disclosed the shareholding details.
Experts point out the convenience to shop online among young couples and access to a varied and better selection of branded products are key drivers of this category. Overall, the baby and kids market in India is pegged at over $5 billion, growing at 20-25% a year.
?This space requires strong domain expertise. So, it has the potential to build long-term standalone businesses and a better chance to succeed over time,? says Ashish Gupta, co-founder and senior managing director, Helion, which recently invested in Hoopos.com. ?The decision to invest in Hoopos was driven by large unserved market, right management team and disruption that internet can bring to this category,? says Gupta.
Other players in this segment include Delhi-based Babeezworld.com, a multi-brand kids portal started four months ago. The company is currently looking for funding to fuel its expansion plans. ?We are looking for funding as we have significant plan to scale it up. We did not want to go for funding before reaching a certain stage. In the next 3-4 months, we will approach investors,? said Amurto Basuray, managing director, Babeezworld.com and Olive Tree Retail, which owns the portal. Olive Tree Retail is a branded retail company with 17 stores across the country.
Investors say funding required to start an online baby products business is typically $30-45 million, with 18-40% margins.
According to research firm Technopak Advisors, the overall Indian kids market can be classified into five segments including super premium (above R2,500), premium (R1,000-2,500), mid (R500-1,000), economy (R250-500) and low (up to R250). The research firm points out that the mid-tier segment, enjoying a major share of 31% is expected to reach 58% by 2020.
Given that the retail networks of specialty baby and kids? stores are not yet well-established, experts feel e-commerce will serve a substantial part of this segment in the coming days.