IKEA’s entry will make the market more organised over time. Typically, what we have seen in most markets is that the organised players have benefitted from IKEA’s entry
Although the share of the organised furniture retail market is small, Ashish Goel of Urban Ladder is hopeful that the company’s offline presence and the entry of furniture giant IKEA will give a fillip to the industry in times to come. He talks to Sonam Saini about growth plans, offline expansion and competition. Edited excerpts:
How big is the furniture and home decor market in India? What is the share of organised furniture retail, both offline and online?
In 2018-19, the industry was approximately worth $26-28 billion. As the per capita GDP keeps going up, in the next decade, we would expect the category itself to grow by about 4-5% more than the GDP growth — say 10-12% overall growth. The core middle of the market is where most organised players are operating. My estimate is that the organised market is 10-12% of the overall furniture market. The share of furniture in e-commerce is still very low. Urban Ladder’s share in the overall furniture market would be 0.5%; our goal is to reach 15%.
Urban Ladder reported a healthy increase in revenue in FY 17-18. What triggered this growth?
Two things: while we are continuously driving growth in the business, we are also pushing for a healthier bottom line and cash flow situation. The last 24 months have actually been quite amazing. Every year, we have been recording 50% growth. Along with that, losses have come down by 40-50% year-on-year. This year, our losses are approximately 50% lesser than last year and drifting towards profitability. In the next quarter, we are expecting low single-digit EBITDA loss, which is a good position to be in, and sets the stage for the next financial year to be profitable for us. The one thing that definitely drove our growth is our offline retail expansion.
How much do your offline stores contribute to overall sales? Any further expansion plans?
Approximately 25% of our business comes from offline stores now. The response has been great. We have tried to build a lot of science and algorithms at the back-end that helps us determine exactly what kind of products to keep in stores. Primarily, we see a store as a conversion channel. This year, we are planning to open stores in 12 cities including Mumbai, Pune, Kolkata, Chennai and Hyderabad. We are present in more than 40 cities in the country. The larger cities form the bulk of the business, though we deliver to smaller cities as well.
Are furniture rental start-ups like RentoMojo and Furlenco, that target the millennials, impacting your business?
There is space for different kinds of solutions for different kinds of customer segments. Everybody is working towards organising the market. The primary consumer for RentoMojo or Furlenco is a starter household. The hassle of purchase is not worth it and instead renting is preferred. Rental is a very different business, and maybe a good one, but it’s not an occupation we are in.
How has IKEA’s entry into India affected the industry?
IKEA is an iconic company which has done things the right way and we respect that. In the first quarter after it launched, our business in Hyderabad continued to do well. Of course, there will be some impact when such a large player enters the market. But IKEA’s entry will make the market more organised over time. Typically, what we have seen in most markets is that the organised players have benefitted from IKEA’s entry.
Is it still difficult to get consumers to buy furniture online?
It’s an evolving journey. Most of what we have achieved is by being an online player; that is a sign that migration is happening. The reason we opened (offline) stores is is to lower the barrier and help people get closer to the brand. Changing consumer behaviour is the most important — tough as well as exciting — journey of building a business.
What’s new in FY20 for Urban Ladder?
Great brands are built by doing boring stuff repeatedly for many, many years, because people remember the repetitive stuff. Our thought process for the brand is to stay consistent in what we do. Often, brand building is confused with flashiness which, in reality, is barely 0.1% — the tip of the iceberg. The real depth of brand building is in the hard-knuckled, day-to-day consistency. This year, we are expecting 40-45% growth.