Online furniture company Pepperfry aims to be profitable within next 12-18 months, Ambareesh Murty, co-founder and CEO, told FE.
Murty, who declined to specifically say by what quantum losses would reduce in FY19, added that the company generates one-third revenue from sale of furniture, one-third from sale of kitchen utility products and another one-third from sale of home décor items.
The company narrowed its losses to Rs 128.8 crore in FY17 against Rs 154.9 crore in FY16, as per regulatory filings. Revenue increased 30% to Rs 127.5 crore in FY17 from Rs 98.2 crore in FY16.
At present, furniture contributes about 40% of orders while the rest 60% comes from home décor and kitchen utility products. However, furniture commands a higher average ticket price (ATP) at Rs 18,000, when compared with home décor and kitchen utility goods which has an ATP of Rs 3,000.
According to Murty, one of the biggest reasons behind the company being able to manage a healthy unit economics is, the gross margin is as high as 45%, while the contribution margin is about 25%.
For instance, if a sofa is sold for Rs 18,000 the company earns a gross margin of 45% – about Rs 8,100. Further after deducting various costs such as discount, direct cost, logistic, Pepperfry claims to earn a contribution margin of 25% that is about Rs 2,025.
“Also, the cost of customer acquisition is very low. In fact we have high rate of repeat purchase. This has been possible as we sell a range of ancillary products including mattress, bedsheets, pillow, etc. While a customer may buy a bed once in three years, she does return to the website to purchase related products atleast three times a year,” he explained.
Pepperfry claims that 70% of the traffic generated by the the website is organic.
Additionally, the firm has been increasing the number of its offline stores. Called Studio Pepperfry — these stores are used as a marketing tool to promote various products including furniture and other household items. The company currently has 36 such studios across the country.
“We don’t sell any items in these stores, rather use these as marketing beacons. The idea is based on the fact that the same customer is present everywhere. Consumers visit these stores and then place orders online. About 25% of the business comes from these stores,” Murty said.
Pepperfry which currently employees 1,600-1,800 staffers provide service in 500 cities. The company has 21 distribution centres across the country.