Online furniture marketplace Pepperfry is going aggressive on expanding its offline footprint, though keeping itself asset-light, as it is betting big on the franchise model. The company expects to become profitable in FY23, while its initial public offering (IPO) of $200-250 million is in the works.
The company has opened 19 new company-owned and company-operated stores in Delhi, Hyderabad, Chennai and Ahmedabad, with an investment of $5 million, over the last four months.
It has opened 110 franchisee stores in the last 11 months, and is expected to maintain the same run rate this year as well. To make the model more scalable and expand at a faster pace, the company has tweaked its franchise model as well, to make it less capital intensive for the franchisee partners.
“From a High Street business in top towns, I want to now become a neighbourhood store. I want to continue penetration in the cities in the top seven towns through franchisee expansions. Wherever I see more than 10,000 apartments (we want) they should have a Pepperfry store near them,” Ashish Shah, co-founder and COO, pepperfry.com, told FE.
Pepperfry narrowed its losses to Rs 106 crore in FY21 versus Rs 168 crore in FY20. It is yet to disclose its FY22 numbers. However, Shah said that the “orientation” on profitability continues to be there, and hopes to become profitable by FY23. “We have halved our losses in the last two years, and we are well on the path to profitability. We should report profits in FY23,” he said.
The company is also looking to raise $200-250 million through an IPO. The proceeds, he said, would be used to make investments towards technology, as it is preparing for a virtual reality scenario over the next 3-5 years. Currently, 40% of its catalogue is already 3D model-enabled. Some of the proceeds will also go towards expansion into new geographies, even outside of India, and more marketing spends.
Pepperfry first launched its franchise model in 2015, the Pepperfry Venture model. This required an investment to the tune of Rs 80-90 lakh, going up to Rs 1-1.5 crore, by the partners, as it was for 2,000-3,000 square feet stores. According to Shah, the company opened 20 stores between 2017 and 2019 under the model, but given that the investments were huge, it became dependent on having seasoned franchisee partners to be able to turn this around, although there were repeat openings and Shah said the stores did well.
However, with the challenges thrown up by the pandemic, the company’s business was impacted, being under the non-essential category. “We realised that once the pandemic was over, a lot of furniture shops would shut down due to lack of supply, while we were uniquely placed because 85-88% of our total supply today is produced domestically,” he said.
This led to the launch of a new model that was low cost; the company has called it Build Your Own Business or Become Your Own Boss, targeted at corporate employees, small furniture shops, ex-servicemen, freshers out of design colleges, etc.
“We launched this `20-lakh model which includes everything — doing up the store, putting up the inventory, air-conditioning — the entire fit-out including Rs 1 lakh of Pepperfry franchise fees,” Shah said. The company has been opening 10 stores a month through this route, and it has worked well, said Shah.
Stores take around 18-24 months to stabilise and reach their potential, and Shah said omni-channel businesses at the beginning of the year used to be 30% of the business, and is now 45%.
“AOV (average order value) from offline stores is 2.2 times my online business. So, I am able to get much more from customers’ wallets when they are coming to my stores, because the entire approach is of consulting. Repeat rates from stores are 1.8 times my online business,” he said.
A store enables initiation for the online business as well. “When I opened in Chandigarh, let’s say the city would do Rs 50 lakh of business in a month, and another `50 lakh from online, so it would be Rs 1 crore. However, it is actually Rs 1.8 crore, because the store is serving reminders on my brand. I am activating new towns by opening stores, and these are like my hoardings for marketing,” he said.
For comparison, if a hoarding is put up in the western suburbs of the Bandra-Santacruz area in Mumbai for 15 days, it would cost Rs 10-12 lakh. “Whereas, my Rs 4-5 lakh rental store does great business, interacts with my customers and costs me much less,” he said.