"They (SoftBank) are our existing shareholders and all kinds of conversations happen with them. I'm not either assenting or denying what you just mentioned (around fundraising talks with them)," said Kunal Bahl.
The total retail market size in India is about $785- 800 billion out of which market for value-conscious retail buyers is worth $163 billion where Snapdeal, in its 2.0 avatar, has turned itself around. As per various estimates, the market for regional brands is 3X of big international and national brands even as the value retail has strong margins of 15-25 per cent, while major brands have single-digit or negative margins, with the cost of price competitiveness or discounting factored in.
Using technology to enable an unstructured segment of retail to sell online is an advantage that Snapdeal perhaps has built. In other words, if the first wave of e-commerce was about bringing the malls online, the next phase is about bringing India’s bazaars online. “Everyone talks about e-commerce is penetrating to Tier II and III cities. In my mind, that was so 2018. We’re talking Tier 9, 10, 15 and 20 now,” Kunal Bahl, Co-founder and CEO, Snapdeal told Financial Express Online’s Sandeep Soni in an interview. Edited excerpts below around Covid’s impact on Snapdeal, festive season, market penetration, fundraising talks with SoftBank, IPO, Bahl’s online shopping during Covid and more.
Do you see a subdued festive season this year due to overall gloom and Covid-induced business shutdowns, job loss etc., or whether pent-up demand would drive better sales from last year? Also, how the past few months have impacted Snapdeal?
At a broad industry level, I feel that this is going to be a volatile year for e-commerce. We have had a volatile year till now. If history is something to go by, especially in the last few months, we should expect volatility in the coming months as well. Volatility is because of the lockdown, floods in different parts of the country, and a lot of businesses who were maybe selling online or manufacturing goods that were being sold online, going out of business. We’ve also had the whole migrant labour crisis, which created delivery issues, logistics issues. However, I think Snapdeal is structurally built to be more resilient. At the same time, I feel that there are some tailwinds as well that we are witnessing in our business.
What are those tailwinds you are witnessing?
The first big tailwind that we have observed is just an accelerated online adoption by sellers. What the acceleration and online adoption by sellers did in six months, we would have expected to happen in three years. In the last six months, we’ve seen 20,000 new sellers come onto our platform and 10,000 of them just in the last 90 days. Out of them, about 5,000 are manufacturers, which I feel is a very positive trend for India in general and also for the consumers. Because when manufacturers sell directly to consumers, consumers invariably get better pricing and also better quality of products and manufacturers get direct feedback from consumers. In general, I feel that a lot of these offline businesses are now going to see ‘selling online’ become an even larger part of the business if not exclusively.
What about the consumer-end, particularly value-conscious ones where you have been focusing on?
That’s the second major tailwind we have seen in general as consumers are becoming much more value-conscious. There’s one bucket of consumers who are less affluent and who’re not shopping online. They seem to be trading up and buying from e-commerce because of availability, safety, convenience, more selection. And then there is another bucket of more affluent consumers who are online buyers. We are seeing them trade down because of all the economic pressure. So, one segment is trading up and another trading down is actually leading to a strong tailwind in the value segment which we are noticing. Which is why in the last few months, we have added 6 million new buyers on our platform. In a way, the core insight of why we are calling our Diwali celebration as “Kum Mein Dum” is that core consumer insight.
How much growth you are expecting particularly from Diwali season this year? Any rough targets you have in mind?
Less than 5 per cent of retail is online. This is an incredibly small penetration number. So, our view is that, Diwali or not, our job doesn’t change. Obviously, Diwali serves as a milestone of sorts, to accelerate some of these initiatives or building this virtual infrastructure to connect the dots between demand and supply in our country. But during Diwali, because we know that there is an increased propensity of consumers to buy, at least historically, we must accelerate some of our infrastructure building initiatives in the lead up to Diwali.
But how much more customers and sellers, in addition to existing over 5 lakh sellers, you are expecting to add up?
I wish I knew. Unfortunately, in our company, we tend to significantly discourage crystal ball gazing. We are extremely focused and disciplined on the inputs, and then the outputs are just sort of a consequence of those.
Anything on the hiring side? How many people you have added or are looking to hire in the coming weeks or months?
Thousands of folks have been hired on the supply chain side, maybe not necessarily on our rolls, but with our partners. But we don’t even mention that, because that’s at par with the industry.
Your latest reported capital infusion happened last year. Are you actively looking to raise funds now?
We are an extremely capital-efficient company. We make investments from the strength of our own balance sheet and our own accruals and economics, rather than from external capital. And a testament to that is for the last many years, we haven’t raised significant capital because we haven’t needed to. Even today, we have enough capital on our balance sheet.
But you were reportedly looking to raise fresh funds from SoftBank?
They are our existing shareholders and all kinds of conversations happen with them. I’m not either assenting or denying what you just mentioned. But as an existing shareholder needless to say, if someone sees a company having an incredible amount of focus, discipline, differentiation, focus management game, good cost structure and long runway grow in this market, obviously, they would want to invest in that business. We would raise capital when we know that there is a good use of those funds. While today I don’t see one but that doesn’t mean there won’t be one tomorrow or next month or next year. Maybe there are some M&A opportunities that emerge, which may be interesting.
I see. So, what kind of M&A opportunities there have been?
Over the last six months, we’ve had maybe 16 to 20 inbound proposals from entrepreneurs and venture capitalists to acquire companies but we have not done any. We just didn’t see a strategic fit. For the right thing, we will do it. And if we can do it with our existing capital, we’ll do it.
Time and again there have been talks around Snapdeal’s IPO. Any visibility you have towards going public?
Right now, there is no timeline. There’s also no rush. There’s so much to do and so much to build. We have to also again, like with the private fundraisers, ask what’s the objective of doing that. Once we figure out there is a clear objective we will surely proceed on that part.
As Snapdeal 2.0, how deeper your penetration has been into the country beyond Tier-II and III cities?
Everyone talks about e-commerce penetrating to Tier II and III cities. In my mind, that was so 2018. We’re talking Tier 9, 10, 15 and 20 now. Tier-II and III cities are mature consumer centres from an e-commerce landscape. In the last few months, in the lead up to Diwali, we have actually accelerated, going deeper into the country. We have set up 25 logistics centres and hubs across India and partnering with local delivery companies and upgrading them for their expanded delivery serviceability for over 15 million more consumers this Diwali. Today in India, we have probably 150 million e-commerce buyers and around 600 million internet users. One of the biggest reasons for this gap is the lack of serviceability.
Lastly, on a casual note, how much do you shop online, particularly, how it’s been during Covid?
I shop a lot and maybe buy two-three things a week at least. For my work-from-home setup, I bought an external keyboard, external mouse, external monitor and external webcam by now. But outside of the electronics, I think I bought some really interesting things like wrist support for my keyboard and wrist support for my mouse. I bought a humidifier because I would sit in one room of the house all day and my throat would get parched at the end of the day. Most of these are not necessarily from like top 10 brands and neither do you really care what brand your humidifier is. So, I think I have been shopping quite voraciously during this time.