Rise of Bharat
The premise of ShopClues has always been that i) India will be amongst the last largest eCommerce market in the world and ii) Indians will leapfrog desktop and laptop to access the internet via mobile phones. The former was never in doubt but the latter had a major entry barrier – high mobile data price for the middle-income consumer. That barrier fell in late 2015 when mobile data prices fell from Rs.300 per GB to Rs.15 per GB.
Figure 1 shows the growth in total consumer base for ShopClues. We have reached about 40 million in total customers and have a strong cohort of transacting consumers. The underlying growth driver (Figure 2) that is powering this surge is strong growth acceleration in non-metro consumers; not surprisingly the inflection point matches almost exactly the removal of the last barrier to access i.e. significant drop in mobile data prices.
This is a very exciting trend as the non-metro consumers, almost 400 million of them, are waiting to come online in the next 5 years. This is our target consumer and we are well poised to serve this burgeoning segment.
Supply Chain Innovation: Million Warehouses
Our innovation is to sell and deliver a Rs.300 shirt to a buyer in a remote location and still make money in the transaction. Our strategy of a million-warehouses and one-buyer-one-website has served us well. The latter allows us to merchandize relevant price-point products to the consumer from geo-local areas and the former makes sure that supply and demand is seldom more than 300km away. This has resulted in less than 5% of our shipments that need to go via air resulting in 50% drop in logistics cost while significant improvement in delivery SLA.
ShopClues logistics now reaches 90% of the country. As of Q1-2018 (Fig. 4) we deliver to 21,000 unique pincodes and pick from almost 3000 pincodes (Fig. 5). 70% of these combinations are originating from non-metro areas. We pick up and deliver to more than 1.5 million unique pick and delivery combinations in a quarter.
Healthy Marketplace: MSME Powered
Unlike other horizontal marketplaces, ShopClues is a “pure” marketplace, which means that there is no concentration of large “anchor” merchants, hence marketplace orders and revenue is not concentrated in the hands of a few merchants. This distribution curve is an important factor in keeping a marketplace like ShopClues vibrant and healthy. It allows us to have a very large selection in unstructured categories and keep the supply chain efficient. Today we have upwards of 60 million SKUs from more than 600,000 merchants. 70% of these merchants are from tier 3 & 4 locations. Our top 20 merchants contribute to less than 8% in terms of orders and revenue, a very healthy number for the marketplace.
Unit Economics: Where It All Adds Up
Great unit economics for us is a result of three factors a) low acquisition cost of and strong buyer cohort due to focus on lower-income consumer b) low operating cost due to our unique supply chain, and c) higher revenue due to focus on high margin unstructured categories. The result of the above is that our per-order net revenue has grown 300%. Our contribution margin (i.e. Net Revenue – Direct Cost) became positive in Q1-2017 and is now at Rs. 65 per order.
We closed FY 18 with strong growth in revenue and reduction in losses. Revenue from operations went up to $42mn in FY18 from $28mn in FY17. In the same time period, the losses came down significantly to $31mn in FY18. Since then, there has been a dramatic drop in monthly losses, driven by a positive contribution margin. We are close to break-even today, and with a marginal improvement in scale and fixed costs, we expect to reach this milestone this holiday season.
Road Ahead: Profitable Growth
We believe that true innovation only happens within the strict constraint of profitable and sustainable growth. ShopClues has built several powerful and highly leverageable products, which allow us to fuel our growth in a sustained and profitable manner. To provide a snapshot:
- Managed Marketplace: Our core managed marketplace is already contribution margin positive and has a large headroom to grow. Several partnerships are accelerating our expansion in Tier 4 and rural India.
- SmartOps: Our logistics and operational capabilities are bundled as services to other small and medium enterprises.
- Enterprise O2O Technology: Our technology platform is powering several offline retailers within and outside India.
Today, the ShopClues platform generates about 20% of its revenue from its technological and operational services and is growing 100% Q-on-Q. ShopClues will continue to invest in technology and operational capabilities to keep the cost down and sustainably grow the topline at a pace complementing the coming of target consumers online.
Speculations Of Our Future
There have been several speculations about our future over the years. One day it is about some company acquiring us, another day it is about money raised, or money remaining, then about hiring or firing, etc. Basically, every combination and permutation that people can think of has been made; some segments of media love to undermine us without any insight or understanding of ShopClues strategy and execution.
We have kept to our promise of building a “true marketplace” for our sellers and buyers focused on growth in underlying economics. In the Walmart/Flipkart/Amazon world, where the race to land-grab has now run into billions of dollars, there will be a tendency to write-off ShopClues which has stuck to its core strategy of enabling hundreds of thousands of SMEs to connect with millions of customers in a capital efficient manner. People can easily misunderstand our resolve around tight fiscal discipline, keeping costs low, focus on certain categories and geographies as signs of weakness. They may start speculating or predicting dire outcomes. On the contrary; our focus has been our biggest strength, it forced us to innovate for our customers and sellers, to solve problems fundamentally, deploy technology and build partnerships and not throw money at the problem.
In the end, great companies are built on the strength of the conviction of its employees and its customers and we are blessed to have both. ShopClues organization has a clear line of sight to its goals, the team is dedicated and fanatical about growing business the ShopClues way. We believe we have a very large addressable market, and have the right strategy, the right team along with the patience and resolve to achieve our goal of serving the middle Indian consumer with a trusted marketplace that provides them the largest selection at a low price point.
We are keeping our eyes on the ball – and will make it happen!!