Value e-commerce company Snapdeal filed its DRHP on Tuesday. The company is looking to raise around ₹1,250 crore from the IPO.
In an interview with
If you think about the internet sector, including e-commerce in India, it can be divided into pre-2017 and post 2017 eras. Pre-2017, there were around 150 million internet users from urban areas. Post-2017, we added 800 million users, especially in the smaller towns of India. They were all very aspiring low to middle-income consumers. When they first came online, they used internet for communication and WhatsApp; then, they moved to entertainment and content. It’s only after that they started engaging with commerce.
It’s also evident what their expectations are from e-commerce. Their expectations are not expensive brands; they are looking for affordable high-quality selection, where it can’t be a hit and miss. They are incredibly aspirational as they consume the same content as you and me, the same Hollywood and Bollywood stars. It pushes their aspirations around how they and their families should look. Their houses should look like the equipment they use in their kitchen, but their income is not growing.
That’s where we have come in, creating a business which is sharply focussed on catering to the needs of these value-conscious consumers.
How do you define value segment, and how has Snapdeal’s journey been into it?
Our average order value on our website is ₹450. Around 95 per cent of what we sell is below ₹1,000. Eighty-five per cent of our customers are outside metros, and 75 per cent of it is even outside tier-2 cities. These areas have one million or even fewer population. We have covered 98 per cent of pin codes, and we are deep in the market.
While consumers want affordability, they don’t want bad quality. They want great quality low price, which requires sacrifices and strategic decisions for companies like ours. Over the last three years, we churned out about 75 per cent of our selling catalogue to get customer ratings to go up from 3.2 on average to 4 out of 5 points. This has been a considerable movement. We saw that if you are selling branded products, it’s okay, because the brand is taking up the onus of ensuring quality. But when you sell small manufacturer’s items and unbranded products, you can’t leave the quality decision to suppliers or the consumer picking the right rated product.
Because, if a consumer buys a 3-rated product on our platform, they don’t say they made a mistake but would say Snapdeal has sold them the wrong product. In contrast, if a Nike shoe bought from Amazon wasn’t great, the customer will blame Nike directly.
I suppose this is where your ‘power brands’ come in…
Exactly! We first churned out bad quality products and tried to improve the acceptability rate on the platform. Secondly, we worked with a select group of curated and qualified suppliers, where they are willing to meet the bar on quality, where 80 per cent of our products come from 1,000 suppliers.
Power brands are very critical and strategic for our business. This has been the journey of every value lifestyle retailer; they have gone from selling other people’s products to increasingly creating private labels or power brands. For us, it’s the same manufacturers who are right now suppliers on our platform, but we tell them to make it under a brand, for instance, Hometales, where the bar on quality is even higher, and the prices are attractive. We have embarked on this journey relatively recently, but it’s showing excellent traction. Hometales has become the top brand on our platform, and suppliers are equally happy due to more sales.
The other challenge in this business is how to make the fulfilment cost work. On the one hand, it sounds exciting to serve Bharat, but you need to make your unit economics work. You can’t have growth at any cost, and in this business, the supply chain costs are considerable as a per cent of the value of the item you sell. So, we created UniMove, our logistics platform.
We realised our volumes are significant enough, we are shipping tens of millions of orders every year, and we don’t need these large logistics players to shield us from the complexity. Instead, we could directly reach out to the same downstream partners, they are getting the orders delivered from across three key lanes of an e-commerce supply chain, which includes first mile (pick up from the supplier), line haul (inter-city delivery in bags) then the third lane is last mile (disaggregation of the bags and delivery to the customer). We went to specialised players in each segment and offered our technology UniMove and our process. We will define the SOP (standard operating procedures), and dedicated fleets will work for us. This way, the utilisation goes up, and the cost comes down per unit, and we have significantly reduced our costs over the last two to three years.
Also, due to operating in high margin categories like fashion, beauty and home, at a lower cost of fulfilment, we have been unit economics positive over the last four years.
Tell us more about your omnichannel strategy. What’s the update there?
Like other categories, I feel the value segment too has a strong case for omnichannel presence because 90 per cent of our customers and market will be offline for a long time. We already have a lot of capabilities around merchandise, curated suppliers, intra-city logistics through UniMove, endless aisle through our entire digital catalogue and Unicommerce, the largest warehouse and omnichannel management solution in the country, is our subsidiary. Lenskart’s omnichannel also works on it. Through this, we will be able to reach the remaining 90 per cent of the market. So far, we were only targeting the 10 per cent coming on our e-commerce platform.
During the pandemic last year, we have been very conservative. Especially our segment and customers, many of whom didn’t have money to eat, unlike Tier-1 people. We raised our margins a bit and reduced our marketing costs considerably. But once we knew we were coming out of this, we went back on track.
Do you see power brands creating a point of contention when the new e-commerce rules come into play?
We have no single supplier concentration issue. None of our suppliers have more than 2-3 per cent concentration on our platform. The government doesn’t want one or two sellers on a platform accounting for 50-60 per cent of the sales. That’s the biggest contention, everything else are fringe matters.