Double-whammy for luxury goods sellers: no buyers, no funders

Updated - January 16, 2018 at 01:45 AM.

Cash crunch has led to 25-40%drop in sales

The segment has never attracted significant investors and with demonetisation, raising funds may become tougher

Aashana Taneja, a housewife from Delhi, had booked a Tory Burch clutch from luxury site Darveys just days before the unexpected announcement of demonetisation. She paid an advance of ₹15,000 in cash for the ₹30,000 clutch, which was to be shipped from a New Jersey-based store. But, after receiving the product, she did not have enough cash to pay the balance amount. Most luxury sites sell goods on CoD (cash-on-delivery) mode; Darveys suffered a loss from the transaction as it had to re-ship the product back to the seller.

“Our software system was not prepared, and we had to incur a loss due to ‘return-to-origin’ of the product. Almost 80 per cent of our orders are cash-on-delivery, and orders like the one made by Aashana Taneja had to be reshipped and the import duties had already been paid,” says Nakul Bajaj, founder and CEO, Darveys.

Most luxury goods are bought with cash, and demonetisation has led to 25-40 per cent drop in sales for luxury sites such as Darveys, Luxepolis, Envoged and Confidential Couture.

‘Herculean task’

“We are trying to incentivise with cash-back offers as it has become a Herculean task to ask customers to pay online since majority of the sales has been through CoD. Today, our sales are down 40 per cent, and raising $2 million from investors may not come easy in this environment,” says Vijay KG, Founder, Luxepolis. The luxury segment has never attracted significant investors and with the category getting more impacted than the rest due to its high discretionary quotient, raising funds may also become tougher for most of the bootstrapped online players.

“There was anyway not much interest from institutional investors in the luxury segment and with demonetisation, many players in this space might be forced to shut shop or consolidate like in the case of Elitify.com,” observes Vijay.

Others like Envoged have also been struggling to sell pre-owned luxury goods such as bags and accessories. “The CoD side of the business has plunged nearly 50 per cent. It will get difficult to raise funds in this environment,” says Manisha Barnwal, co-founder, Envoged.

Affordable luxury portal Art and Decors is also not hoping to get on board investors very soon. “We have been bootstrapped and expect to remain that way as luxury does not attract enough investors since the segment does not have much scalability. In reality, most Indians do not understand luxury, and with demonetisation, there will be more players who may end up folding their operations,” says Divyan Gupta, CEO, Art and Decors.

Meanwhile, other bootstrapped players in luxury, such as Confidential Couture and Secret Dresser, have been trying out ways to lure consumers with various schemes. “Despite dealing in pre-owned luxury products, we were giving additional 5-10 per cent discounts during the time demonetisation was announced,” said Dimple Mirchandani, founder, Secret Dresser.

Published on December 14, 2016 16:56