Competition means market growth

Price comparison is difficult in an unorganised market like furniture,

What impact will three developments from last year — Ikea’s entry, Flipkart’s announcement that it too will enter organised furniture retail and your own expansion plans of having more than 70 stores by the end of this year — will have on costs and your dominant position in the market?

The Indian furniture market is $38 billion and only 8-9 per cent of that is organised and in that sense, it is different from other consumption categories. The top five brands of mobile phones own 80 per cent of the market share but if you do the same calculation for the furniture market, the top five furniture companies of the country would not have more than 3-4 per cent market share. That means over time, more people will start buying furniture from the organised players because the opportunity is very big. So when we talk about Ikea — and many more international companies may come later — what they do is that they generate a lot of interest in the category and all of us stand to gain. With more players, consumer interest to buy products from brands goes up significantly. Fashion is also very fragmented. Furniture is a non-branded business category compared to any other consumption category. Like groceries, you buy it from the local carpenters. When Ikea opened their store in Hyderabad, the footfall in our Hyderabad stores went up by 100 per cent.

Also, three years back, Pepperfry was the only company that used to spend money on advertising about furniture. As many more people come to talk about furniture, the interest in the category goes up. In fact, we will have to spend less on marketing now. What we have done in the last three to five years is ensure that when it comes to furniture in India, people know pepperfry.com.

Do you foresee a round of discount war with competition intensifying?

This category is not price sensitive from the standpoint that you cannot compare prices between five companies unlike a high-end phone from two different places, you can compare prices already knowing what are you going to get and the guarantee/warrantee on the product is from the brand and not from the retailer. But in the furniture market, because we are fragmented, our prices cannot be compared and therefore comparing my prices to something listed on Flipkart or Ikea is not easily possible.

The average order value (AOV) through the online channel is ~7,000, about a fourth of that through studios. What explains this wide gap? Are people conservative when it comes to ordering expensive products online or is it that studios manage to convert more consumers?

There are two reasons why AOVs are higher from studios. One is that furniture is a large-ticket purchase and therefore people consult experts before they make a decision. Our studios are run by architects and designers and therefore, they provide expert advice and build confidence in the customer who ends up buying a lot more that she had initially intended. Second is that since I am interacting with the customer, I am able to cross-sell and up-sell.

How much has furniture rental contributed to your overall business?

Rental furniture is not something we pay a lot of attention to. My customer segment today comprises those between the ages of 30 and 65 years but what the rental segment allows is to help us reach those younger in age, typically those who have just moved to a new city and need their first two pieces of furniture. Therefore, we don’t evaluate rentals from the return on investment point of view but through it, we are able to capture customers early in their life so that they can buy from Pepperfry sometime in the future.

There is a growing set of consumers who are showing interest in renting rather than buying, thus helping players such as RentMojo grow. Isn’t it?

Definitely. We are renting out furniture in 11 cities and we have the largest catalogue of furniture on rent. So I am not saying that it isn’t a big business opportunity but smaller than what we otherwise do. For Pepperfry, it’s a small portion of the revenue given the scale at which we operate but for RentoMojo etc, it is their core business. Also, the lifetime value of a customer in the rental business is very low.