Pepperfry is unique as it doesn’t restrict itself to being an online player, but straddles both the online and offline businesses. It has 36 studios across 20 cities, of which 26 are company owned and 10 are franchise studios. Its main competitor, Urban Ladder, on the other hand, only tweaked its business model and shifted from online retail to an online-offline presence last year when it launched its first experience centre in Bengaluru. Urban Ladder has raised nearly $103 million so far.

“The number two is far behind; it [Pepperfry] is a dominant vertical player; it is not just online… It has all the entailments of a large business,” says Pankaj Makkar, managing director, Bertelsmann India Investments. “When we came, we saw there were not many big brands in the segment, which is not the case globally. So there was place to create such a brand in India. There was an omni-channel strategy and it can be a number one player [overall].”

How did Pepperfry manage to carve out a niche for itself in a crowded furniture market? One big factor that has helped is that it has a carefully crafted business strategy and has stuck with it. In 2014, when Pepperfry opened its first studio, many were sceptical about having an online and offline model. They said it killed the whole point of having an online business: getting away from the hassles of real estate rentals, managing inventory, and manpower to run such outlets.

But Pepperfry had its own rationale. “We cannot play God. I cannot choose to let a customer interact with my brand only online. It’s every business’ duty to ensure that it is present wherever the customer wants it to be present and my customer is online sometimes, she is offline sometimes and she is on mobile sometimes. I will engage with her on any platform she is present on,” says Murty, co-founder and chief executive, Pepperfry, sitting in his aesthetically designed Mumbai headquarters. Every nook and corner of the office is done up with Pepperfry products in subtle colours. There is also an illustration on a wall chalking out Pepperfry’s journey so far.

The offline-online channel has been an integral part of the company’s journey. It started expansion through franchisees about six months ago and gets three franchisee requests a day. It will have 17 more franchisees in the next four months, and wants this number to touch 70 by the end of March next year. “As we started rolling out our franchisee network, we realised there was a huge demand for Pepperfry products in tier II and III cities,” says Ashish Shah. It is not just about geographical expansion; Pepperfry also intends to get into more high-margin product categories such as flooring. “Flooring is a natural extension of our supply chain. It is also an extension of our home proposition and it’s an area where we think we have the same ability that we had in the furniture market of organising unorganised supply,” says Murty.

Within the home furnishing category, it has identified mattresses as a $1 billion category in itself. It entered the lucrative Rs 6,000 crore mattress industry with the launch of its private label Clouddio this year. It has nine private labels across furniture and modular kitchen categories, and will introduce more such brands in bed-sheets and lighting. It is also working on private labels in the carpets and rugs segment. “Our private label focus will define the future for us. Today, half the business comes from private labels. Going forward, too, the focus on private labels will continue. Our private labels, however, will always be 50-60% of the business, while the rest will be brands which are not owned by us,” says Murty.

In its bid to expand its business, Pepperfry has entered two new streams—renting out furniture and exchange of furniture, mostly targeting consumers in the 22-35 age group. Pepperfry has a furniture rental service in cities including Mumbai, Bengaluru, Delhi, and Gurugram.

But business plans are never foolproof as Pepperfry has learnt in its journey. In 2012, after it launched the online platform, it noticed that one of the latest trends in furniture globally was distressed furniture. It launched a line of distressed furniture the same year, but several buyers complained the wood was cracked and they did not like the products. It took a while for the market to mature and demand for distressed furniture to grow; today, Pepperfry has an entire range called ‘Bohemi ana’. “We realised that there are perhaps stages to design evolution for customers. For us to start introducing something that customers have not evolved to appreciate might not be a right thing for us to do,” says Murty.

Also, in 2012, it used to rely on third-party logistics providers to ship orders. While Pepperfry’s promise was to deliver furniture to the customer’s doorstep, several logistics providers would leave furniture outside and tell customers it was their responsibility to take it in. Such complaints came mostly from buyers in high-rises where logistics partners found elevators too small to carry heavy items such as sofas. To ensure that it offers a seamless delivery experience, Pepperfry started building its own supply chain in 2013. Today, it has India’s largest business-to-customer big box supply chain with 18 distribution centres and more than 300 vehicles of its own. “They [the founders] don’t throw away money or burn cash unnecessarily. They take calculated risks and if, for any reason, it doesn’t work, they pull back,” says Niren Shah.

The calculated risks have paid off. The company is growing at a CAGR of 83%. In FY17, it clocked revenues of Rs 127.5 crore, a 30% jump from the previous year. Its losses narrowed to Rs 128.8 crore from Rs 154.9 crore a year earlier. For 2017-18, it expects a 30% increase in sales and a 40-50% drop in losses. Pepperfry, which has a user base of five million, is already profitable at the pre-marketing level. The focus now is on turning profitable in the next 12-18 months. “Pepperfry is at a huge inflection point. A few years ago we saw people moving from what were essentially stitched clothes to ready-made apparel. We are seeing the same shift next in furniture—people will move from making furniture to buying readymade furniture,” says Niren Shah.

So, what’s next? A public offering is definitely not off the table. With audits from KPMG and internal audits from EY, the company says it is ready for a listing. But it doesn’t have a date yet. With the world’s biggest furniture retailer, Ikea, gearing up to launch in India, thinking out of the box is the only option.

(This article was originally published in the August 2018 issue)

Ambareesh Murty

Pepperfry: Carving out a niche

Furniture retailer Pepperfry raises Rs 250 crore