ShopClues Delays IPO Due To Turmoil In Indian E-Commerce

Analysts may have forecast lofty growth for Indian e-commerce till some time back when they forecast an industry worth $60-$100 billion by the year 2020. But recent reports suggest that the medium-term future may not be as rosy. After recording a stellar 180% growth in 2015 to $13 billion, the industry grew a modest 12% last year to $14.5 billion. The slowdown has caused some of the Billion Dollar Unicorn club members in the sector to delay their listing plans.

ShopClues’ Financials

Gurgaon, India-based ShopClues was founded in 2011 in Silicon Valley by Washington University alumnus Sandeep Aggarwal, eBay’s former Global Product Head Sanjay Sethi, and IIT alumnus Radhika Agarwal. ShopClues operates as an online flea market that focuses on high-margin unbranded products within the fragmented and unstructured retail in India. Its products have helped find itself a niche in the Indian middle-class, small town consumer. It claims to have a merchant base of more than 350,000 retailers, primarily within the Tier II and Tier III cities.

ShopClues does not disclose detailed financials, but reports reveal that it had reported annualized gross merchandise value of $1.2 billion for the fiscal year ended March 2016. It earns revenue by charging a marketplace commission from merchants for products sold through its website. The commission ranges from 4% to 17% based on the nature of the product sold. Revenues are estimated to have come in at INR 179 crores (~$27.5 million). For the calendar year 2016, revenues are estimated to have grown 200% and losses reduced 400%. ShopClues’ recent revenues are not known, but based on its 200% growth figures, 2017 revenues should be close to $80 million. Historically, the company is known to be profitable at the gross margin level – quite unlike others in the field. ShopClues has been focused on margins by avoiding deep discounts like Flipkart and Snapdeal to woo customers. Overall, it is still losing money, but it believes that it has been able to cap its cash burn.

ShopClues has been venture funded and has raised more than $200 million so far from investors including GIC, Tiger Global Management, Nexus Venture Partners, Helion Venture Partners, and LionBird. Its last funding round was held in January last year, when it raised an undisclosed sum from GIC and existing investors Tiger Global Management Corp. and Nexus Venture Partners at a valuation of $1.1 billion.

ShopClues was earlier looking to list on either the US or Indian stock market at the beginning of the year. But given the current market conditions, it has decided to delay it to the end of the year. I am skeptical about the company going public in the US at the estimated revenue levels. It may be reasonable to go public in India though. Currently, Flipkart is causing immense heartburn among e-commerce investors, and delaying, and getting as close to profitability as possible are both astute moves. It also needs a strategy to fend of Amazon post-IPO, otherwise, investors won’t engage.

ShopClues’ Focus

For the current year, ShopClues is focusing on Fashion. It hopes to gain market share by dividing fashion into two blocks–branded and unbranded and it is focusing on winning the unbranded, local, regional fashion market. But fashion may not be an easy industry to break open. Flipkart already has a notable presence in the industry through Myntra and it offers 14 private label brands on the site to help build a loyal customer base. Amazon too is improving its focus on fashion through the launch of private label brands on its site along with Echo Looks – a tech platform that integrates Alexa with a hands-free camera and machine learning algorithms with advice from fashion specialists.

Another category it is working on is the Refurbished and Unboxed Electronics ranging from mobile phones, computers, and appliances. The warranty for these products will be provided by the merchants. ShopClues will be launching a lot of smartphones in the under Rs. 4,000 (~$61) category in the form of unboxed phones.

ShopClues is not worried about rising competition from giants like Amazon. It believes that it does not have a direct competitor because it is focusing on smaller cities where major brands like Puma and Adidas have not yet made big inroads. While ShopClues may not think of Amazon as a direct competitor, it should still worry about Flipkart and Snapdeal. The merger between the two is expected to get the nod this week. If the merger goes through, the combined entity would become the largest domestic online retailer in India.

I like the fact that ShopClues has a somewhat more differentiated strategy, both in terms of their merchant community, as well as the under-served regional markets. What they will need to take into account, however, is that Amazon WILL become a force to contend with in due course, no matter what. Those very merchants whom ShopClues has diligently educated to come on the Internet and sell their products online, are rapidly becoming savvy about leveraging multiple online outlets. In America, almost ALL e-commerce merchants sell on ALL the major platforms. So assuming that 350,000 retailers will remain exclusively tied to ShopClues displays a false sense of security. Amazon will disrupt the market very decisively in the next 2-3 years, and ShopClues, like Flipkart, needs to also think of private label products to secure exclusive positions that would keep a loyal customer base coming back to them. For ShopClues, this may mean that they need to acquire some of their power-seller merchants who have differentiated products that can hold consumer attention. Otherwise, online consumers are a terribly fickle bunch. They will go wherever they find the best deals, the best user experience, the best logistics support. The only way they will stay loyal is if there is a product that they want and cannot get elsewhere.

Meanwhile, the company is dealing with some leadership strife. Recently, co-founder Sandeep accused the other two founders, his wife Radhika and Sanjay Sethi of denying him his rights as a co-founder and the largest individual shareholder of the company. The allegations are still being responded to. Not a great time to be distracted, as the company really needs to navigate with a steady hand.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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