The mad rush for GMV is over, says ShopClues CEO Sanjay Sethi

While the Diwali season turned into a battle between Amazon, Snapdeal and Flipkart; ShopClues, run by Clues Network Pvt. Ltd., has been quietly chasing profitability. The Gurgaon-based firm is confident of registering EBIDTA (Earnings before Interest, Taxes, Depreciation and Amortization) profitability in the second quarter of next year on the back of higher margins, increasing demand, larger pool of merchants and affordable price points.

The company, which aggregates merchants from the unstructured segment on its platform, claims to have the largest pool of vendors in the country. It targets the price conscious consumers in the middle-income group with annual household income of Rs 4 to 10 lakhs. ShopClues entered the unicorn club in January this year when it raised its Series E funding round led by Singapore's sovereign wealth fund GIC Pvt Ltd.

In an exclusive conversation with Techcircle, ShopClues co-founder and chief executive Sanjay Sethi talks about becoming the first e-commerce company to turn profitable, renewed focus on unit economics, the booming Diwali sales, and acquisition strategy to build seller capabilities.

Edited excerpts:

Could you tell us about how ShopClues is performing?

In the last eighteen months, a lot more sanity has come in the market. Before that, it was all about chasing the topline, and this came from the fact that GMV was being rewarded big time. But now it has become clear that this cannot go on for too long, and we are becoming reasonable. So these are good times, as the mad rush for GMV is over.

Q2 is always the slowest period of the year. If we compare Q2 of this year with that of last year, I believe only two companies have grown, Amazon and ShopClues.

Our approach has always been to go after what we call "India 2", which consists of 150 million people. Our marketplace is built for this consumer, who doesn't have that much disposable income and is very price conscious. They are not coming online for convenience, but for variability. So we provide products that are not available to them, wherever they are and at the price points they are comfortable with.

We now have over 5 lakh merchants, which is the largest aggregation of merchants anywhere in the country. Last year, it was 3.5 lakhs. Our goal is to enable the millions of small merchants in the country to compete against organized retail. We have a team of 80-odd people for merchant support. We also have a team to manage operations for the merchants. We also have a team of 50 people to provide technical support to merchants.

In the case of Flipkart and Amazon, their burden is to bring customers online and open up the market, while ours is to get merchants online, of which everybody is a beneficiary.

Why such emphasis on merchants?

Let's take the case of mobile phones, which is a structured category in the case of branded ones. For, if we get 500 merchants, we get the entire catalogue online. We don't need to get 20,000 merchants of the same thing. Same goes in the case of books, you get almost all books by getting a few publishers online, you don't have to get every bookseller online, because the incremental benefit to the market is very less. About 20% of our business comes from the phones category, but powered by 500 merchants.

Now compare that to fashion, especially non-branded. Fashion gives 25-30% of GMV, powered by 90,000 merchants. This is because there are no set catalogues here, this demand cannot be catered to by a handful of merchants, and you have to create a large selection. Then you have to keep them associated to the platform as well.

This is the reason why we do not see so much aggregation in Amazon, Flipkart, because they only serve the structured market and 20,000-30,000 sellers are enough for them.

Flipkart and Amazon are also catering to tier 2 cities now. Do you see competition from them?

The term tier 2 is slightly misunderstood. Just because a person is in tier 1, it doesn't mean he is driving a car, and in the same way if a person lives in tier2/3, it doesn't mean he is from a low-income group. It's a question of which consumer you are looking at in these cities. It is accurate to assume that tier 2/3 cities will have a larger proportion of middle-income group people. At least 25% of our business comes from tier 1 cities, but these are people with incomes between Rs 4 to 10 lakhs. This is the demographic of people we are targeting, which is present in all tiers.

How were the festive sales for Diwali season?

Diwali has been good for everyone, and I had no doubts about it. There was no reason for consumer confidence to go down. Television and feature phones did very well for us, at very low price points. This time, electric havan kunds were flying off the shelves. Usually, home and kitchen products do very well for us and are one of the highest grossing products, followed by lifestyle. Our brand awareness has gone up significantly, which helped us in these sales.

We are averaging 2.5 lakh units a day of the 45 days of festive season. Last year, the number must have been less than half of that.

The average ticket size is around Rs 2,000 during this season, but it is variable through the year. We will beating the Rs 1,500 crore sales mark by the end of the season, as all the teams are upping their targets by 20-30% looking at the response.

What is the profitability timeline for ShopClues?

We aim to attain EBIDTA profitability sometime in Q2 next year. According to my back of the envelope calculations, I think ShopClues will be the first e-commerce company to get profitable. We are 1/35th of the capital, but we are not 1/35th the size of the mark. This means that we have shown some capital efficiency, so I will be surprised if someone beats us.