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Furniture Rentals Customer Segments: Who is renting it? And are they profitable customers?

Online Furniture Market in IndiaOnce you own something, disowning it is not as easy as it sounds. I have an old laptop, water filter, bookshelf and an old air-conditioner which I don’t use willingly but I still own them. So, why don’t I sell them out – because selling out isn’t easy! You just won’t throw out your old fashioned (but in good condition) appliances or furniture just like that because you look for an inherent value out of the sale and it is difficult to get value in the second sales market. So, one usually ends up just using that old furniture or appliance until it becomes totally obsolete. However, the important thing to note here is that the owner has a desire and intention to get rid of it and get something new. Furniture or appliance rental services such as Rentomojo make it easy for individuals to keep up to date with the latest trends and yet not have the hassles of owning and disowning products. Let’s call these individuals as rental customers by choice as they like to keep up with the trend and they genuinely prefer to use rentals over ownership as a lifestyle choice.

In my point of view, rental customers come in two skins: rental customer by choice and rental customer by force.

  • Rental customers by choice are uptrend lifestyle customers who truly want different furniture periodically (say a year’s time) and who truly believe that owning, disowning and buying new furniture is a difficult way of living and opt for rentals as a lifestyle choice. These customers are not tied for money – these customers can buy expensive furniture paid in full, however, they don’t do so because they don’t believe in ownership.
  • Rental customers by force are customers who rent furniture because they lack the cash to buy the product in full or have a limited time in a city or are uncertain about their permanency in the city; they are not renting because of a  lifestyle choice; they are renting because it is an efficient option within the circumstances of limited budget, impermanence or uncertainty.

Rental Customer by Choice

The rental customer by choice will not have any post purchase dissonance after a few months of rental because rentals are his genuine way of life. However, rental customers by choice segment is a subset of lifestyle customers who want good looking furniture. So, for rental commerce companies the rental customer by choice is the most important customer segment, however, it is still a small segment in its size. Rental commerce companies should majorly focus category building activities targeting this segment.

Rental Customer by Force:

  • When you are uncertain about your permanency in the city – Type A
  • When you are sure that you will only use it for less than a year – Type B
  • When you are not willing to spend a bulk amount on furniture or when you are in a cash crunch and yet want to have good furniture in your house (you are a customer who is in a cash crunch) – Type C
  • When you don’t care to do the math of rent vs. buy and just look at your life one month at a time – Type C (same as previous)

The problem with a  rental customer by force is that this customer will have a post-purchase dissonance after 8-9 months when they realize that they paid the entire cost of the product and they actually don’t own the product. Additionally, they actually have to pay rentals to continue using the furniture. It is at this stage that these customers feel that it is principally wrong of the rental company to not let ownership when he or she has practically paid for the value of the product. This feeling of immorality and injustice causes people to default on future payments and return the product. Refer this link to actually see a live example of this situation. To cater to these customers’ dissonance, rental commerce companies should provide a rent-to-buy option or an option to have credits that can be used to buy other furniture, credits that accumulate with increasing number of monthly rentals paid. Of course, the company can say that it is well known to the customer that there is no rent-to-buy option when the customer is renting the product itself. However, a rental customer by force never knows very clearly how he or she is going to feel about the furniture after paying certain monthly payouts. This causes dissonance in the customer because the customer was not driven by choice in the first place and, therefore, it is only justifiable for the rental by force customer to ask for an option to own the product. Type A and B customers specifically might look for options to own the product after a certain a period of rentals. The option-to-own the product should be available to customers at any point of time of rental, removing the post-rental dissonance in the customers and providing that extra convenience to convert the same furniture from rental to own.

How are these customers different in terms of what they want?

RentalCustomerSegments_Brandalyzerdotblog

Service levels and great designs are important for rental customers by choice, whereas affordable pricing is the most important attribute for rental customers by force. Balancing these customer attributes through right selection, product design and pricing is crucial to the success of rental commerce.

Rental companies should check the proportion of these customer segments for profitability

Rental companies should look at the proportion of these customer segments for profitable unit economics. On the outset, rental customer by force seems to be a large segment of customers for most rental commerce companies. If a large proportion of these customers are those who are type A & B, then it is good for rental commerce companies as this is a healthy and profitable customer segment. But, if a large proportion of these customers are those who are of type C customers then there will be frequent cancellations of rentals, leading to several operational cost inefficiencies.

Furniture rental is a business with several operational complexities such as costs of delivery and pickup of big boxes, damages while delivering and picking up, damages during the rental period, large working capital requirement and high lead time to delivery from manufacturers (leading to high inventory position). While the margin in furniture retail is a healthy 20-25%, online commerce is still to crack it in a profitable manner at scale due to high customer acquisition costs and operational costs. On this backdrop, it is not easy for rental companies to chalk out profitable unit economics if the majority of their customers are from Type C.

Rental commerce companies might be going into a danger zone of acquiring non-profitable customers in the run for higher revenues and valuations. This high adrenaline run to acquire customers can work for e-commerce sale companies such as Amazon and Flipkart – the type of customer doesn’t affect these companies’ finance directly as the entire value of the product is recovered on sale (even on EMIs). Contrarily for a rental company, the customer is not paying the entire product cost and therefore managing product returns is threateningly crucial for rental commerce.

Top 9 online furniture rental portals in India shows the various top portals to rent furniture in India. Indian online furniture rental market is in a huge rage with several startups mushrooming across metros and each of them is in a huge customer acquisition spree. Only time will be the proof of what will happen in this market!

Thank you.

 

Top 9 online furniture rental websites/companies in India

The Indian online furniture rental market, including furniture, home decor, and appliances, is estimated to be a $1.5 to $2 Billion market by 2020. This is only a fraction when compared with the overall furniture market size of close to $32 Billion. With millennials increasingly becoming mobile in the way they live and work, renting furniture is starting to become a major trend in India – especially in the top 8 metro cities. Renting can be better than buying for those who don’t want to root for long-term use of the furniture, who don’t want the hassles of owning and disowning products and who want to experience cool furniture without spending a huge amount in one go.

Renting furniture or appliances is not entirely new to Indian consumers as local vendors have always been offering rental services. However, online portals such as Furlenco and GoZefo really deliver well designed, artistic, ambient-creating furniture and convenience at an affordable monthly rental. Let’s check out the various furniture rental options available for Indian consumers. Below are the top 9 e-commerce companies where one can rent furniture online in India.

  1. Furlenco (http://www.furlenco.com)
  2. GoZefo Rentals (http://www.gozefo.com/zefo_rental‎)
  3. Rentomojo (http://www.rentomojo.com)
  4. City Furnish (http://www.cityfurnish.com)
  5. Rentickle (http://www.rentickle.com)
  6. Fabrento (http://www.fabrento.com)
  7. GrabOnRent (http://www.grabonrent.com)
  8. RentOnGo (http://www.rentongo.com)
  9. Guarented (http://www.guarented.com)

 

  1. Furlenco

Furlenco.PNG

Furlenco was the first brand to start this category in India and is the market leader in the category. Furlenco has the best collection of furniture among all rental websites in India and is operational in 7 cities – Delhi, Mumbai, Gurugram, Noida, Bengaluru, Pune, Hyderabad.

Highlights

  • Free pick and drop facility.
  • One free servicing
  • Damage coverage of up to Rs.10000
  • Free relocation of products.

2. GoZefo Rentals

GoZefoRentals.pngGoZefo is one of the largest online sellers of refurbished furniture and appliances in India. GoZefo buys unboxed customer returns or distributor returns from other partners and re-sells them on its platform. It has various categories of the product condition such as unboxed plus, unboxed, like new, well used and gently used. In April 2018, GoZefo started offering rentals in partnership with Rentomojo on all its inventory.

Highlights

  • Wide selection
  • Buy-back guarantee
  • Offers the option to own the asset
  • Value for money as assets are differentiated in price basis the condition

 

3.  Rentomojo

Rentomojo.png

Rentomojo is a platform known to rent not only furniture and appliances but even bikes and fitness equipment. It is not only a rental platform, but also offers customers an option to own the product through its rent-to-own offering.

Highlights

  • Free relocation
  • Rent to own
  • Furniture swaps
  • Rental Bikes

 

4. City Furnish

Cityfurnish.png

CityFurnish is a rental website that offers selection including furniture, appliances and fitness equipment. Moreover, it offers excellent packages such as IPL package, Living Room package, etc. CityFurnish is really known to be budget friendly considering its low rents.

Highlights

  • Free cleaning services and maintenance
  • Budget friendly (mostly targeting students)
  • Rent to own option is available

5. Rentickle

Rentickle.png

Rentickle is a one-stop shop for easily renting furniture, appliances and other home furnishing essentials. It is based out of Delhi and operational in Bangalore, Delhi, Gurgaon, Noida, and Hyderabad.

Highlights

  • Upto four months free rental
  • Free relocation
  • Free maintenance
  • Online chat with customer care
  • Easy returns

 

6. Fabrento

Fabrento is another furniture rental company providing both rental and rent-to-own option to customers.

Fabrento

Highlights

  • Rent-to-own option
  • Separate New Arrivals section and option to swap your furniture with new arrivals
  • Wide range of packages

 

7. GrabOnRent

grabonrent.png

GrabOnRent rents everything under the hood from furniture and appliances to computers and bikes. Launched in 2015, GrabOnRent is operating in Mumbai, Bangalore, Gurgaon and Hyderabad.

Highlights

  • Rent-to-own option
  • 24 hour delivery
  • Free maintenance
  • Cash on delivery

 

8. RentOnGo

RentOnGo.png

RentOnGo is a Bangalore based company popular for renting bikes and adventure equipment. However, it has started in furniture, appliances and other electronics too. The website has a separate section for two wheeler rentals.

Highlights

  • Adventure equipment rentals
  • Wide range of categories from vehicles to guitars
  • Free maintenance and swaps

 

9. Guarented

Guarented.png

Guarented is another furniture rental company offering similar rental services. The website looks clean and has a good range of products within the budget for all customer segments.

Highlights

  • Rent-to-own model
  • Combo Offers
  • Free Swaps within same price range

 

Hope this is helpful! Thank you.

MFN vs FBA vs 3PL – Different types of Amazon sellers

There are broadly two types of sellers on Amazon distinguished by the delivery models.

One set of sellers stock their inventory in Amazon warehouse and list the product on the website and, as and when there is a customer order, Amazon will directly ship that product to the customer from Amazon’s warehouse. This model is called as Fulfilled by Amazon (FBA) and Amazon charges the seller for some FBA services such as customer delivery, warehouse charges, website listing services, etc.

The other set of sellers use something called as the Merchant Fulfilled Network (MFN). In this case, the seller will not stock the inventory with Amazon and, instead, the seller stores the stock in their premises of business itself. The seller orders packaging material from a vendor and, as and when there is a customer order, the seller packages the product on Amazon packaging material and ships directly to the customer using some delivery services. In this case, the seller is only taking the website listing service and only pays to Amazon the commission for the listing service.

On the outset, it may seem that sellers should choose to be an MFN seller to get more margin out of the sale. However, Amazon has multiple programs for FBA sellers and the standards of service for FBA is extremely high such as 24 hours delivery or same day delivery, cash on delivery option, buy box winner, etc. These options make FBA an extremely attractive option for a seller; there is a significant increase in sales for an FBA seller of the same product as compared to selling on MFN. This is because of the customer trust in the brand name Amazon and the trust in the delivery that Amazon has verified this and is assuring the quality of the product as compared to it being delivered directly from the seller.

One of the most popular sellers on FBA is Amazon itself selling and taking the services of FBA. So this seller is usually called as the Retail seller and all the other sellers are called as 3P sellers (including both FBA and MFN – non-Amazon but other outside sellers). Hence, we arrive at three different types of sellers while referring to Amazon sellers.

Thank you.

Intention vs. Action – which is more important?

As humans, we are emotional animals and therefore we always assess the intentions of people in our daily lives. A small collision on road, a person jabbing in the train, a slip of ball out of hand from a player, etc. are all examples where we take a judgment on what was the intention behind the action and forgive the actor. So, it is not that intentions are not important, they are very important and we use them a lot to judge people. Then, why do we hear so much about this intention vs. action argument?

In situations where results matter a lot (either personal or professional), it is very important to measure magnitude or intensity of a result or the action. Otherwise, how else would you make progress. And that is where intention falls flat!

The problem with intention is that the intensity or magnitude of an intention cannot be measured. You will never know how intensely did somebody have that intention. On the other hand, you can always measure the magnitude or intensity of a result. In our professional environments, results matter a lot and therefore actions matter much more than intentions, and hence all the noise about intention vs. action.

Thank You

ROI of a distributor or supplier – business turnover, margins and rotations (in e-commerce and FMCG)

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Retail excites me a lot because it is a simple business of buying and selling goods and yet it covers almost every complexity under the sun. It has a complex supply chain from raw material to finished goods, yet seeming so simple and convenient when we add items to our shopping cart in offline and online stores. One of the most interesting aspects of retail distribution is the calculation of return on investment by various stakeholders in the supply chain.

If you are a manufacturer, you will witness both suppliers upstream and the distributors downstream investing in your business. Suppliers setup factories, invest in raw materials, labor, technology, etc. for your products. Similarly, distributors or retailers buy your finished products, invest in warehouses, technologies and partner with you in distributing the product to your end customer. Both these stakeholders invest capital in making and/or distributing your products and will look for profits in doing so. While IRR is probably the most sound way of calculating the ROI of an investment, most distributors and suppliers you meet always do a quick back of the envelope ROI calculation and it is never far away from the IRR(internal rate of return) method in its results and is really cool to work with suppliers and distributors on the various parameters that go into it.

“Across all kinds of investments, ROI is more common than IRR, largely because IRR is more confusing and difficult to calculate.” – Investopedia

As businessman, all vendors, distributors and retailers are interested in the return on working capital employed (ROWCE). After all there is only so much cash in the bank! Distributors and vendors are concerned about two key aspects: profit and cash – maximize profit by minimizing cash requirement. ROI can be increased by increasing profit and by reducing investment requirement. Increasing profit can happen by increasing sales revenue or by reducing expenses and in expenses cost of goods sold (COGS) is the major component that is focused on. However, one has to check all other retail components such as goods returns, payments, transportation charges and other options to reduce costs.

But more important than anything in business is CASH. Vendors and distributors want cash to 1). hold inventory and 2). extend credit in the market. As the turnover starts to increase, the inventory requirement starts to increase and credit requirement in the market increases. This increases the cash requirement for vendors in the market and blocks lot of capital in the market. As inventory requirement increases, there are advantages of ordering full truck loads (FTLs) and holding the inventory for shorter periods of time too, but it depends a lot on category lead times. Therefore, distributors are always on top of their ROI calculations to keep a check on their business situation.

Let us look at various cases to understand ROI calculations:

Case 1:

You are buying a product at Rs.100 on day 1 of the month and you sell it to another stakeholder at Rs. 110 immediately. The stakeholder will give you the Rs. 110 exactly after 1 year. What is your return on this business? Simply put, the answer is Gross Profit/Investment = 10/100 = 10%. The formula is also nothing but (earnings – expenses)/(investment).

Case 2:

You are buying a product at Rs.100 on day 1 of the month and you sell it to another stakeholder at Rs.110 immediately. The stakeholder will give you the Rs.110 exactly after the end of one month. What is your return on this business? You  100 rupees in inventory at the start of every month and you get Rs.110 at the end of the month. So, I make Rs.10 every month and that multiplied by 12 times for 12 months makes it a return of Rs. 120. Return of this business is 120/100 = 120%

The difference between case 1 and case 2 is not in the margin percentage but in the number of rotations of the invested capital. It is actually about margin * number of rotations of invested capital. In the first case, the margin is 10% and the number of rotation of invested capital in one year is only 1 – hence 10%*1 is the return. In the second case, the margin is 10% and the number of rotations of invested capital in one year is 12 – hence 120% return.

But, when you meet a supplier or a distributor, he will tell you that he has invested in a special account manager for you, a special warehouse for you, a special machine for you, etc. So, there are direct and indirect expenses. It is important to break-down the vendor or distributor’s  expenses and account it correctly. The formula comes down to ((Gross Margin)*(Number of rotations of invested capital) – (Expenses direct/indirect))/(Capital Invested)

While the cunning business guys always tell you that they’ve invested in warehouses, human resources and machinery only for you, typically they will always serve more than one customer or vendor. So, it is important to understand their overall business value and your contribution to that and take expenses in proportion to that. If a supplier is supplying to 3 customers and you are contibuting to 40% of their business. It is safe to say that you should take 40% of the human resources, depreciation of the machinery, etc. into the expenses and not the entire expenses of the human resources and depreciation expense.

Case 3:

You are buying a product at Rs.10 and selling it at Rs.11 immediately. The Rs.11 is given to you after the end of the third day of the sale. However, in this business, you have to invest in a machine worth Rs.36 and has a lifetime of 3 years. Return is ((10%)*(number of rotations is 120 because you are getting money every 3 days) – (depreciation expense of Rs.12 for the first year – straight-line depreciation method))/(Rs.10 as capital invested)

The important thing is you don’t take the entire 36 rupees invested in the denominator. Most suppliers and distributors will do this in their calculation when they discuss with you. But, that is sitting as an asset in the balance sheet with only depreciation as an expense coming into the profit and loss calculation.

Case 4:

Let’s take a new case. At the start of the month, you bought Rs.200 value of a stock. You are selling Rs.100 value of stock every month to another stakeholder and that stakeholder gives you Rs.110 at the end of one month. The return of the business is: ((Rs.10 profit*12 times) – (direct/indirect expense))/(200). If I ignore expenses for a moment, your return has dropped from 120% in case 2 to 60% straight. This is because of the Rs.100 capital invested in the stock that has not moved for the entire year. Your return on investment drops by the ratio of the non-moving stock (or non-rotating capital) to the overall stock (overall capital) invested. You might think that the Rs.100 non-moving inventory should not be entered in this calculation and instead, it should sit on the balance sheet (as inventory under assets). However, that is not true for stocks that are not being sold for such a long time. In fact, many companies start taking only 85% of the value once it is not sold for 3 months and 60% of the value once it is not sold for 4 months. This is assuming that one needs to give steep discounts to sell something that is not sold for such a long time and the inventory is losing its value in the warehouse because of natural depreciation, wear and tear, theft and outdated technology. However, this very much depends on business to business and product to product.

Case 5:

You bought Rs.100 of stock at the start of the month and you sell it to another stakeholder. You will get Rs. 110 from that stakeholder at the end of two months from the sale. This means the return is: (10% margin)*(6 rotations) = 60%, a drop from case 2 primarily because of the reduction in number of rotations.

Case 6:

In the above case if the Rs.100 is taken from a loan then the investment is only the interest paid and not the entire amount of Rs.100. Distributors and suppliers would again include the entire amount as a common trick.

A healthier ROI for most suppliers and distributors ranges between 25-40%. From the above cases, we learnt that the product margin is important, but rotations of capital invested in inventory and how much investment is needed matters a lot in retail.

The number of rotations of capital invested in inventory for a period is calculated as 365 divided by (the average number of days of inventory held during that period). In cases where it is complicated to calculate the average number of days of inventory, closing inventory for the period is used as a proxy.

In case 1, you would want to improve in rotations. If your rotations are good, you would want to improve on margins. If both margins and rotations are good, then you would want to improve on overall business volume.So, profits are about the business volume, absolute margins, the number of rotations of capital and the capital in rotation. It is not just about margins, it is about how much money is required to invest and how many times can someone rotate that money.

Thanks