It is now clear that India has two large online marketplaces, Amazon and Flipkart, with Paytm and Snapdeal losing steam in the last five years. All these platforms have largely grown in size with electronics being the major contributor and the primary reason for the consumer-pull (with discounts on top brands). Electronics, followed by other prominent categories such as Fashion, is still the frontrunner of the gross merchandise sales for these marketplaces a.k.a. platforms.
Recently, these marketplaces started to focus on even the traditionally non-online categories such as Furniture. Flipkart, for example, has heavily advertised and focused on this category and started developing a few in-house brands. But, furniture is largely unorganized in India with 90% of the overall market size (Rs. 120,000 crores) coming from the unorganized segment (India Furniture Market – Online, Offline). The dynamics of the market and the availability of choice is not consolidated within a few brands as that in electronics. So, as these marketplaces start to warm-up, they face four key challenges in the Furniture category as mentioned below.
Four biggest challenges for Furniture e-commerce marketplace:
- Bringing Selection To The Marketplace: Furniture as a category doesn’t have established large-scale, high salient brands such as the likes of Apple, LG, Samsung, and Sony or the likes of Xiaomi and OnePlus. Therefore, in order to bring large selection onto the marketplace, the marketplace has to first find a large set of sellers who will come and list their selection. Since these brands or sellers are largely unknown and are prone to quality issues, it then becomes imperative for the marketplace or platform to develop in-house brands like what Myntra did for clothing. However, developing in-house brands is not very scalable and easy. Therefore, the marketplace has to co-create the in-house brand with a lot of vendor partners and design partners with shared royalty. This eventually drives the marketplace to have a P&G type of “House of Brands” strategy for the category. So, essentially 50-60% of furniture selection on the marketplace will largely be driven by 80% of third-party small sellers and the remaining 40-50% of the selection will be driven by managed sellers through in-house brands.
- Supply Consolidation: Unlike electronics, Furniture manufacturing is not within a few players. Supply is too fragmented in the Furniture category with the size of the largest players not being more than 1000 crores in revenue and the overall sector market size being 120,000 crores. In fact, the average Furniture manufacturer doesn’t have a turnover of more than 300-400 crores. Therefore, consolidating the supply is a key challenge. The market is proliferated with small unorganized suppliers who are not reliable and with no established quality standards. Therefore, supply management is not about going and discussing with vendors on commercial terms, exclusives, deals and end-of-lines (EOLs), it is also about visiting their facilities and understanding their capabilities at a core-level w.r.t. materials used, machines deployed, the output produced, quality standards adhered, etc. and about ensuring that they are not cutting corners. A lot of education also needs to be provided to the vendor about how the marketplace operates and how we have to work backward from the consumer in all aspects of category development.
- Demand/Customer Acquisition: As if the supply-side challenges are already not enough, the category also faces a huge challenge to break the traditional buying pattern of experiencing the furniture through touch and feel in the nearby retail stores and smaller unorganized sellers in the neighborhood. Driving people to buy furniture without making them to sit on the sofa or touch the wood is a big consumer behavior to be changed. Marketplaces are driving this through guarantees on returns, lower prices, better brands, delivery value, next day delivery, exchange, buy-back schemes, etc. The wheel has started to turn and the demand is getting driven towards the organized marketplaces, although the share of the market is just minuscule.
- Installation Service/Pincode Coverage: Furniture has two broad sub-categories: furniture that requires assembly and furniture that doesn’t require assembly. Typically, the marketplace delivery arm delivers the furniture and an independent service partner reaches the customer for installation and assembly service. Therefore, furniture that requires assembly as a category has a huge constraint of pincode coverage primarily due to the limitation of the reach by service partners. Again, this needs to be solved by adding, consolidating and building large scale service partner for installation. Currently, marketplaces (managed sellers and long-tail sellers) use players such as ‘Jeeves’ for this service, however the marketplaces are in a need for several other service players of the scale of Jeeves in order to support the potential of this category to become an organized online category.
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