Online Furniture & Appliance rentals have gained a lot of popularity in India especially in the big metros. The market is dominated with top players such as Furlenco, Rentomojo, Rentickle, Fabrento, CityFurnish, and others. But, what is the exact total addressable market size of this industry in the medium-term and long-term? Let’s cut to the chase.
To start, it is first important to understand and acknowledge who is the ultimate authority in household data. The Census of India is the ultimate authority in India because they go to each and every house and count the population and publish the data every 10 years. This exercise is not a sample and a projection; this exercise is a census covering each and every household (HH) in India. This is the most rock solid data when it comes to household data in India, and every research consulting agency in India teaches it first.
According to Census 2011, the top 15 cities in India have about 27 million households (table below). Out of which not everyone resides in proper housing. Housing in India is divided into Kutcha and Pukka houses. Pukka houses are the ones built with good strong material and has walls and a built roof. Kutcha houses are impermanent structures used for housing. Approximately, 88% of the top 6 metro population live in Pukka houses. For the next tier of top cities, the percentage of Pukka houses will be lower. But, for the sake of this exercise, let’s assume 88% of all the top 15 cities have Pukka houses. The next filter is: Approximately, 50-70% of India lives in own houses. A recent report says in metros the number of households who live in own houses is 50%. We are assuming that most people living in own houses are largely permanent and may not prefer rentals of Furniture as they’ve a huge preference for owning stuff and they don’t have the need to move around and they’re largely settled in a city. So, the remaining market is the 30-50% of the rented houses in these cities. Now, this is actually the ideal Total Addressable Market (TAM) for furniture and appliance rentals in the ideal sense. However, it is fair to assume that not all households in this TAM rents and chooses to rent all the time. So, a household penetration of 10% is assumed as the maximum potential penetration that rental can reach among the total rented households in any city at any time, i.e. 1 in every 10 households will rent at any given point. You are free to disagree and assume a slightly larger number here. But, my assumption of household penetration is 10% basis experience in similar ‘alternate categories’. In India, many major categories too don’t have a household penetration of more than 50-60%. For example, it took a long time for optional categories like Hand Wash and Mouth Wash to reach 10% penetration, especially Mouthwash. Also, 1 in 10 households renting furniture and appliance at any point of time is an aggressive assumption, and it is important for the category to reach that potential penetration first before we say the penetration can be 20-25% or higher.
With all the above, the total market size for the Furniture Rental Market looks like around 1935 Crores for the top 6 cities and it looks like around 5000 Crores for the top 15 cities. The assumption is that an average rental customer pays around Rs.2000 per month in rental.
Now, coming to a variation of the above.
When we say a city’s population is XX Crores or XX million households, we are talking not only about the core city but also its urban agglomeration. For example, in the above table, it is the Mumbai Urban Agglomeration that is counted. This includes the core municipal city limits and also all the additional fringe urban agglomeration that is developed and getting developed.
Let’s say that the population in the core city and the agglomeration behaves slightly differently in consumer choices. And let’s assume that a bulk of rental as a choice will be done by the core city living people. Then the same table above changes into the below.
As you see, the total addressable market size in the top 6 cities drops to 1000 Crores and the total addressable market size drops to 2600 Crores. A lot of cuts are not still considered to further segment the market and we simply assumed the city household population and a potential penetration of 10% in the medium-term for this exercise. Additionally, the proportion of own houses increase to 70% after the top 6 metros, but we still considered 50% in the above calcuations to ensure we get the maximum total addressable market size.
Total Addressable Market Size – Top 15 cities
Basis the above, the true total online furniture rental market size in the top 15 cities lies closer to 2600 Crores ($350 Million) in the medium term of next 5 years atleast. Even if we assume 1 in 5 households will start renting at any point of time in the long-term (10 years), which is extremely unlikely in India even in the long-term, the market size will just double to 5200 Crores ($700 Million). An optimist in the rental business will pick the higher number and assume 5000 Crores (from the first table) and may even assume that 1 in 5 households (in the medium term) will rent and hence the market size is 10000 Crores (with 20% penetration). But, businesses in India have always struggled to achieve high penetration. 1 in 10 households renting furniture at any point of time is itself a very tall assumption for the category, and hence until that happens first it is important to assume that 10% potential penetration is a reasonable assumption for the category to calculate the total addressable market at this point. Also, Furniture Rental may not be a category that will reach high penetration because it always remains attractive to only a certain section of population and age-group out of the total population.
A recent report by RedSeer says that Online Furniture Rental market size is 33500 crores ($5 Billion) in Urban India and 18200 Crores in top 20 cities. That is wrong. They’ve assumed 14 million households to be the addressable market of Urban India. That is more than half the entire household population (27 Mn) in the top 15 cities and that number is 25% of the Urban household population (54 Mn) of all of Urban India (4000 cities). That is like indirectly saying all of Urban India is the total addressable market. Yeah, why not! That’s what happens with market size estimations, you want to write down a big number at research consulting agencies because everybody loves it. The clients love it, the media loves it, and your Client Business Partner (CBP) or Engagement Manager will love it. But, the real devil is always in the methodology and the details. Also, many people get confused between the use of the term ‘market size’ and the term ‘total addressable market’. People often use this interchangeably for convenience. What we calculate and estimate is the total addressable market (TAM), whereas the term ‘market size’ is always the actual total business size that is transacted by that category in one year. For example, Furniture market size in India is estimated to be $20 Billion (actual transaction value), and Furniture and Appliance rental total addressable market size (projected value) cannot be 25% of that total market size in all of India, which is developed over hundreds of years and with high penetration in both Urban and Rural India. $20 Billion is the actual transaction value estimated of Furniture in India and 33500 Crores ($5 Billion) of Furniture & Appliance Rental is the total addressable market size (TAM) if the category reaches 14 Million households according to an online research agency’s claim, which is indirectly saying all of Urban India is the addressable market for Furniture and Appliance Rentals. If you assume the same 10% potential penetration logic on RedSeer’s report, the numbers by RedSeer too drops to 1820 Crores (10% of 18200 Crores – top 20 cities).
Coming back to our data, we’ve seen that the realistic total addressable market for Furniture and Appliance Rental is around 2600 Crores (considering 10% penetration and City population) and 5000 Crores (considering 10% penetration and Total City Agglomeration Population) in the top 15 cities. I am not considering the 20% penetration options because it is higly unlikely in this category even in the long-term to have every 1 in 5 households to rent at any point of time. In a market sizing activity, one can assume anything, one can say that all of 54 Million households in Urban India is an addressable market. Good for whoever is assuming it. But, market sizing is largely done to understand and put in strategic perspective the entire category objectives for the near mid-term and long-term. So, it is important to be reasonable and practical in one’s assumptions. A parallel example I can put from the FMCG world is: Mouthwash is a category that was launched in India around 2011. I was one of the initial guys working on this category in Hiranandani, Powai office of Colgate-Palmolive. It is good to say for the Mouthwash category manager that my total addressable market (TAM) is all Toothpaste users. But, even after a decade in 2021, Mouthwash as a category is still less than 10% of the Toothpaste category. Alternative categories always take time and they may never become a significant portion of the mother category that’s because the basic consumer need is not universal.
Concluding, 2600 Crores is not a large market size for Furniture & Appliances category, but it is still not a very small market either for a growing category like Furniture & Appliance Rentals. Furniture Rental companies should continue to drive more category penetration as category awareness is not a problem for Furniture & Appliance Rentals, thanks to all the branding in the last decade in all major cities. But, it is important to note that this category may not be the typical large market-size top-line category and there is nothing wrong with it. There are categories with large market sizes and there are categories with smaller market sizes. And, when the market size is not large enough, the game should never be about the top-line. Top-line game in a ‘not-so-large market size’ category will eventually not be sustainable and the dynamics will eventually become about the bottom-line. Small market sizes categories should always be about the strong bottom-line and efficient economics. Furniture & Appliance Rental in India looks more like a bottom-line business than a top-line “buying sales” business, unlike the big ecommerce retail in India which is eventually going to try to convert the entire $20 Billion Furniture category into online.
Hope this is helpful, thank you.
The author Sai Balivada is an ex-consultant from the firm Nielsen, which is a global leader in market research. The author has worked on multiple market-sizing studies and other market research studies (with primary research and large stratified samples) for many clients across verticals.