Unboxing the journey of Urban Ladder
Unboxing the journey of Urban Ladder
“Your home is a reflection of you. Memories live through the objects in your home.”
It was back in 2014 when I first heard about Urban Ladder from a friend. She couldn’t stop raving about the new sofa she bought online! To my surprise, it was a Rs 30,000 purchase made online on a startup called Urban Ladder.
By bringing modern aesthetics, classic designs, and high-quality furniture online, Urban Ladder won both customer and investor love.
On the investment side, the company had raised Rs 5 crore from Kalaari Capital in 2012. And a year later, in 2013, another Rs 30 crore from SAIF Partners.
And subsequently, in June 2014, in the middle of raising Rs 70 crore from Steadview, the market validations became more noticeable.
It was clear that Urban Ladder was one of the most promising emerging businesses, on the path to be a large furniture brand.
Numbers backed up the euphoria. Urban Ladder’s sales peaked exponentially from Rs 6-7 crore in November 2014 to Rs 30 crore a month in January 2017.
But things began to change in 2017. Sales started plateauing.
As an outsider, here are some of my observations to make sense of what went wrong –
Flawed experience center strategy (Part 1)
Furniture is a high-value high-engagement product. Globally, similar buying trends have emerged – customers want to enter a furniture store, and vet the quality before buying. An offline retail experience center from that perspective is a great way to establish dialogues with new-age customers.
But, for most of 2014-2017, Urban Ladder focused on technology solutions like 3D modeling and AR technology, which enhance buying experience online instead of expanding their presence in physical retail stores. To put it in context, rival Pepperfry launched its first offline studio in 2014 itself, and quickly started franchising.
Why did they wait?
Traditionally, the furniture business has largely been a made-to-order or customized-to-order business. Once a customer steps into a store, they shop from a booklet of options, and not off the shelf. Customers are also willing to wait for three weeks to get a customized product. In this scenario, Urban Ladder took a bet on technology over retail.
But as sales slowed, in 2017, the firm revisited its plan. They realised that an experience center helps build trust and credibility, which is essential in a high-value purchase.
I think the company could have had a significant growth advantage if they focused on expanding offline early on.
For most of 2014-2017, Urban Ladder focused on technology solutions like 3D modeling and AR technology, which enhance buying experience online instead of launching physical retail
Flawed experience center strategy (Part 2)
Once these stores launched, in the short term, their reviews picked up. In fact, at one point, Urban Ladder’s offline revenue reached 1/3rd of their overall sales.
But furniture alone could not justify their investment in large format offline stores.
Why? Because, analysts say furniture retail is a hyperlocal business. A single offline store can only focus on a nearby locality (5-7 km radius) and can drive an additional 50% growth in sales in a sub locality.
To scale this way, you have to open multiple offline stores to cover an entire city. And setting up an offline store is not cheap. If the locations are not strategic, the cost of setting up offline stores can not be recovered by the additional revenue.
One startup that has executed omnichannel well is Woodenstreet. The company is on track to close Rs100 crore in sales this year.
Or like Pepperfry, you franchise, which Urban Ladder chose not to do, in a bid to control the entire experience.
To be clear, it’s not that they didn’t know. They just had a different plan. From each experience store, I assume,Urban Ladder had a plan to focus on high-margin modular furniture and luxury home interior businesses to drive sales.
And that’s the next point.
Weak execution of modular and interior business:
Since 2017-2018, Urban Ladder has been building up technology and infrastructure to launch modular furniture and home interior business.
The problem, however, turned out to be far more complex than expected. Experts explained how these categories are structurally different from off-the-shelf furniture. It all begins with the customer’s needs.
Large value items like re-doing a kitchen or a house require an entirely different sales, supply chain and business capabilities.
For instance, in sales, they need a workforce to convince customers to redesign every part of the house, from walls, piping, wardrobes, to entire décor. It’s a different mindset from buying just furniture. For context, while Urban Ladder’s furniture costs about Rs30,000, these businesses have an order value of Rs3 lakh, to say the least.
In the absence of a clear focus, Urban Ladder failed to pull this off.
Urban Ladder could not compete with the consumer experience at Homelane and Livspace in these categories.
Without modular and home renovation business lines, the incremental sales of furniture offline could not compensate for running so many large format stores. But by now, the company had already expanded to multiple cities.
Regulatory and fundraising blow:
Media interviews in early 2018 indicated that Urban Ladder was all in for offline store expansion. At the end of 2018, Urban Ladder almost raised capital again. Sources say, an Abu Dhabi based fund was just near investing when there came the next blow.
Days before the money was to hit the bank, India changed its FDI norms on December 28, 2018. Newly risen ambiguity in India’s FDI laws and the announcement of Press Note 2 collapsed the round.
Now think about it — a company that stepped up on the growth pedal suddenly had to restructure its operations and costs.
On the business side, too, the company chose to become a single brand outlet. In 2018, it was granted the single-brand retail trade (SBRT) license by the Department of Industrial Policy & Promotion (DIPP). This came with a couple of trade-offs.
For instance, one of its top categories Decor took a hit. To comply with the single-brand norms, the decor category, which was operating on a largely marketplace model, had to be scaled down.
This had its own set of causes and effects. Given that the customer acquisition costs for a furniture brand are high, there are just two ways to make up. Either make that first sale count or continue to find avenues to cross-sell and engage in the future.
The decor was one such category that allowed the latter, but it required a considerably wide selection, almost impossible to do in-house. Even if you look at a Home Store or a Lifestyle, they source from multiple channels because a single brand can’t cover this entire diversity.
The only company that has successfully created a brand internationally is IKEA. But bound by India’s FDI laws, Urban Ladder had to step back.
By the end of 2018, it was becoming clearer that top ecommerce giants will deploy more money in this category, and that’s when the problems with Urban Ladder started gaining visibility.
Ikea vs, Flipkart vs Amazon vs Pepperfry vs Urban Ladder
Urban Ladder’s last meaningful raise was in January 2018. The company’s existing investors put in Rs 77.4 crore. In late 2018 media reports indicated that Flipkart was planning to set up its own stores.
In 2019, Flipkart made those plans official. Amazon launched a slew of private labels. Another top vertical marketplace Pepperfry too, had expanded aggressively across cities using the franchise model.
By the end of 2018, it was becoming clearer that the market will deploy more money in this category, and that’s when the problems with Urban Ladder started gaining visibility.
That’s when Urban Ladder modified its strategy to include launching a lower cost price point category – Urban Ladder Basics to stay competitive. It also laid off a fourth of its workforce and shut down high costs initiatives like cash on delivery and unprofitable cities. It also shut its kitchen and wardrobes business, among others.
At that time, Ashish Goel, CEO, Urban Ladder told me, “Emotionally as gut wrenching and painful as these things are, sometimes you have to make hard calls.”
Around the same time, the company had the opportunity to sell to multiple stakeholders, including the likes of Flipkart, and Amazon, and traditional retailers Godrej and FabIndia. But failing to get the right terms, the brand fought for survival.
Its last investment came in November 2019 – Rs 15 crore led by internal investors SAIF Partners, Sequoia Capital, and Steadview Capital, a month after its cofounder Rajiv Srivatsa left the company.
While Urban Ladder was fighting these odds internally, the external environment changed simultaneously, with Flipkart and Amazon and IKEA.These deep-pocketed players increased discounting to lure customers, which hurt margins of brands like Urban Ladder.
Covid-19 has also hurt the brand’s offline stores.
Urban Ladder’s supply chain is on-point, and consumer-first approach is unparalleled. This coupled with brand understanding, and deep pockets of parent Reliance can make it an asset.
There’s a saying that furniture reflects your personality when you bring them to your home. And in that sense, Urban Ladder has made a brand that has touched the homes of many. It has created an emotional connection that indeed is priceless!
Update – November 14
Top tier investment firms including Sequoia Capital, Elevation Capital (SAIF Partners), Steadview Capital and Kalaari Capital have only been able to recover on an average a fifth of their invested capital in Urban Ladder, following its sale to Reliance Retail.
Bengaluru-based startup had in all raised about Rs 860 crore ($115 million) and was last valued at over Rs 1,200 crore ($160 million). Regulatory filings indicate that Elevation Capital and Kalaari Capital’s stake stood at around 22%, while Sequoia owned about 17%, and Steadview another 12% in the firm.