How Unicorn ShopClues lost the plot and fighting for survival now

It rarely happens that a Unicorn raises merely a million USD in a bridge round. But such things aren’t surprising when a business chases unsustainable growth metrics instead of fundamentals such as unit economics and stable revenue channels that takes it closer to profitability.

Several companies in India such as Foodpanda, Jabong, and Snapdeal have lost the original plot as they kept chasing growth and burning investors’ money. These companies have indeed turned a blind eye to fundamentals and consequently reached on the verge of collapse.

The fall of Snapdeal, Foodpanda and Jabong is a case in point.

SoftBank wrote off its investment in Snapdeal as efforts to merge it with rival Flipkart failed to get fructified.

Foodpanda and Jabong also had miserable endings. Both got sold out to Ola and Flipkart, respectively in the fraction of the amount what they splurged over the years.

On the similar lines, horizontal e-commerce marketplace -- ShopClues seems to have lost the plot. The company has been struggling to find a stable ground in one of the most fledgling e-commerce economies in the world.

Encapsulating six years journey of Shopclues

Before analysing how ShopClues lost the plot, let’s peep into its history.

E-commerce in India began to take off in the 2011-12 period. At that time, the present behemoth Flipkart used to sell books alongside then e-commerce poster children - Fashionandyou, Yebhi, and others.

Observing the nascent e-commerce market in India from the US, Sandeep Aggarwal (ex-Wall Street analyst), his wife - Radhika Ghai Aggarwal and Sanjay Sethi (senior product director, eBay Inc) recognised an opportunity to build multi-billion Internet commerce company in India.

Led by Sandeep, ShopClues was a hot topic amongst the Indian e-commerce entrepreneurs and media as it secured over $2 million seed round (in December 2011) even before it got launched.

Indeed, the funding news had surprised many. Raising capital based only on a concept was a kind of utopia at that time.

Soon, the managed marketplace kicked off its operations on Facebook followed by a launch on the web in 2012. Since then, Sandeep and his brigade has been claiming time and again that business models of competitors (Flipkart and Snapdeal) are flawed and ShopClues has a panacea to profit-starved e-commerce companies.

The company founders kept claiming that ShopClues has the secret sauce to reach profitability on a scale similar to its peers.

A differentiated path from Flipkart & Amazon

During 2014, the landscape of Indian e-commerce market changed in a big way. Flipkart and Snapdeal announced over $700 million rounds each in the second half of the aforementioned year.

By that time, ShopClues realised that it can’t continue fighting deep-pocketed Flipkart and Snapdeal. Hence, it zoomed focus on bringing unorganised market online (mirroring Taobao’s model in China). In 2014, the company launched a slew of initiatives such as wholesale marketplace and factory outlet.

The ShopClues strategy to cater to the audience in tier II and III cities at that time had made a lot of sense as Flipkart and Amazon were focusing on metros or top 10 cities. Playing smaller city card was working out well for the company.

The differentiated path from Flipkart, Amazon and other vertical plays had played a pivotal role in Shopclues’ closure of $100 million Series E round in 2015. During the round, it was valued $1.1 billion and became fourth Indian Internet company to join ‘Unicorn club’.

Fall of Unicorn’s GMV by 80 per cent in a year

Between 2012-15 Indian e-commerce companies were raising capital largely on the pretext of vanity metrics such as GMV. Gross Merchandise Value (GMV) is considered as the value of goods sold via platform in the retail parlance.

Flaunting GMV metrics, which has a very little correlation or relevance on the overall health of the business, was in the vogue during that period. Nevertheless, GMV was an important factor in gauging growth or success of the e-commerce company.

Let's take a look at GMV numbers thrown by ShopClues during FY15, FY16, and FY17 (source). It claimed to achieve a GMV of $500 million in FY15, $1.2 billion in 16 and about $3 billion during the financial year ending 2017.

However, ShopClues has been slowly losing market share to Paytm, Flipkart, Amazon, and others. “It’s going to have about $500 million GMV in the current fiscal,” says one of the industry analysts on condition of anonymity.

But, why it’s on the verge of losing over 80 per cent of its marketshare? There are a couple of reasons.

Controlling quality in unorganised market is a tough task for any marketplace. And, it reflects directly on consumer experience and loyalty. Even Snapdeal had struggled despite having several mechanisms in place for quality checks.

According to a logistics partners for Shopclues, the company has been grappling with returns for over years. “About 30-40 per cent return for the marketplace is normal,” says the founder of the logistics company. He requested anonymity.

Secondly, the company has been contemplating IPO for over years and hence trying to turn profitable. “From over a year, ShopClues has been trying to be profitable. Consequently, it has been controlling burn rate which impacted its GMV massively,” adds the above-quoted source.

A detailed questionnaire sent to Shopclues by Entrackr has received a brief note. "ShopClues has been registering consistent growth. In the 6 months, our orders have more than doubled, while registering 4X revenue growth. As for GMV or fresh funding, we do not comment on either."

Is Shopclues moving towards vertical from horizontal?

Meanwhile, according to one of the merchants who lists his inventory on various marketplaces points out that through a slew of private labels and greater emphasis on onboarding established brands, Shopclues has been focusing heavily on fashion vertical.

“Gradually, it's making serious efforts to become online fashion destination for the non-premium category,” says the aforementioned merchant.

The company has hired Ritika Taneja, who had stints as senior executives at Snapdeal and Gucci to ramp-up its fashion vertical. “She has been spearheading operations and partnership for fashion category,” adds the above source.

Besides focusing on fashion vertical, the founders are eyeing to raise fresh funds which seem really difficult for the company.

Coming back to the fact that Unicorns barely scout or bother for a million round. The company seems to be far from bringing a sizeable funding round to claim the third position in the Indian e-commerce space.

As far as acquisition chances are concerned, the prospect looks bleak. Last year, talks with Paytm had failed after the initial discussion. Till the last year, there was a sense within Shopclues that Flipkart will acquire it.

However, post-SoftBank round in Flipkart, shareholding and decision-making power of Tiger Global (common investors in both companies) has come down drastically.

Industry analysts and observers believe that it’s unlikely that Flipkart will acquire Shopclues. While we don’t know what will happen to Shopclues, undoubtedly it’s in deep trouble. Shopclues story looks like to be panning out like Yebhi, Fashionandyou, and Jabong.