The lessons Urban Ladder learnt from having more money than necessary

The first conversation I had with Goel about slowing down was easy, says Srivatsa. “But then I would have these bathroom moments and going-to-bed moments when I would rethink…” It took Srivatsa about 15-20 days to internalise the conversation and think about what it would mean for Urban Ladder.

Meanwhile, in November 2015, the government amended the FDI rules to allow foreign-funded retailers to sell products which were under a single label, both online and offline through stores.

As part of revisiting their strategy, Goel and Srivatsa looked at their cost structures and found that even though they were a brand offering curated products through their sellers, they were behaving like a marketplace in terms of offering a vast range. They had expanded their range by more than three times during the ramp up phase.

“We were in this hazy middle zone and we were confused,” he says.

The problem partly again was because of the large sum of capital they had.

“When we had a lot of money, we thought we were a marketplace, and functioning as one. In a marketplace, you offer the lowest price, an infinite range and convenience to customers. But as a brand, what we offer is a curated range, value for money and an experience,” explains Srivatsa.

While Urban Ladder had the cost structures of a marketplace, they were experiencing the growth rate of a brand. So we had to cut the cost to get to behave as a brand,” says Srivatsa.

Mistakes cost

As a response to these triggers, they set out on an expense cutting drive.

Naturally, the first to go was TV. It was not yielding anywhere near the returns they hoped for. “If we were expecting X as revenue (after the TV campaign), what we landed with was X/5 for that investment,” said Srivatsa. Marketing expenses were cut by nearly a third, and it went from accounting for about 60% of sales to 20%.

Then they looked at their catalogue. Data showed that many of their new designs and products they had made bets on didn’t have any takers despite discounting.

“Some things were not even core to our design philosophy. But we went with it. Those were some mistakes we made,” says Srivatsa. So they pared the number of products from 4,000 to 2,400.

Since November last year when it began the reality check exercise its total expenses have been cut by a third, and the burn has been reduced by 75%, says he.

But undoing some of those excesses have not been easy.

For instance, the company had invested in additional warehousing space back when warehousing was not even a problem and they anticipated it to crop up in a few months. But when they brought in more efficiencies into the system, suddenly there was more space.

“We have 40% additional warehousing space. And we have already spent on it and it is very painful to unwind from that. We have a three-year lock in on that and now my high-quality team members are spending time unwinding that position,” says Goel taking sips of warm water out of his flask.

In fact, Goel admits that had they raised $15 to $20 million less, there would have been a lot more discipline.

Life in the slower lane

With the accelerated growth, the company was able to get scale, but it was not a fun ride.

“It is not that much fun chasing crazy growth. You can see things breaking around you. Sometimes you see customer experience is suffering. You can’t be running a train at 100 kmph and checking the fuel tank at the same time. Just cannot do it,” says Goel.

The organisation took a conscious effort to maintain a more sustainable rate of growth. That meant growth fell– from a rate of 400% last calendar year to 60% now. Goel believes this steady growth is their path to profitability and expects to be operationally profitable in six months.

“In a market like furniture retailing, when the possibility of repeat sales to a customer is less, around 50% is a realistic growth target in the initial years unless there is a significant geographic expansion plan,” says Prasad of KPMG.

Investors seem to like this approach too.

“It’s easy to buy rapid growth through marketing and discounts. But usually customers acquired in this manner are not loyal – they are transactional.

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