Today, after five years of churn and burn, Gaur, as YepMe’s CEO, is turning back the clock and conventional wisdom to take YepMe offline. In a way, he’s once again giving up on the e-commerce dream, albeit only partially. He’s got company though, as many niche e-commerce players like Lenskart, Urban Ladder, Pepperfry and Firstcry are doing the same.
From opening its first flagship store in January this year, YepMe is now on a roll to create a network of flagship and franchise stores across the country. But not everybody is convinced offline is the way forward, especially investors. Ironically, neither is everybody convinced pure online retail business can become profitable in the near future, especially those running the businesses and taking the brunt.
So what gives?
It all comes down to numbers. India has about 40-65 million online buyers, depending on who you ask. This is the target market for all e-commerce companies, be it niche ones like YepMe or mass ones like Flipkart and Amazon. This customer base is growing, but at a pace far from what is required to sustain these companies. None of the e-commerce players have been able to become really profitable so far. Revenues are growing, sure. But are they making money?
Gaur’s first coup was getting Bollywood superstar Shahrukh Khan to endorse his relatively unknown brand. Using an informal set of connections tracing back to him and Khan having studied in neighboring schools in Delhi at about the same time, he somehow swung the endorsement. “He was interested in e-commerce business and asked us about what we were trying to do, and what would we do if it didn’t work out,” says Gaur. “I think he could connect with us, because we were not born with a silver spoon, but were trying to make it big.”
In November 2014, YepMe shot its first commercial with Khan. And the results were as expected. Over the next three months, they did twice the business than usual, reaching the run-rate of Rs 35 crore a month. But after signing “King Khan”, YepMe was also out of money. So even as its sales shot up, the question was how long could they sustain it?
The offline hypothesis
“When we thought about it, we were reaching out to 40 to 50 crore people through the television commercial. But we knew, not even one-tenth of that would come online to buy. It was like using a bazooka and killing a fly,” recalls Gaur. “It was that time, Sandeep suggested to venture offline, to maximise the opportunity.”
“But you can’t just shift gears and the investors have to be aligned to the move. Because those were the gaga days of e-commerce, nobody wanted to move to offline,” he adds. “That time we decided offline was the way to go. We wanted to launch in the upcoming summer season, but we had run out of capital by then.”
Going offline isn’t as easy. It comes with its own set of challenges. It is capital intensive, because rentals are high, and you need almost a separate team to run the business. There is enough and more competition already out there. And even if you can take care of all these things, it will be a hard decision to make, because, for online companies, the valuations are at stake.
“Firms that are straddling both online and offline will reach a fork in the road – are they online businesses or are they offline businesses with an online presence. If their economics reflect the latter, then they will be valued as primarily offline businesses with lower earnings and revenue multiples – may be higher than the traditional offline retailers but they would be a far cry from the online valuations we have seen,” says Haresh Chawla, Partner at India Value Fund Advisors. “Also, the metrics they will be evaluated and valued on will shift from hot-air oriented ones to real profits and margins – which itself will dampen valuations.”
Gaur was aware of the challenges. After raising $75 million from Khazanah Nasional in September 2015, he started the offline play as an experiment. He claims that the first flagship store in Gurgaon saw six times more sales as compared to online sales happening in that area.