Training its lens on affordability, Snapdeal CEO Himanshu Chakrawarti explains why the company transitioned from a horizontal ecommerce platform to focus on the value lifestyle sector, a highly underserved sector with great potential
It has been over five months since Himanshu Chakrawarti started helming operations at Snapdeal as its chief executive officer (CEO). Having completed 18 months at the Bengaluru-based company, earlier as its president, Chakrawarti is grateful for having cleaned up some important pending issues at the homegrown ecommerce player. He is proud that the platform, which comes under AceVector Group, has clean, audited books.
He also maintains that Snapdeal even cleared a few cases pertaining to refunding Goods and Services Tax (GST), since its output tax is lower than its input taxes. His earlier experiences in how things work in the apparel, consumer electronics, wellness and real estate sectors prompt him to call this transparency a blessing and an important step in helping the ecommerce major stay ahead of the profitability chase in its new avatar.
This quest for profitability stems from Snapdeal's chequered past. In 2019, it was ranked as India's third largest ecommerce player by SimilarWeb, trailing Flipkart and Amazon, with 87 million monthly user visits. However, a failed merger with Flipkart, shortening funding runway, a high monthly cash burn rate of around $20 million, and growing competition in the digital space conspired to make the going tough for the unicorn.
Given that India's ecommerce sector is touted to touch $133 billion in size by 2025, growing annually at 30 per cent, as per estimates by research firm Bernstein, it made sense for Snapdeal to address its challenges quickly and focus exclusively on potential high-growth segments.
So, the company snapped its socks up and trained its lens on affordability. It decided to transition from a horizontal ecommerce platform with multiple verticals to focusing on value lifestyle and fashion categories—a sector that its market research and customer feedback highlighted was highly underserved but had great potential.
Global management consultancy firm Kearney estimated that value-driven purchases through ecommerce could grow almost ten-fold from $4 billion in 2019 to $40 billion in 2030. It added that customers from tier-2 geographies and beyond would drive 62 per cent of this business.
Chipping in, Chakrawarti points out that almost half of India's online shoppers are new to ecommerce. "Of the next 200 million shoppers who will join these ranks, 180 million would fall under this aspiring category, with a large component from the non-metros. This value-conscious ecosystem, therefore, signals a huge opportunity," he says.
Mindful of this buyer landscape, currently, 95 per cent of Snapdeal's merchandise is priced below Rs 1000, with some occasion-based products above this benchmark. Moreover, since 72 per cent of its business comes from tier-two cities and smaller towns, its targeted marketing also focuses on this audience.
To do justice to its new-found customer cohort's expectations, Snapdeal deep-dived into the merchandise quality and pricing of value products on its site. This exercise resulted in bringing down its then-seller base by almost 75 per cent and onboarding new ones who were more quality focused.
This ongoing process is driven by data science to make it more scientific and sustainable. Chakrawarti claims that the seller onboarding is so laser-focused on the quality that it hovers around 1 per cent. "This makes Snapdeal an extremely curated marketplace," he reiterates.
With one eye on the value segment, the company has steadily grown its user base over the past few years. Its unique user base in FY18 was around 9 million, which peaked at 19.62 million in FY19, and rose to 27 million during the pandemic.
Interestingly, almost 70 per cent of shoppers on the platform use the category/subcategory tabs or the home feed to browse through available options instead of relying on the search function or filters to look up specific products. This led the ecommerce major to leverage artificial intelligence (AI) and machine learning (ML) to process user behaviour and feed products to buyers accordingly.
Since coming on board, Chakrawarti has been helping the company leverage technology to create customised user offerings. While coming to grips with the rapid pace of doing multiple things simultaneously, which is the norm in ecommerce, he is also streamlining the options on how the company can pursue business strategies in a sustained manner over a period of time.
Snapdeal currently has an installed app base of 200 million with over 25 million as its current monthly active users. Will the Snapdeal 2.0 avatar, which has moved away from fast-selling consumer goods like electronics, result in a drop in its user base?
While admitting that there has been a drop in overall visitors, Chakrawarti noted there has been no drop in the number of transacting customers. After tracking first-time and repeat customers, the company found that almost 40 per cent of buyers on its platform are people transacting for the first time on any ecommerce platform after searching through various sites.
Goldman Sachs had estimated that JioMart will corner 31 per cent of the ecommerce market, with the Mukesh Ambani-backed company also concentrating on the value lifestyle domain. Aware of the rising competition in this space, Chakrawarti would rather get things in order at Snapdeal than keep looking over his shoulder at what other brands are doing.
He knows the clincher will be building a value proposition for customers, which is sustainable and can withstand the vagaries of seasonal promotions. "For instance, some platforms get into massive discounting during September every year. It is alright to have such disruptive events for a few weeks in a 52-week cycle. Rather than getting hassled by this, we are fixated on the operational nitty gritty," Chakrawarti explains.
This includes optimising the infrastructure, fulfilment and technology costs, and being judicious about hiring employees. The latter, he believes, is most important and oft neglected and that the team strength should be in line with the size of a company’s business plans and the customer acquisition model.
Discounts can make or break a brand because the platform has to make the product financially lucrative to shoppers while factoring variables like shipping and return costs as well as profits for their seller partners and themselves. Often some ecommerce companies circumvent this by offering a discount but charging a shipping cost to cover up the deficit. It can confuse customers and also leave them with a feeling of being gypped. To uncomplicate matters from the customer's journey, Snapdeal eliminated shipping fees for all products.
"We probably have the lowest return to origin (RTO) and lowest fulfilment cost for the cash on delivery (COD) segment," Chakrawarti says. "Some companies might have a better overall cost because their prepaid component is larger, which means their return is lower. However, we are quite profitable when it comes to unit economics."
The immediate plan of action over the next few months is to cover the remainder of operational costs, including those for fixed expenses, technology, workforce and infrastructure. This should help Snapdeal break even at a corporate level. Does this mean it will revisit its plans for a fundraise?
The ecommerce major had tried to raise $153 million at a valuation of $1 billion in 2022 and had also started filing a Draft Red Herring Prospectus (DRHP) to go public before withdrawing from the process. Chakrawarti feels it all boils down to when the company breaks even. He expects that to happen within three months at the current growth rate, making the company largely self-sufficient.
It might contemplate raising capital, either from the private or public sectors, if it plans to grow faster. However, that is a conversation for a later day; for now, Chakrawarti is busy building Snapdeal 2.0 into a sustainable entity that can reclaim its lost glory.