Pepperfry Targets Smaller Cities And Towns Betting On Housing Boom

Pepperfry plans to add 10 stores a month to penetrate deeper into metros and enter new markets in smaller cities.

<div class="paragraphs"><p>A Pepperfry studio in Kirti Nagar, New Delhi. (Photo: BQ Prime)</p></div>
A Pepperfry studio in Kirti Nagar, New Delhi. (Photo: BQ Prime)

Pepperfry, an omnichannel furniture and home decor company, is betting on a booming housing market and costly imports to drive its next phase of growth.

India’s largest furniture retailer has been expanding its brick-and-mortar retail presence across the country as well as widening local manufacturing. This comes when smaller peers are struggling to cope with costly imports and supply-chain disruptions for the last two years caused by the Covid-19 pandemic.

“We launched Pepperfry Accelerator Program last year to ramp up our presence through franchise-led small neighbourhood stores, moving beyond high streets,” Ashish Shah, co-founder and chief operating officer at the decade-old company, told BQ Prime.

A year on, the IPO-bound company has set up 110 such stores.

The aggressive expansion follows its earlier franchise scheme—Pepperfry Venture Program—in 2020 when it added just 20 stores.

“This time, however, we are seeing a lot of interest. Small retailers, who are struggling to continue importing furniture, are now looking at opening franchises as we seek to penetrate beyond metros to small towns,” he said.

Traditionally, there were two kinds of sourcing, Shah said.

Retailers either had workshops where furniture was made by their carpenters, or they would rely on imports. But importing furniture, he said, has become an expensive affair after the pandemic struck, owing to supply-chain issues. “A container from Malaysia, for instance, that used to cost around $800 in the past is now priced at about $4,000.”

Pepperfry, however, remained insulated from such troubles, thanks to localisation. “We benefited... as 85-90% of our sourcing are domestic. We work with 3,000-plus merchants, so supply is abundant, prompting many small owners to shut shops and take the franchise route,” said Shah.

The franchisees are primarily experiential centres and not for selling products. “Having realised that the size of investments makes a difference for franchise owners, we lowered the capex needed from Rs 70 lakh to Rs 20 lakh. We are making 18,000 products available where they don’t need to worry about the supply chain, inventory hoarding or product assembling."

The strategy, according to Shah, is paying off.

Before opening a franchise in Chandigarh, the company would earn Rs 50 lakh a store and another Rs 50 lakh online. “The overall sales which was Rs 1 crore, is now up to Rs 1.8-2 crore as offline drives online,” Shah said.

The company expects to continue adding 10 stores a month, transitioning from its early days in the industry when it managed to open three-four stores a quarter, said Shah. Pepperfry has also been setting up more of its self-owned flagship stores. In total, its footprint currently covers 100 cities with 195 stores, 65 of which are company-operated and 130 franchise-owned.

It launched its largest store in Delhi this month, having a carpet area of 12,000 sq. ft. Typically, its stores are 3,000-4,000 sq ft in size.

South India is the company’s biggest market, with Bengaluru alone contributing 23% to its sales. Delhi-National Capital Region, Shah said, contributes 19-20%.

The expansion is also in tandem with a revival in demand that has crossed the pre-pandemic levels. Pepperfry’s sales grew 63% over the last month in August.

“Our business came to a halt when the nation was under lockdown. The 2020-2021 period was extremely tough but then sales rebounded, propelled by improving consumer sentiment, and footprint additions,” said Shah.

The growth is also being fuelled by a turnaround of the real estate sector, with prices edging up, developers building again, and consumers opting to upgrade their home interiors. “The penetration of e-commerce has also helped it clock the highest-ever sales in August this year despite a high base of previous year.”

Shah, however, didn’t disclose the absolute figures because the company is in the process of filing for an initial public offering.

According to the latest retail sales data from Retailers Association of India, furniture sales grew 51% in July over the year ago and 23% over the pre-pandemic period of July 2019.

Tier-2 cities, according to Shah, are contributing to the company’s growth story significantly. “Demand remains robust even as inflation hurts. Pockets of affluent people within small towns like Raipur or northeast like Imphal, Guwahati, etc., are willing to spend, spurring sales.” The company has 12 stores across Guwahati, Imphal, Tinsukia, Agartala and Kohima.

The company has also set aside Rs 6-7 crore for advertising spend during the festive season to fuel demand, said Shah.

Besides, it’s working to turn profitable and has focused on bringing down costs and paring losses in the run-up to filing IPO papers. In FY21, the company managed to bring down its consolidated net loss to Rs 105.65 crore from Rs 167.29 crore in FY20, according to its latest disclosure.

Revenue from operations dipped 13% to Rs 201 crore in the Covid-hit FY21.

Pepperfry competes with UrbanLadder—acquired by Reliance Retail in 2020—Swedish furniture retailer Ikea in India and WoodenStreet.

“With our investment in technology and omnichannel expansion paying off, we expect to have a superb year—something very different this time—with the entire country gearing up to splurge in the festive season,” said Shah.