Reliance Industries’ (RIL’s) retail arm has acquired 96 per cent stake in Bengaluru-based online furniture retailer Urban Ladder for over Rs 182 crore.
The deal is expected to help Mukesh Ambani-headed RIL take on players such as Jeff Bezos-led Amazon, Walmart-owned Flipkart, Swedish home furnishing major Ikea, and smaller rival Pepperfry in the battle for India’s $32 billion worth furniture market.
Reliance Retail Ventures (RRVL), a subsidiary of RIL, has acquired equity shares of Urban Ladder Home Decor Solutions (Urban Ladder) for a cash consideration of Rs 182.12 crore, RIL said in a statement. This investment represents about 96 per cent holding in the equity share capital of Urban Ladder.
RRVL has the option of acquiring the remaining stake. It has proposed to make a further investment of up to Rs 75 crore, which is expected to be completed by December 2023.
RIL has raised about Rs 47,265 crore in the past few months from global investors. It has also secured investments from some of the world’s largest tech firms, including Google, Facebook, and Intel for Jio Platforms.
Analysts said Reliance is expected to use the money to acquire companies and purchase strategic stakes, especially in e-commerce firms, which would help it compete with Amazon, Flipkart, Ikea, and Pepperfry because of the scale it can achieve. India’s furniture industry is projected to double to over $61 billion by 2023, according to industry sources.
“The deal indicates that Reliance is making a broader push into e-commerce as it prepares to take on giants like Amazon and Flipkart,” said Salman Waris, managing partner at technology law firm TechLegis Advocates and Solicitors. He said the deal will broaden the group’s digital and new commerce footprint and widen its bouquet of consumer products.
“Reliance is really going to come out as a very strong player in this market. It is hard to build the experience and user base that they are getting from Urban Ladder. What they (Reliance) would now do is infuse a lot more capital,” said Sanchit Vir Gogia, chief executive of Greyhound Research. “They would be able to now have tighter integration between onlineand offline channels, which is what Urban Ladder was trying to create, but it was very capital intensive.”
Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY India, said furniture is an omnichannel play and with this deal using existing physical infrastructure along with stronger sourcing will be important for growth.
“This is a growing segment that has also seen some tailwindsbecause of work from home and adjacent categories opening up,” said Pahwa. “Themarket is large enough and given that it is largely offline historically, it isripe for disruption at scale, especially (for players) with effective omnichannel presence.”
This is RIL’s second deal in the e-commerce space this year.
In August, it acquired a 60 per cent stake in online pharmacy Netmeds’ parent Vitalic for about Rs 620 crore.
Urban Ladder, co-founded in 2012 by IITians Ashish Goel and Rajiv Srivatsa, had been struggling as the past few years were difficult for the e-furniture market because of a funding crunch. There was also tremendous pressure from investors on firms to turn profitable, according to analysts.
Last year, the firm laid off hundreds of employees.
“The size of the Reliance-Urban Ladder deal indicates thatit was a fire sale,” said Waris of Tech Legis. Analysts said the deal signals that there could be consolidation amid online furniture retailers, and large players are expected to make many acquisitions or pick up strategic stakes.
Urban Ladder was valued at around Rs 1,200 crore in 2018. This dropped to about Rs 750 crore in 2019. Urban Ladder’s audited turnover was Rs 434crore, Rs 151.22 crore and Rs 50.61 crore in FY19, FY18 and FY17, respectively. In FY19,the firm reported a net profit of Rs 49.41 crore, but had seen net losses in the two previous years.
Gogia of Greyhound Research on Sunday tweeted that the deal was a “heartbreaking moment” for the Indian start-up ecosystem, but also one with many lessons. “You may have the best app with a great UX (user experience), butin the end, if you aren’t landing value that consumers need and fit well with the overall market, it just won’t fly,” said Gogia.