Flipkart: From credit to logistics, Arzooo gives offline retailers the edge to take on the might of Amazon, Flipkart

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Online shopping has not only come a long way in the past decade, it has also changed the way we shop offline. Today, offline retailers are not only competing with online sellers by expanding facilities such as home ordering, but they are also offering a large number of product choices and better prices. This is seen most in categories such as furniture and major appliances.

No one can understand this better than Khushnud Khan, who at one point handled the Major Appliances category in Flipkart. Khan joined the Bengaluru-based e-commerce player in 2014, at a time when Indian consumers were elated to buy fridges and washing machines online. In the same year, Flipkart introduced a new sales category for major appliances and furniture. Amazon followed suit in 2015.

“There was a fair amount of heat in India’s e-commerce space with Amazon, Flipkart and Snapdeal. At that time, the big three e-commerce players were at their peak. With Big Billion Days and Great Indian Festivals, the buzz around online shopping has moved at a rapid pace,” he says.

Khan worked in this retail space for a while. Prior to Flipkart, he was a Business Manager at IFB Industries Ltd from 2012 to 2014. He also held the position of Area Manager in Retail Operations at Tata Sky. Thus, he was at the forefront of the development of the e-commerce market in India.

In 2014-2015, he says, smartphones covered around 35% of online sales in India. However, the major appliance category was slow moving and had very slow online traction. Two years after the launch of this category, it only attracted 6-7% of online consumers. The furniture didn’t move at all.

Despite this, there has been a massive shift in consumer buying behavior. “Even if people were buying products offline, they would walk into the store and immediately search for the product online. They would ask the merchant if they can match or do better than the price on Amazon or Flipkart for a particular TV, fridge or washing machine. This change has hurt offline sellers – the livelihoods of thousands of people depend on offline retail,” he says.

Arzooo has already raised $20 million.

It was a complex situation. Khan says he realized buying major appliances was more of a family affair in smaller towns. The whole family will seek the help of a merchant to know a product. So, these categories will never take 50% of online sales. At the same time, offline retailers need to modernize and upgrade to be able to compete with new online players.

“With this idea in mind, we wanted to bring the best of e-commerce and technology to offline stores. And that’s when me and Rishi — who was head of product management at Flipkart at the time — decided to build a business around it,” he says.

Holistic platform

Khan and Rishi Raj Rathore launched Arzooo in 2018. The Bengaluru-based online platform gives offline electronics retailers a level playing field to compete with e-commerce players. It offers offline retailers a wide selection of products through digital inventory and the right pricing strategy to compete with online sellers.

“You go to a store, you find 50 televisions or 30 to 40 refrigerators to choose from. But if you go to Amazon or Flipkart, you’ll find that sellers individually offer at least 500 fridges or 100 TVs to choose from. So how can we enable an offline store with this. Arzoo’s platform offers a virtual inventory solution to retailers. Anyone who walks into the store will see a bigger selection than Amazon and Flipkart combined. Stores are also able to sell and sell different products without having to physically invest in that store, in that inventory. That’s the power of the digital inventory we provide,” he explains.

These smaller players were fragmented and had very little bargaining power compared to a Croma or Reliance Digital, he says, so they got very low margins from manufacturers. Arzooo started giving these sellers access to much better prices, helping them improve their margins by 15-20%.

Today, Arzooo has almost 20,000 stores in South India.

Arzooo aims to empower retailers. After solving price aggregation, the company last year launched its fintech solution – Arzooo Credit. “Credit is basically something that allows a store owner to have more working capital. Arzooo Credit opens a line of credit of up to Rs 20 lakh to give you immediate capital to run your business. These small business owners typically run businesses with very tight working capital. Staying competitive with such a tight working capital situation is very difficult for them. So that’s another thing we wanted to solve,” says Khan.

This fintech initiative is also digital. Khan says that within six months of launch, around 7,000 retailers started using Arzooo Credit.

In another effort to create a more conducive environment for offline retailers, the company last year launched its own logistics and supply chain platform – Arzooo Express. “In addition to technology and capital, in an e-commerce business, the type of service delivery mechanism you have and the quality of your supply chain are extremely important. From our beginnings, we depended on a large, fragmented network of third-party logistics. So we decided to build our own logistics platform,” he says.

Arzooo Express can make last mile deliveries to retailers and their customers.

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The company has done a Falcon pilot in the last 4-5 months in which sellers have done more than Rs 200 crore in business on Arzooo.

Adding another feather to its hat, the company this month launched Falcon, a B2B seller platform for sustainable sellers to join. The platform is open to individuals or companies who are wholesalers, distributors or an OEM, which gives them access to a wider offline market and that too with zero distribution cost. It is a technology-based Do-It-Yourself (DIY) service where sellers can register, list products and manage their orders with retailers. For each Falcon order, Arzooo Express makes its fleets available to help with logistics.

The company has done a Falcon pilot in the last 4-5 months in which sellers have done more than Rs 200 crore in business on Arzooo.

On par with the bigwigs

Arzooo’s revenue model is built around margins. Khan explains that they make margins when they buy products from manufacturers and resell them to retailers. According to the CEO, the company has already reached Rs 3,000 crore in revenue by December 2021 and plans to hit $1 billion in sales by the third quarter of this financial year.

Arzooo has already raised $20 million. According to Tracxn, the startup was valued at $105 million as of September 1, 2021.

Will he use the money he raised to enter other product categories? Khan says that instead of building horizontally, they are working to deepen vertically.

“In any commerce or e-commerce business, B2B or B2C, you have to choose what your playbook is, what business you want to run, what categories you build the platform for. We picked the most complex category of all: major appliances. This category requires dealing with a very different type of supply chain and a different type of retailer community. We built this model for consumer durables and electronics and we have l “Intend to stay that way. Instead of going horizontally, we will go deeper vertically in this category because it’s a $65 billion market,” he adds.

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