Reliance Retail Ventures, a subsidiary of India's largest company Reliance Industries, has acquired a 96% stake in online home decor company UrbanLadder for a sum of Rs.182.12 crore (roughly $24 million). The latest acquisition is the fourth in a series of buy- outs made by the retail giant as part of its digital portfolio expansion.
This is the fourth deal that Reliance has struck since the company hit the market and raised over Rs.1.65 lakh crores (approximately $22.5 billion) through stake sales in both Jio Mart and Reliance Retail. The company acquired Coimbatore-based Kannan Departmental Stores in March, followed by e-Pharmacy NetMeds and the retail assets of the beleaguered Future Group. The latter deal is currently facing some heat from Amazon, which has sought legal recourse against the move.
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Contours of the UrbanLadder deal
A company statement said Reliance Retail has acquired 96% stake in the Bengaluru- based UrbanLadder from its existing investors that includes Sequoia Capital India, Kalaari Capital, and Steadview Capital, who had pumped in around $115 million (about Rs.750 crore) since its launch in 2012.
Given that Reliance Retail acquired the stake by paying out Rs.182 crore, suggests a significant markdown in the valuation of the furniture and home decor company, founded by Ashish Goel and Rajiv Srivastava. Apart from three stores in Bengaluru, the company has distribution channels across 75 Indian cities.
Urban Ladder, which along with its closest competitor Pepperfry control the online furniture and home decor market in India, could see the infusion of a further Rs.75 crore by Reliance Retail in the future to ensure a complete buy-out. Reliance said it would exercise this option only by December 2023.
UrbanLadder reported profits for the first time in fiscal year 2019. Its profits stood at Rs.49 crore, which came after net losses of Rs.118.6 crore and Rs.457.9 crore in the previous two financial years. As per the current deal, UrbanLadder would operate as a separate brand within Reliance Retail and CEO Ashish Goel will remain in the post.
India's digital furniture market
India's online furniture and home decor business has been a shootout between two brands - PepperFry and UrbanLadder, though there are a few smaller ones too. For most of the past two years, the sector saw growth as more and more of India went into an urbanization mode on the back of increased internet penetration.
However, the brick-and-mortar model continued to thrive, led by Godrej and Zuari, which used their physical stores to tackle the touch-and-feel challenge and borrowed the online model's usability options of payments and home delivery. Which meant that a consolidation effort was visible as far back as 2015-2016.
Actual consolidation began when the Future Group acquired FabFurnish in 2016 for an undisclosed sum and later killed the brand. Earlier this year, Pidilite, which has been manufacturing chemicals, pumped in $40 million into PepperFry, on top of the investments from Bertelsmann and Goldman Sachs, which suggested a robust push for growth in the business.
A smart move by Reliance Retail
From Reliance Retail's point of view, this acquisition expand's the brand's portfolio and supports its recent thrust on eCommerce play. Given the demand slump due to a sluggish economy further impacted by Covid-19, the company has yet again found itself a cheap deal during tough times.
Reliance Retail said such acquisitions would enable the group's digital play and widen the bouquet of consumer products that they could now sell directly to the consumers through Jio Mart, their online store, which incidentally is supported by their efforts around internet penetration across India via Reliance Jio.
The company already has interests in telecom, e-payments, digital commerce, content and media streaming and the latest acquisition adds to Reliance's efforts to acquire and retain customers on its ecosystem.