Ebay pioneered the asset-light marketplace connecting buyers and sellers. Amazon chose a more managed model with warehousing and logistics. Niche ecommerce company Zefo is taking that Amazon model to another level by managing the buying and selling of used goods end-to-end, including refurbishment, quality checks, and price assessment.
This is aimed at solving the two key pain-points of used goods trading: distrust from buyers and hassles for sellers. With those taken care of, the main attractions of used goods kick in: deep discounts and wide variety. The hunt for bargains can begin without nagging doubts about being swindled. And sellers needn’t worry about dressing up those used but functional goods.
All that is fine in theory, but managing it on the ground poses huge challenges. India’s a big market where consumers love bargains and are moving online in droves. But they can be very suspicious about claims regarding used goods.
If you don’t scale fast, it will be difficult for us or anyone else to crack the mobile phones category.
Zefo appears to have overcome the initial skepticism. Last year in November, when it raised its first funding round, it had around 30,000 consumers in Bangalore. Now, it claims to have served about 150,000 consumers, growing 30 percent month-on-month. It also expanded to Mumbai and Delhi last year.
“When you run a business, the biggest thing is the product-market fit. Will the consumer adopt a solution like yours? I think the sort of growth that we saw over the last one year, that has been the most pleasing aspect,” Zefo’s CEO and co-founder Rohit Ramasubramanian tells Tech in Asia.
Zefo wants to be the online “super store” for used goods, without compromising on its managed process even as it scales up. To do that, it has closed a series B funding round of US$9.2 million from the same set of investors who put in US$6 million last year: Sequoia India, Helion Venture Partners, and Beenext from Japan.
The money is going to come in handy as Zefo zeroes in on the efficiency of its core operational processes like logistics, warehousing, and refurbishments. To understand Zefo’s focus on these, you need to know its business model.
Not the usual classifieds business
Zefo is not your typical used goods marketplace, which operates more or less like the classifieds.
Zefo buys the products from a seller – it could be you getting rid of that LED TV or furniture etailer Urban Ladder selling its factory seconds. It handles the logistics, takes the product into its warehouse, does quality assessment, cleans and disinfects it, and then refurbishes it if required. Only after that lengthy process does Zefo catalog and upload the details and pictures of the product – “including those of defects if any,” Ramasubramanian points out.
If by any chance, the consumer runs into some trouble with the product she bought on Zefo, she would get after Zefo and not the original seller. This is unlike the typical used goods marketplace which does little to assess the quality of listed products. This is what Ramasubramanian cites as the value Zefo brings to the table. And that’s why it’s important for the company to work on making that better and better.
“Until recently, we had a basic TV repair facility, where we did quality checks and repairs. Our capacity was around 25 TVs per day. Now we have upgraded it to a state-of-the-art facility which can handle about 200 TVs per day,” Ramasubramanian cites as an example of the kind of “enhancements” Zefo wants to do with the latest capital infusion.
It has also launched a third product category for mobile phones, after starting with furniture and expanding to include appliances. Some of the funding will go into setting up quality check processes for the new category and getting the operations right.
“Mobile phones as a category is typically a volume game, both for new as well as used devices. If you cannot scale quickly, then your margins will never work out. If you don’t scale fast, it will be difficult for us or anyone else to crack that category,” Ramasubramanian tells me.
Refurbishing is no mean task
Zefo faces competition from classifieds sites OLX and Quikr as well as eBay India, which got acquired by Amazon’s Indian rival Flipkart earlier this year. Flipkart can ramp up the used and refurbished goods on eBay India with the products it receives in exchange offers and buyback guarantee schemes. Amazon India has also made a foray into used goods, starting with books.
But, as Zefo’s experience shows, it’s no mean task to assess and refurbish used or unboxed goods. That’s where the opportunity lies for a niche player focused on doing this in a huge, unorganized market.
“This is an operationally complex business – not as simple as a listing site where you put up products and people would start transacting. In order to maintain the quality, which ultimately is our strength and differentiator, there are a lot of steps that we take. Otherwise, this business won’t work. The big challenge is to maintain our growth rate and sort of grow our supply, demand, and operations in sync,” he says.
One of the first things Zefo co-founders did when introducing the mobile phones category was to recruit a senior hand to head the repairs unit for it. That was because they had learned from an earlier mistake. They took a year to hire an industry senior to take charge of their TV repairs unit. “He is the one who scaled up our repairs facility to what it is now – which is 15 times larger with way more span. Until he came, we had worked with junior technicians. On hindsight, that was a mistake. We should have made that hire a long time back,” Ramasubramanian tells me.
He co-founded Zefo in August 2015 with his former colleague from Helion Venture Partners Karan Gupta. Two other co-founders are Himesh Joshi, former consultant with the Boston Consulting Group, and Arjit Gupta, who earlier worked with Amazon and Flipkart.
I don’t want to comment on the specifics of profitability – it always gets misconstrued.
Zefo, as they envisioned it, “sits nicely on our Indian value-for-money mindset.” It’s the value aspect that makes the business sustainable, says Ramasubranian, even though its heavily managed process for logistics, quality checks, and refurbishment add to costs. How to give a bargain and also ensure quality – or value-for-money – is a balancing act for all marketplaces, and especially those in used goods.
The Zefo CEO declined revealing revenue and expense figures, but claimed it has a sustainable margin despite the extra expenditure involved in its business model compared to that of OLX, Quikr, or eBay.
“Because we are able to add value through the entire quality check process, our margin is healthier compared to the classifieds business. We make sure that our margin works within our cost of operations. We try to hit a sweet spot which works for the consumer, seller, and us,” he says, without specifying Zefo’s margin or going into details on the costs of quality checks and refurbishment of specific products.
“This business is not so cut and dry… There’s operations, warehousing, marketing, supplier acquisition, team, and so on. Each of these are sizable cost heads. We have to optimize all of this.”
Ramasubramanian also did not want to go into specifics on cash burn and path to profitability. “I don’t want to comment on the specifics of profitability – it always gets misconstrued. But I can say that profitability is a core goal,” he says. “If I look at our largest market, which is Bangalore, we are pretty close to profitability. Growth is not the main driver for us in Bangalore right now, but profitability is the metric we are rising towards. As we get more and more efficient, we will automatically become profitable.”
According to Ramasubramanian, Zefo opted for a measured approach to growth, banking on word-of-mouth to lure customers and keeping its acquisition costs low. That, he says, has helped them build the business in a more sustainable manner. The fresh funding was raised to step on the pedal now.
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