#Asia This ecommerce site gives the biggest discounts and still makes money. It just bagged $6m

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Zefo founders

Zefo founders. Photo credit: Zefo.

An unboxed sofa from Urban Ladder, one of the coolest furniture portals in India, is available for INR 6,000 (US$88.5) on Zefo, an online marketplace for used or returned goods and factory seconds. That’s a 70 percent cut on its original price of INR 20,000 (US$295).

I was sorely tempted to buy it. ‘Unboxed’ means the sofa hasn’t even been used. It’s a discard because of a defect. Zefo tells me upfront that it has a minor leatherite cut at the side and an ink stain on the arm rest. Not an issue for me because I know Urban Ladder makes good furniture. Besides, Zefo guarantees a buyback for INR 4,200 (US$62). So I risk little if the leatherite cut becomes hard to contain later.

The buyback guarantee gave a big boost. We saw a 40 percent increase in conversion rate.

Many others, especially millennials, apparently have the same idea. Zefo, founded last year, says it is currently growing at 40 percent month-on-month, and selling 400-500 products a day. The Bangalore-based startup recently expanded to Mumbai and Delhi.

Today it announced series A funding of US$6 million led by Sequoia Capital India with participation from Singapore-based Beenext and existing investor Helion Ventures. The funding will go towards expansion to more cities and entry into more categories.

Currently, Zefo sells furniture and household appliances. Consumer electronics will be added soon, says Zefo co-founder Rohit Ramasubramanium.

See: Ex-Amazonian’s stealth startup gets $2m seed funding to disrupt logistics

Where Zefo stands apart

A number of factors have contributed to the fast-growing popularity of Zefo. The buyback guarantee gave a big boost, for instance. “We saw a 40 percent increase in conversion rate,” Rohit tells me. It also creates a long-term engagement with the customer who becomes both a buyer and a seller on the site.

Unlike in developed markets, the biggest inhibiting factor working against used goods marketplaces is lack of trust. There are few systems in place for quality assurance.

Unboxed sofa in Zefo

The unboxed sofa I was eyeing in Zefo.

Zefo tries to solve this with a fully managed operation end-to-end. It picks up the object from a seller, with payment upfront, so that it’s hassle-free. Then it goes through a quality test and refurbishing. Defects are called out transparently on the site when the object is listed. Delivery is made to the buyer just like any ecommerce site.

This is a far more controlled process and different experience from that of a pure marketplace like classifieds site Quikr which connects buyers and sellers and does little else in between. The quality assurance adds to the cost of transactions, but Rohit tells me the margins are still good enough for a sustainable business. Zefo has no intention to go the cash-burning route of better-known horizontal marketplaces. It wants to focus on user experience.

Apart from making things convenient for sellers, Zefo is also tapping into the rise in returned goods by tying up with ecommerce sites. Exchange offers are another avenue – Zefo offers a better deal than the rock bottom ones retailers or manufacturers give for the exchanged goods.

See: 16 startups riding the rise of the solo consumer in India

From IIT and BCG to used goods salesmen

Rohit and two of his co-founders, Karan Gupta and Himesh Joshi, graduated from the premier Indian Institutes of Technology at Madras, Delhi, and Mumbai. They worked together at the Boston Consulting Group before starting Zefo. A fourth co-founder, Arjit Gupta, is also a techie who worked at Adobe, Flipkart, and Amazon.

Rohit admits they had little firsthand knowledge of the used goods market when they started. So they roped in a furniture goods shop owner from Jodhpur in Rajasthan, an Indian state known for its craftsmanship, to head the quality control unit. Later, an LG service center head was brought in for support with appliances.

The use cases for a marketplace like Zefo are growing in India. Apart from bargain hunters and young professionals seeking value for money while setting up house in urban India, there’s an increase in people switching jobs and moving. Many such itinerants prefer used goods for short-term use, and the buyback facility works out well for them.

Flea markets and used goods sales have always been popular in price-conscious India. But it has always been accompanied by distrust and many wasted hours in haggling. Well, maybe not for some who love the hunt and the haggle. But most people would welcome the convenience of a Zefo, Sequoia is betting. “Their [Zefo’s] net promoter score is a testament to how well the service is resonating with both buyers and sellers on the platform,” points out Abheek Anand, Principal, Sequoia Capital India Advisors.

The challenge for Zefo will lie in maintaining this level of service and customer experience as it scales up in multiple cities. Each city has its own character. For example, the shift to digital transactions following the Indian prime minister’s move to limit the use of cash had little effect on Zefo’s business in Bangalore, India’s Silicon Valley. But in the national capital of Delhi, there was a significant downturn in sales.

See: The former Microsoft director who tossed a coin to decide if he should quit his startup

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