Billion-Dollar Unicorns: ShopClues Joins The Club

| About: ShopClues (CLUES)

Summary

ShopClues has more than 350,000 sellers on its platform, over 100 million visitors per month, and ships over 3.5 million products.

According to a recent report, ShopClues has revenue of around $75 million. Its gross merchandise value is expected to reach $750 million this year.

ShopClues is venture funded so far. Overall, it has raised close to $265 million in funding from investors.

According to Morgan Stanley, by the year 2020 the total Indian Internet market is expected to reach $159 billion while the e-commerce market is expected to reach $119 billion. About $6.6 billion funds were pumped into the market in 2015, an increase of 50% over 2014. While Flipkart (Private:FPKT) and Snapdeal (Private:DEALS) hold 45% and 26% of the gross merchandize value (GMV) market share, ShopClues (Private:CLUES) is the most capital efficient online marketplace. All these factors have seen ShopClues rise up to be a Billion-Dollar Unicorn.

ShopClues' Business Model

Gurgaon, India,-based ShopClues was founded in 2011 by Washington University alumnus Sandeep Aggarwal, eBay's (NASDAQ:EBAY) former Global Product Head Sanjay Sethi and IIT alumnus Radhika Agarwal. At that time, eBay was the only online marketplace in India. However, eBay was an open marketplace while ShopClues allows only merchants and not individuals to sell through its site.

Additionally, it offers merchants access to business management and marketing tools along with analytics. To protect sellers, ShopClues ensures that the transaction payment is transferred to the seller only after the buyer confirms satisfactory delivery of the product.

ShopClues is more of an online flea market that focuses on the fragmented and unstructured retail in India, which is dominated by smaller merchants in the smaller Tier II and Tier III cities. It focuses on high-margin unbranded products rather than branded goods. This is in stark contrast to its rivals Flipkart and Snapdeal that focus on branded apparel and smartphones.

Another contrasting feature is profitability. While its rivals are losing money on every transaction due to discounts, ShopClues avoids losses despite discounts. Since the first quarter of 2013, its gross margin has been positive.

ShopClues has found its niche in the Indian middle-class, small town consumer. It has over 350,000 sellers on its platform, over 100 million visitors per month, and ships over 3.5 million products.

ShopClues' Financials

According to a recent Wall Street Journal report, ShopClues has revenue of around $75 million. Its gross merchandise value is expected to reach $750 million this year. Its revenue comes from the service fee it charges merchants for products sold through its website. The sales commission ranges from 4% on goods like memory cards and thumb drives to 17% on fragrances and jewelry. They are not yet profitable but expect to turn profitable before they go public.

Unlike other e-commerce players, ShopClues is known for its cost conscious structure. ShopClues does not host any inventory and also uses its advertising money rather frugally. They use social media, email marketing, and targeted outdoor marketing to attract buyers, thus maintaining strict control over advertising spend.

ShopClues is venture funded so far. Overall, it has raised close to $265 million in funding from investors including GIC, Tiger Global Management, Nexus Venture Partners, Helion Venture Partners and LionBird. They were formed using the $250,000 seed fund that the founders had put in. In January this year, they raised close to $150 million from GIC and existing investors Tiger Global Management Corp. and Nexus Venture Partners at a valuation of $1.1 billion. Their last round of funding for $100 million in January 2015 valued them at $350 million. This pales in comparison to the billions raised by Snapdeal and Flipkart at skyrocketing valuations.

Shopclues is looking at a public listing on the US or Indian stock market next year. But before that it wants to turn profitable. And if it manages to do that, it could be a source of welcome relief for investors who have become wary of burning cash in the Indian e-commerce market without any sight of profitability.