Reliance Retail Ventures acquires 96% holding in Urban Ladder for Rs. 182.12 crores; Buyout likely to trigger consolidation among smaller businesses?

Reliance Retail Ventures Limited, a subsidiary of Reliance Industries, on Saturday informed the stock exchange that Reliance Retail had acquired 96% equity shares of online furniture startup Urban Ladder Home Décor Solutions Pvt Ltd for Rs. 182.12 crores.

Through its subsidiary Reliance Retail Ventures (RRVL), Reliance Industries has bought a majority stake in Urban Ladder from its existing investors, including Sequoia Capital India, Kalaari Capital, and Steadview Capital. (who have cumulatively invested around $115 million around Rs 700-750 crore)

Reliance Retail has the option of further acquiring the balance stake, taking its shareholding to 100 percent. It said that it would additionally invest Rs. 75 crore in Urban Ladder and the investment could be completed by the year 2023.

Reliance – Fund Raising spree 

Reliance Industries has been garnering news with recent business deals, particularly the multibillion-dollar deal between Facebook and Reliance Jio in April 2020. 

Reliance had in August acquired a majority stake in the digital pharma marketplace Netmeds for around Rs 620 crore.

Reliance in the last two months has been on a fundraising spree by selling stakes in RRVL and had earlier this month announced Rs. 9,555 crore investment from the Public Investment Fund of Saudi Arabia.

Taking its total to fundraise in these last two months to Rs. 47,265 crore.

The investment had valued RRVL at a pre-money equity value of Rs 4.587 lakh crore.

RRVL had previously raised Rs 37,710 crore from leading global investors, including Silver Lake, KKR, General Atlantic, Mubadala, GIC, TPG, and Abu Dhabi Investment Authority (ADIA). 

What does the deal imply for Reliance Retail?

Reliance Retail Ltd, a subsidiary of RRVL, operates India’s largest, fast-growing retail business witnessing close to 640 million footfalls at its 12,000 stores across the country. 

The deal is significant and contributes to Reliance’s plans for building a more robust retail portfolio that supports its e-commerce play. 

The deal will enable Reliance’s digital and new commerce initiatives. It will also provide a variety of consumer products, enhanced user engagement, and experience across its retail offerings.

The deal supports the visions of vertical integration of services that would enable Reliance Industries ‘to keep a customer within its own ecosystem.’

The deal also gives Reliance Retail access to a growing online furniture retailer, which has seen a growth in turnover by nearly 10-fold in three years to Rs 434 crore for the financial year 2018-19.  

“Reliance Retail’s vision is to galvanize the Indian retail sector through its new commerce strategy, serving millions of customers by empowering micro, small and medium enterprises (MSMEs)”

What does the deal mean for Urban Ladder?

Urban Ladder Home Décor Solutions started its operations in Bangaluru in July 2012 and was co-founded by Ashish Goel and Rajiv Srivatsa (who later quit the company in October 2019), 

Urban Ladder, an omnichannel brand offering furniture and home décor, was established as an online brand first and then transitioned onto offline retail.

Urban Ladder gained popularity with its Furniture Exchange offer that it provided through Zefo and Quikr.

The online furniture store retailer was valued at around Rs. 1200 crore in 2018 but dropped in its valuation to around Rs. 750 crores in 2019.

The acquisition means that the company can now stop fretting about funding to finance its losses. According to sources, the CEO and co-founder Ashish Goel will continue to hold his post for the time being. The company will also continue to operate as a distinct brand within the ecosystem of Reliance Industries.

What does it mean for Online Furniture retail?

Urban Ladder buyout is expected to trigger consolidation among online furniture retailers and likely to create a few dominant brands.

The smaller retailers may find themselves squeezed between e-commerce behemoths and the unorganized sector.

Pepperfry and Urban Ladder are the two brands that largely contributed to the growth of online furniture retailer. 

From an online platform, the brands soon moved to establish physical stores to tackle the ‘touch and feel’ problem in furniture e-tailing.

Booming E-Commerce Market. 

India’s e-commerce market is booming. According to the latest figures, by the year 2025, it is set to clock $100-120 billion in GMV (Gross merchandise value) and roughly 300 – 350 million shoppers.

In India, the e-commerce segment accounts for 3.4% of the overall retail market and an online GMV of approximately $30 billion. 

Due to the current Covid -19 pandemic, the e-commerce industry is particularly set for success as millions of middle – class customers are now adopting to online purchases. 

Food and grocery retail have seen a steep rise in demand and delivery.

India is a major battleground for Amazon, Reliance, and Walmart Inc’s Flipkart as all vie to gain market share in India.

For Amazon, the stakes are particularly high. It believes that India is a vast market with tremendous growth potential, more so since it shut its online store in China last year.

By August this year, Amazon had claimed that its sales and the value of goods that were delivered through online shopping had surpassed previous year’s Diwali sales on a per-day comparison. 

The lockdown and the apprehension of physical contact had pushed people to shop online and avoid physical contact and changed traditional shopping habits. 

Earlier, as only essentials were being delivered due to the lockdown, the sales were competitive. Still, as the government set out to the economy’s opening, the product base, and hence the sales expanded exponentially from June onwards.

Even after the shopping Malls have opened in several cities, the fear of the pandemic and social – distancing has led to hardly any footfalls in the shopping malls.

This implies enormous growth opportunities for e-commerce and entrepreneurs. A large segment of society is hooked on to e-commerce for not only expensive electronic goods and smartphones but also daily essentials such as groceries; even the demands of gaming and entertainment had moved online.

All the pointers are in the direction of a massive boom in the e-commerce segment and excellent growth potential.