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Explained: What does Reliance Retail’s purchase of UrbanLadder mean for both firms?

Reliance Industries Ltd’s subsidiary Reliance Retail Ventures Ltd has purchased 96% stake in online home decor company UrbanLadder for Rs 182.12 crore. What are the details of the deal? What does the deal mean for Reliance Retail? How is the online furniture retail market shaped?

Written by Pranav Mukul , Edited by Explained Desk | New Delhi | Updated: November 19, 2020 11:25:39 am
Reliance Retail also has the option of acquiring the balance stake, taking its shareholding to 100% of the equity share capital of UrbanLadder. (File Photo/PTI)

Reliance Industries Ltd’s subsidiary Reliance Retail Ventures Ltd has purchased 96% stake in online home decor company UrbanLadder for Rs 182.12 crore. This is the company’s fourth acquisition this year after Coimbatore-based Kannan Departmental Store in March, and e-pharmacy Netmeds and Future Retail’s assets in August.

What are the details of the deal?

Reliance Retail has bought the 96% stake in the Bengaluru-based UrbanLadder 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) since the company’s launch in 2012. This represents a significant markdown in valuation of UrbanLadder, which was only second to its Pepperfry in the online furniture segment. Reliance Retail also has the option of acquiring the balance stake, taking its shareholding to 100% of the equity share capital of UrbanLadder. It said that it would further invest Rs 75 crore in UrbanLadder, and this additional investment is expected to be completed by December 2023.

What does the deal mean for Reliance Retail?

The deal contributes to Reliance’s plans of building a stronger retail portfolio that supports its e-commerce play. According to the company, acquisitions like these enable the group’s digital and new commerce initiatives and widen the bouquet of consumer products provided by the group, while enhancing user engagement and experience across its retail offerings. With its existing portfolio of digital services including telecom, e-payments, online commerce, content streaming, etc these acquisitions open the gates for vertical integration of services that experts believe would enable Reliance to keep a customer within its own ecosystem for everything a user consumes online. The deal also gives Reliance Retail access to a growing online furniture retailer — which has seen its turnover grow by nearly 10-fold in three years to Rs 434 crore for financial year 2018-19. 📣 Express Explained is now on Telegram

What does the deal mean for UrbanLadder?

During 2018-19, UrbanLadder reported a profit of Rs 49 crore, the first since its inception in 2012. This was preceded by net losses of Rs 118.66 crore and Rs 457.97 crore in 2017-18 and 2016-17, respectively. The acquisition means that the company can now stop worrying about funding to finance its losses. According to sources, for now the company will continue to operate as a separate brand within the Reliance ecosystem with CEO and co-founder Ashish Goel continuing to hold his post for the time being.

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How is the online furniture retail market shaped?

The growth in online furniture retail was effectively a result of the work put in by two companies — Pepperfry and UrbanLadder — and sectoral experts envisaged these companies, along with other smaller ones, to grow further as urbanisation and internet penetration in India increased. However, with the success of the omni-channel model, in which online platforms started establishing physical stores to tackle the ‘touch and feel’ problem in furniture e-tailing, traditional furniture companies like Nilkamal and Godrej soon started consolidating their position, in terms of gross merchandise value, using the same model. This established a scenario where online furniture platforms would look attractive to conventional companies in the furnishings segment as an add-on.

In 2016, Kishore Biyani’s Future Group acquired online furnishings company FabFurnish and a year later, fully absorbed the company and the brand ceased operations. In February this year, chemicals maker Pidilite Industries invested $40 million in Pepperfry, which counts Goldman Sachs, Bertelsmann India Investments, among its key investors. About the investment in Pepperfry, Pidilite Industries’ CFO Pradip Menon had said: “Having an equity stake, obviously means that we will have a very close collaboration with these platforms and therefore bring those insights to our organization and which can form a part strategy as the market moves gradually albeit in a very small manner to sort of a platform where ready to make furniture, etc., becomes more popular”.

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