Arzooo, a B2B retail-tech platform, is on a mission to empower retailers to take on large retail chains and e-commerce majors such as Amazon and Flipkart by offering a wide selection of consumer durables and electronic products at best prices. Besides providing access to a huge inventory without the attendant hassle of locking up precious working capital, Arzooo also offers retailers access to credit at a competitive rate and express delivery.
In a chat with businessline, Khushnud Khan, Co-founder and CEO of Arzooo, shared his vision for the company and insights on the industry landscape. Excerpts.
We’ve come across some interesting data points on demand for white goods from retailers as evidenced by transactions on your platform and how tier-2 and tier-3 cities are driving this huge surge in demand. Can you put these numbers in perspective?
Our sale of white goods increased by 400 per cent during the festive season. The top categories which contributed to this growth are TVs (540 per cent), washing machines (330 per cent) and refrigerators (300 per cent), and we saw a massive rise in demand from the tier-2 and below cities.
This was the first festive season post the pandemic, without any restrictions. We were expecting an uptick in the overall demand for white goods, especially in tier-2 and tier-3 cities owing to the pent-up demand and gradual normalisation to pre-Covid days.
There is a huge untapped potential in these markets and significant consumer lifestyle changes. Consumers in tier 2 and 3 cities India are very aspirational and have an increased appetite for electronic goods like smart TVs, washing machines, and refrigerators.
We came across some interesting trends on our platform translated from the sales of the goods. One of the trends indicates that while the consumers from metro cities are upgrading their TV screen sizes, consumers from the non-metro cities are doing away with small screens and purchasing smart TVs.
However, offline retailers in these cities lack inventory space and credit for more varied selection of white goods. This pent-up demand was an opportunity to partner with offline retailers across India by giving them access to the largest virtual inventory without having them to stock up.
They could also offer better pricing, comparable to online players, and at-door delivery. This increased adoption of our platform from offline retailers justifies the 67 per cent total sales volume that came from non-metro markets alone.
Experts have been saying that omni-channel presence probably is the only way forward and plurality of marketplaces is a given. So how do you see the landscape evolving, both from an end-customer point of view and B2B businesses?
For any digital business, providing an omni-channel experience to customers is a priority. There have been several innovations in the retailer ecosystem to provide customers a seamless end-to-end experience. For us, retailers are our customers and we are working towards providing a complete solution that solves all their challenges.
Our diverse product portfolio encompasses access to better inventory with expanded product category, logistics efficiency with express delivery and access to credit.
Moreover, at any given point there are multiple players in any industry. This plurality enables businesses to innovate and benefits the end-users.
For instance, we began our journey by identifying the gap in the consumer electronics space and worked towards solving the same with our solution. I believe that plurality only enables growth through healthy competition and help businesses evolve over time and create a win-win situation for customers as well as businesses.
We are seeing many e-commerce platforms moving away from deep discounts. How does this change the dynamics of the industry?
Deep discounts have been a great strategy for the competitive consumer electronics space to acquire customers. However, it was never a sustainable business model.
The recent trends suggest that e-commerce platforms are doing away with deep discounts as they are creating consumer demand at a cost of reduced profitability. This will reduce price disparity in consumer goods and increase transparency while bringing both online and offline space at par.
The local retailers that faced major challenges due to the entry of e-commerce giants can now compete in terms of price offering.
As Indian consumers like to try and feel the products before purchasing any consumer durable, we are expecting to see an uptick in the white goods purchases made through retailers, since consumers see no significant difference in the online and offline prices.
Customer experience and product availability will be two major factors which will influence buying decision. That is exactly where our brand comes in.
By digitising the offline retail stores, we are expanding their product catalogues and through logistics platform Arzooo Express, we ensure swift delivery of products once orders are placed.
Talking about the credit gap that retailers face, how acute is the problem?
The retail industry in India shows immense promise of growth to support India’s vision to be $5 trillion economy by 2025. However, offline retailers, especially those in rural India, have been late adopters of digital technology. This is one of the main reasons why they are vulnerable to fluctuating capital and informal access to finance that causes supply-demand gap.
We realised credit has always been an issue for these small and mid-sized retailers given the transformation that merchant credit is undergoing.
Arzooo took cognizance of this liquidity gap and decided to provide our partner stores with working capital cushion. We’ve tied up with NBFCs and reputed banks to bridge the credit gap and give them enough headroom for scaling up.
This festive season, as consumers’ in-store shopping gained traction, we disbursed ₹100-crore worth of credit and witnessed an 800 per cent increase in retailers seeking credit from our fintech arm Arzooo Credit.
Owing to this growing credit demand, we recently partnered with HDFC Bank to issue purchase cards, exclusively designed for offline retailers. In an inflationary turmoil, a key feature we are offering is interest-free credit for a month with limit of up to ₹1 crore.
What are Arzooo plans in terms of overall business growth and expansion into adjacencies?
India’s retailer market is uniquely placed and contributes 10 per cent to the total GDP. We want to modernise and upgrade offline retailers and help them compete with the online players.
We have made significant inroads across Indian geographies and have a network of 40,000 retailers on our platform. We are also diversifying our product portfolio to provide an end-to-end solution that resolves all issues that the Indian retailers are facing.
We recently launched Arzooo Credit to help retailers get access to working capital to run and grow their business. Over the next three years, we plan to grow and capture at least 20 per cent of the $65 billion retail business in India.
Coming to your business model, you have chosen “a complex category” (large consumer appliances). While it may offer you an enviable economic moat, do you think it also constrains your ability to scale up quickly and generate considerable returns for your investors?
Online e-commerce players like Amazon and Flipkart have a significant market share in smartphones and smaller electronic gadgets but what about larger appliances?
Purchase of white goods is a family affair considering these products have a longer life cycle of 10 to 12 years. Retail stores are consumers’ best choice since they play an anchor role and can help them decide the right product from the right brand besides assuring a more prompt after sales service support.
We realise this crucial role that retailers play as compared to an online Amazon or a Flipkart and decided to build Arzooo around this thesis. However, we also understand the core constraints of a business model like this.
Offline retailers aren’t capable of offering customers an endless aisle of products which makes it difficult for them to scale at a considerable pace. This is where our virtual inventory comes into the picture, bringing retailers and their customers, ten times larger product selection and an opportunity for retailers to upsell and cross-sell, all on one platform.
With this, we are significantly eliminating limitations of scale for retailers even in tier-2 and beyond cities. The 400 per cent growth in sales this year proves that we are able to deliver to the growing consumer demand. Although the consumer durable category may seem to be a complex one, it is an evergreen category, and I believe, when our neighboured offline retailers are empowered, we can scale at a really good pace with good returns.