How an Ecommerce Company Went From Unicorn to Small Fish

July 2, 2021 6 min read

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This story played out almost a decade ago when India woke up to an ecommerce boom. At the time, I was a martech founder and startup mentor at Founder Institue, so I was intrigued by what was unfolding in the Indian ecommerce sector. The internet user base was hardly 100 million, and India-focused venture funds were on a constant lookout for a homegrown succes. While Walmart-owned Flipkart had yet to figure out the market and was mostly known for being a convenient bookstore, Amazon was not in the picture yet. Aside from Flipkart, India had limited ecommerce brands like Snapdeal, Yebhi and Fashion and You.

While the big players focused on the large metros, ShopClues decided to focus on Tier-II cities and below. Essentially, ShopClues sold everything from cheap electronics and apparel to cutlery from small traders around the country.

Everyone was fighting for the city buck because the margin was higher, and the customer was easy with the purse, but ShopClues was doing what most companies are doing today — catering to 65% of the country. Naturally, small-business people and non-urban consumers felt wanted, and ShopClues onboarded as many as 350,000 partners and one million monthly active users by 2014.

But Flipkart soon enjoyed massive popularity, and eventually it was time for ShopClues to re-strategize or surrender: an initial round of discussions for a sellout was initiated with Flipkart in November 2013. Yet the homegrown giant was unwilling to write a check for anything over $70 million. The funding cycle was also impacted by Nexus’s hesitancy to commit to the next round of funding; it eventually agreed to invest another $15 to $20 million, six months later than initially planned. That’s also when Amazon started getting aggressive in the country.

It was impossible to handle so many things at once

The tech giant Amazon had figured out its supply chain for Tier-II and Tier-III centers, and with its endless capital and high-quality customer experience, it became a huge threat.

Things improved for a time, then got much worse than before. Two scenarios began to play out — competition intensified, and an internal power struggle got ugly.

Meanwhile, Amazon and Flipkart were closing in. The company’s core business model was under pressure. That platform had stopped evolving, and buyers started moving out of ShopClues. Now, one could buy an affordable T-shirt on the site, but when it came to a smartphone, it would be on Flipkart or Amazon. The two companies that dominate over 60% of the online marketplace today had started making ShopClues and every other competitor irrelevant.

Investors were drawn to the ecommerce opportunity, but they bet much bigger on rivals. In early 2015, Tiger Global acquired $100 million in funding for ShopClues on a $350 million valuation. But it infused $1 billion into Flipkart!

The strategy was to back two different sets of buyers, which was a smart thing to do

With the market opening up, Tiger Global decided to go with Flipkart.

Still, in 2016, ShopClues became a unicorn when investors such as GIC, Tiger Global and Nexus pumped in another $100 million. It made headlines as the fourth unicorn in the country, at a time when unicorns were not born every third week as they began to be in 2018.

At the time, in my position as a startup mentor, I said, “$250 million in funding to deliver barely $30 million in revenue with red ink the length of the Ganges is just not reasonable, and most definitely doesn’t justify a billion-dollar valuation. At best, it warrants a $90 million valuation.” The startup simply got lucky with the timing, and had thus become overvalued by 10 times its actual worth. In fact, the company posted a loss of $2.08 billion and has been in the red since its inception.

ShopClues’ failure stemmed from a total lack of focus on business fundamentals. Other companies such as Fashion and You, Yebhi and Askme also went bust despite having big money pumped in.

It was well-funded, and ShopClues wasn’t too off from the 8% market share it had in 2015, despite its troubles. That’s when they decided to pivot. The first decision was to launch private labels in mid-2017, including Home Berry for home décor and furnishing.

This was a clear deviation from the marketplace strategy.

However, in April of 2018, a confident Radhika Aggarwal, then CEO of Shopclues, said 5% of Shop- Clues’ revenue came from private labels. She was aiming to push that to 20% by the end of 2019.

By now, you may have realized it’s not a story with a happy ending

Investors and analysts alike questioned this move. ShopClues either had to continue with the low-price commodity model or move on to being a full-fledged brand. The hybrid approach was never going to work.

It’s extremely difficult to sell private labels in unbranded categories since demand is always uncertain, and a company needs to have a massive user base.

Only one example of success comes to mind — Pinduoduo, in China — a company that has a large user base of over 350 million. In contrast, ShopClues has just 10 million monthly active users, hardly 20% of what Flipkart and Amazon have.

ShopClues was nearing the end of the road, and in October 2019, it announced a deal with Singapore- based Qoo10 — a fire sale at just $60 to $70 million — a value that the company had refused from Flipkart just a few years ago because it believed it was worth much more than that.

ShopClues’ quick rise and fast decline could be material for a Netflix thriller. It’s also a lesson in making sound business and leadership decisions.

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