Investors turn to small-ticket home decor to beat furniture blues

Home and lifestyle brand Nestasia, founded in 2019 by Aditi Murarka Agrawal and Anurag Agrawal, raised about $8.35 million on 10 September, led by Susquehanna Asia Venture Capital and Stellaris Venture Partners. According to data from Tracxn, it is one of the largest funding rounds in the space, leaving aside HomeLane (Homevista Decor and Furnishings Pvt. Ltd and LivSpace, which also offer interior design services.

Similarly, Vaaree, founded in 2022 by Garima Luthra, Pranav Arora and Varun Vohra, raised $2.5 million in May in a pre-Series A round led by Capier Investments, with the participation of Peak XV’s Surge Ventures. In September 2023, it raised $4 million.

Startups such as Decortwist, founded in 2022, and Nestroots, founded in 2016, have also found backers.

“The home décor and kitchen market, valued at $15 billion, is growing rapidly as consumers increasingly seek higher-quality products and fresh designs. Despite strong customer demand, building a standout brand in this category has proven challenging, leading to limited venture capital (VC) interest," Rahul Chowdhri, partner at Stellaris Venture Partners, told Mint.

Also Read: Rent vs buy: Why startups failed to shake up the furniture rental market

The big opportunity

While big players such as Flipkart's Myntra, Nykaa (FSN E-Commerce Ventures Ltd), Amazon India and furniture startups Pepperfry and Urban Ladder have home decor as a category, there’s an opportunity for companies to build a business focused just on this segment, according to industry experts.

“A company that can consistently deliver innovative designs while maintaining tight control over inventory has the potential to scale and become a major player in this space," Chowdhri added.

The category has seen a lot of interest after the covid-19 outbreak, according to Satish Meena, advisor at data platform Datum Intelligence. “This is happening across income groups, also because of improved catalogues offered by these companies," he said.

“Many of these companies with a singular focus on home decor have better designs. Customers have more trust in direct-to-consumer (D2C) brands than in the past," he said, adding that the investor interest is directly proportional to how much sales and scale these companies can generate. “All these things are working together."

Also Read: Tepid demand, high competition puts home decor firms in tough spot

To be sure, these startups have their work cut out for them. The market is dominated by players like Ikea and Home Centre.

The Swedish multinational conglomerate recorded a 61% rise in India sales to ₹1,768 crore in 2022-23. Lifestyle International-owned Home Centre's revenue stood at ₹642 crore in the same fiscal.

In comparison, Nestasia recorded a revenue of ₹37 crore in 2022-23, compared to ₹22 crore in 2021-22, while Vaaree posted a revenue of ₹2 crore in its first year of operations (2022-23).

Though the ticket size is small, investors seem to be betting on the order frequency. “While the average order value (AOV) is relatively lower than that of home design and furniture segments, the frequency of purchases is much higher. An average customer buys 5-10 times a year, compared to just once or twice in a lifetime for home design purchases."

Vaaree follows a factory-to-home model, connecting “high-quality local manufacturers and artisans with the end consumer". On the other hand, Nestasia launches new products every week, which is supposed to be a pulling factor.

"Two key trends are seen prevailing in the sector that are key reasons for peaking investor interest, namely premiumization, where shoppers now prefer well-designed, higher quality products, as well as the emergence of branded purchase. Branded market share, although still a small percentage of the overall largely unorganised market, is a positive influence," said Nestasia's co-founder Aditi Murarka.

Also Read: Home decor shines thanks to wood panel and tile makers

Trampoline, a business-to-business home decor startup offering retailers buyer experience akin to a D2C site, also raised $5 million from Matrix Partners and Waterbridge Ventures in June.

“It’s great to see more startups verticalised in home decor, building more tech-enabled solutions and driving higher efficiencies across the value chain," said Anushka Mahanti, co-founder and chief commercial officer, Trampoline.

The social-media boost

Kitchenware, gifting and home decor are among the top 10 sub-categories that consumers are looking to buy from quick-commerce platforms, according to Datum intelligence's festive sales forecast.

Moreover, short videos across social media platforms are the third-most preferred source of research for consumers, according to the report.

This change in the way customers discover products has also led to increased organic discovery of such players, as compared to a time when Amazon or Flipkart were the only two product-discovery platforms.

“If you go to Amazon, these items' discovery isn’t great. But if you have a dedicated space, it gives a better chance to deliver a unique experience," said Meena.

With a focus on non-furniture items, these companies also shed a major logistics burden. “Returns were a big issue in the furniture segment as the cost of return logistics was very high due to the size and weight of the products. With the option of logistics partners providing distributed warehousing, a lot of these brands are also offering the same and next-day deliveries," said Meena.

Also Read: From growth at all costs to sustainable growth: the maturing of Indian startups

The volumetric weights, shipping, storage and overall logistics complexities for our categories compared to furniture are relatively lower, according to Agarwal of Nestasia.

The lull in the furniture segment

Besides these startups raising funds, the space hasn't seen much activity lately.

Pepperfry and Urban Ladder, which have raised $300 million and $108 million so far, respectively, are struggling to stay afloat. In fact, Pepperfry, which claims about 65% market share in the organized furniture market, is reportedly exploring a sale.

Pepperfry's revenue grew 10% to ₹272 crore in 2022-23, while Urban Ladder's revenue declined nearly 15% to ₹193 crore in the same fiscal year.

India's furniture market, on the other hand, is witnessing healthy growth and is likely to reach $39 billion by 2027, according to data portal Statista.