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

“They are at a stage where they value experiences more than ownership of physical assets," Kashyap Vadapalli, the former chief marketing officer of Pepperfry had said at that time.

Even though the company saw great interest that year—Pepperfry, at one point, reported traffic of close to 5 million visits a month, “10x-20x of the existing players’ monthly traffic"—the prospect of a billion-dollar goldmine did not play out. It eventually realized that the market was too narrow and wound down the segment in February 2019.

“We did not see any great excitement about the kind of products that we wanted to sell. This is largely because the moment you want to settle down, rental does not play a role," Hussaine Kesury, Pepperfry’s current chief business officer, told Mint.

The growing popularity of equated monthly instalments (EMIs), or the fixed sum that a borrower must pay every month towards a loan, has further dented the prospects of rental companies. “Today, we have affordable EMIs to buy furniture across all price points," he said.

 

Nonetheless, India still has startups with rental as their core business model. According to Tracxn, there are 157 companies in the segment across the world. Prominent names in India include Rentomojo, Furlenco, Cityfurnish and Rentickle. How are they doing?

Turns out, they have been grappling with the complexity of the market. And yes, like Pepperfry, they also had overestimated the market. Not just these companies, but even market researchers were rather optimistic at one point. In a report, ‘India’s furniture rental industry on the upswing’, published in 2021, consulting firm Grant Thornton stated that the estimated size of the Indian furniture rental industry in 2020 was around $4.1 billion. The firm saw the market growing to $13 billion by 2025. Nonetheless, Grant Thornton had a wider definition of the Indian furniture rental market. Its estimate included all revenue received annually through the renting of furniture in homes, offices and hotels as well as electrical appliances. And apart from the organized players, there is a huge unorganized market in every nook and corner of India.

While furniture rental companies are growing, they have remained small. Take the case of Wakefit Innovations, which started in 2016 as a mattress company. It diversified into selling furniture later and generated revenue of ₹813 crore in 2022-23. The furniture seller nearly doubled its revenue in two years.

Rentomojo, in comparison, was founded two years earlier—in 2014. It only generated revenue of ₹121 crore in 2022-23.

Pepperfry was founded in 2011. In 2022-23, the company generated revenue of ₹272 crore. Furlenco, which started around the same time, in 2012, reported revenue of ₹155.7 crore in 2022-23. Sheela Foam signed an agreement to acquire a 35% stake in the company for ₹300 crore in July last year.

What exactly are the prospects of furniture rental companies, going ahead? And can they ever become big enough to disrupt the furniture market?

Before we try and answer these questions, let’s look at what has constrained the sector’s growth.

The Long Wait

Diptarka Roy lives with his son and wife in a 3BHK apartment in Bengaluru. He had been using rented furniture from Furlenco. About three years back, he wanted to return them, as he decided to switch loyalties to Rentomojo. But, he had to wait for six long months for the old furniture to be picked up by Furlenco.

“The company kept delaying the furniture pick-up and even charged me for it. Every month, I also raised complaints but never got any response," Roy said. “Eventually, I stopped paying the rent. Next, I started receiving calls for missing bills. It really was a nightmare," he added. “Because of the delay, it also added to the clutter in the house, and it was really a messy situation," Roy further said.

Furlenco acknowledges the problems it is grappling with when it comes to customer experiences.

Another customer, who did not want to be identified, said he was able to rectify the installation as well as the pick-up situation only after he made a public appeal (he posted his ordeal on LinkedIn) to Rentomojo’s co-founder Geetansh Bamania.

The difficulty in returning the furniture, therefore, has led to customer dissatisfaction. This, in turn, could have impacted growth.

When we checked with Bamania on customer complaints, he said that every year, Rentomojo focuses “50% of its bandwidth" on improving the experience. “It’s a fiduciary responsibility to reach out to the consumer and we really do our best to solve (faulty cases). There have been countless examples when we are not able to do that...but every day, the rigour is to do better next time," he said.

Wobbly Tables

People Mint spoke to also complained about the quality of furniture that is rented out. Companies often promise furniture that is ‘as good as new’ but what arrives is a different story, they said. Beds that have scratches, tables that are wobbly, and chairs with uncomfortable cushions.

About nine months ago, Nishant Badwal, who identifies himself as a data scientist, posted on LinkedIn: “I was delivered a sofa that was broken. Had sent multiple mails and photos to the call centre team (of Furlenco). No action was taken."

“They always promise a good product but end up giving substandard stuff that does not work very well. I raised a complaint with the folks to get it checked and it was an endless process of constant delays," Sean Andrade, who is in his 30s and teaches for a living in Mumbai, said. “These rental services really need to improve the quality and update the products they have. Most of it looks very tattered and old," he added.

Andrade has used both Rentomojo and Furlenco. He was also charged despite discontinuing the service.

“The logistics of rental business is different, and it has not been a smooth process yet," Ajith Karimpana, Furlenco’s founder, said. But the company gets it right 90% of the time, he clarified. “The other 10% is what we need to fix and in a year from now, all of these issues—at least from Furlenco’s side—are going to get fixed. We are working very hard towards it," he further said.

Up and Down

One reason why rental companies haven’t been able to invest more in improving customer experience is because the market demand has been hard to predict—growth has come in fits and starts.

The pandemic gave a boost to the rental business, with work-from-home becoming the norm. Office goers scrambled to rent work desks and chairs at home. In fact, all rental companies struggled to meet the unexpected surge in demand.

“After covid-19, employees were either working from home or were given the option of a hybrid work plan through rotating shifts and roster-based attendance. An increased demand came from employees looking at setting up a well-furnished workspace at home and also upgrading their current homes," Grant Thornton wrote in its 2021 report cited earlier. That demand fizzled out with back-to-office becoming the norm when things opened up after the lockdowns.

In 2021-22, Furlenco’s losses widened to ₹151 crores from ₹87.5 crores a year earlier. These losses came on the back of the post-pandemic surge in revenue—the company’s income from operations grew to ₹129 crore from ₹84 crore the year before. To cater to the demand, the company took on debt. This led to a debt spiral when the funding winter struck.

However, Furlenco raised funds from Sheela Foam in July 2023 and since then, it has been able to significantly reduce its losses, Karimpana said. Sheela Foam manufactures polyurethane foam and is better known for being the makers of Sleepwell mattresses.

Amit Kumar Gupta, the chief financial officer of Sheela Foam has said that its investment in Furlenco has helped the company pay off its debt and even grow. “The company has moved to its next level of growth and has added to its subscriber base by more than 50%," he said in a post-earnings call with analysts in May.

Bikes and Air Fryers

Let’s circle back to the important question—do furniture rental companies have a future in India?

Just renting out furniture will keep them small, companies have realized. They are diversifying beyond beds, tables, chairs and bookshelves and into white goods.

Rentomojo, for instance, expanded to renting out electronics and appliances, fitness gears and even e-scooters and motorbikes. In 2022-23, the company turned profitable on the back of a 22% increase in revenue from operations ( ₹121 crore). However, this surge comes after consecutive years of muted growth and losses.

Founder Geetansh Bamania has alluded the losses to the lack of awareness about the market. “Not many people understand that this kind of service exists. A great chunk of people still think that buying and taking on EMI is the only way to have/own an asset," he said.

Furlenco also rents out treadmills, laptops, television sets, water purifiers and even microwave ovens. Similarly, Cityfurnish stocks appliances such as refrigerators, washing machines, air conditioners, air fryers and induction cooktops among other appliances.

Key to Growth

Furlenco, meanwhile, is encouraging customers to buy the furniture after having rented it for some time. One reason is that the furniture rental business is heavy on logistics. If not executed well, the experience can be nightmare-ish for customers, as some of the examples cited above show.

Companies are therefore concentrating on streamlining their logistics play, going ahead. This could well be the secret to future growth, market watchers said.

Furlenco’s Karimpana said his customers return about 500 sofas every day across India. They need to be stored, cleaned and refurbished before it is fit to be rented again. “To handle and maintain such vast amounts of inventory, the company has what we call a ‘sofa microwave’, a baking oven-like structure," he said. That’s a large house where 100 sofas can be accommodated for cleaning, washing and drying.

Before Neerav Jain started Cityfurnish in 2016, he ran another startup that offered custom-made furniture for buyers. However, the company had to shut down as it was reliant on third party logistics companies. At that time, the startup saw nearly 38% returns from consumers, making the business unviable.

When he started the furniture rental company, Jain decided to sort out the logistics piece first. The company today runs in-house facilities but setting up such operations in multiple cities has proved difficult and slow. Today, it has seven fulfilment centres in key cities such as Mumbai, Delhi NCR and Bengaluru, its largest market, contributing nearly 38% of its business. The company generated revenue of ₹25 crore and a profit of ₹18 lakh in 2022-23. Last year was its best—Jain says the company clocked ₹40 crore in revenue.

On the positive side, the focus on controlling the logistics operations has meant less returns—Cityfurnish says less than 1% of the furniture it rents out is returned in a month. In addition, to control the entire value chain, the company also runs a manufacturing centre in Jodhpur.

Most other rental companies, in contrast, have relied on third party logistics companies. But, they, too, appear to be pivoting more and more to in-house facilities. They have all realized that customer experience is the key to growth.

“If you can’t control the customer’s experience across all pillars, then you cannot deliver a good experience. If you don’t do this, you cannot be unit economics positive," Chaitanya Ramalingegowda, Wakefit’s co-founder, said.

For the furniture rental startups, it is a work in progress.