“Sharing is caring” — this age-old saying has metamorphosed to take on a new meaning in the last few years with the sharing economy picking up the pace in India. ‘Sharing is economical’ is the new mantra.
Indians, who previously attributed virtue to ownership, are increasingly adopting the global trend of renting instead of buying. There’re Uber and Ola for ride sharing, Airbnb for home sharing, WeWork for coworking, Furlenco and Rentomojo for furniture rentals etc. According to PricewaterhouseCoopers, the sharing economy will generate potential revenues of $335 Bn by 2025 globally.
Furniture and appliance rentals, especially, have found many takers, with many startups offering online platforms where people can select and order furniture through online monthly, quarterly, or annual rental packages. No more hassle of maintenance or repair (the company takes care of this) and lugging along furniture if you move houses or cities.
According to estimates, the overall furniture market in India generates between $15 Bn to $24 Bn annually. The organised segment is around 8%-10% and, of this, around 15% is online.
In this week’s edition of What The Financials, we take a look at two of the major players in the industry — Furlenco and RentoMojo. Here’s what we found:
Furlenco Vs RentoMojo: Inhouse Or Asset-light, Which Model Works Better?
Founded by Ajith Mohan Karimpana in 2011, Furlenco is an online platform offering furniture for homes on a subscription basis in Bengaluru, Delhi/NCR, Hyderabad, Chennai, Mumbai, and Pune.
With a total funding of $30.1 Mn (INR 195 Cr), Furlenco is backed by Lightbox Ventures, Axis Capital, Kris Gopalakrishnan’s Pratithi Trust, and Trifecta Capital, among others.
The company posted an operational income of INR 21.16 Cr in FY17, a 204% increase from FY16. Its total income in FY17 was INR 24.34 Cr.
Next, we have RentoMojo, which started its operations three years after Furlenco — in November 2014 — by IIT-Madras graduates Geetansh Bamania, Achal Mittal, Ajay Nain, and Gautam Adukia.
It has a consumer product leasing business that raises lease-capital from financial institutions for products rented to consumers for long periods, typically up to 18 months. The company currently offers leases for furniture, appliances, and bikes, etc.
While Furlenco designs and owns the furniture it rents out, Rentomojo has a asset-light model where it ties up with suppliers to rent out the furniture.
Till date, Rentomojo has raised $17.1 Mn and has expanded to Pune, Mumbai, Bengaluru, Delhi, Chennai, and Hyderabad. The platform, backed by investors such as IDG Ventures and Accel Partner, claims to have over 25,000 subscribers.
In FY17, the company posted an operational income of INR 13.53 Cr, a 609% increase from FY16. It posted a total income of INR 15 Cr in FY17.
While both the companies have shown significant growth in income with Furlenco leading the race, a clearer picture emerges when we look at their expenses.
We found that Furlenco posted total expenses of INR 72.28 Cr in FY17, a 157% increase from FY16. Notably, in March 2017, Furlenco added new category — ‘Essentials’, which targets value-seekers, who largely seem to be in the age group of 22 to 30.
Moving on to RentoMojo, the trend remained the same. In FY17, the company posted total expenses of INR 37.48 Cr, a 283% increase from FY16.
Inc42 Datalabs analysed their expenses further and had some interesting revelations:
- The workforce requirement to drive their specific business models seems to play a crucial role in the path to profitability for the two startups. In FY17, Furlenco had employee-related expenses of INR 22.5 Cr while Rentomojo posted employee expenses of INR 12.94 Cr for the same period. However, as a percentage of the total expense, in FY17, Furlenco’s employee-related expense was 31% for and Rentomojo’s was 28%.
- Furlenco, factoring in the fact that it designs its own furniture, posted total expenses of INR 5.3 Cr in FY17 in distribution, design, photoshoot, and contract labour. On the other hand, RentoMojo’s asset-light business model kept its expenses down to INR 2.5 Cr for distribution and warehousing charges.
- In FY17, Furlenco spent around INR 1.86 Cr in repair and maintenance of its assets. Compare that with that the leasing expenses of Rentomojo in the same financial year, which was INR 2.9 Cr. It must be noted that Furlenco, which has a private label, cut down the cost of maintenance while RentoMojo, which leases the products, is facing issues with the same.
- In FY17, 19% of Furlenco’s total expense — INR 13.6 Cr — was on advertisements and promotions. In the same period, Rentomojo’s spend on advertising was INR 6.13 Cr — 16% of its total expense. In January 2017, RentoMojo launched a digital campaign on ‘Smart ownership’. The campaign creatively builds awareness among consumers about the smarter lifestyle choice of renting rather than buying furniture.
- One of the major differences in the expenses of the two startups was the net depreciation and amortisation charges incurred by them. In FY17, Furlenco posted a net depreciation and amortisation of INR 9.31 Cr while for Rentomojo it was just INR 1.5 Cr. The differences in cost of depreciation is because Furlenco offers its owned products while RentoMojo leases them.
- Another major difference was the financing cost. The financing cost of RentoMojo for FY17 was INR 91.86 Lakhs while Furlenco spent just INR 5.83 Cr.
Clearly, Rentomojo’s asset-light business model works better in the Indian context. In FY17, Rentomojo registered a revenue growth of 7X. While, with higher funding, Furlenco has been able to grow only 2X. While Furlenco is in five cities, Rentomojo is operating in eight.
For FY17, Furlenco posted a loss of INR 47.9 Cr, an increase of 140% compared to FY16. However, this was much better than the 529% increase in loss it saw in FY16, as compared to FY15. The surge in the company’s loss can be largely attributed to increased costs as it expanded its operations and also introduced new products.
For RentoMojo, the loss for FY17 was INR 22.4 Cr, an 186% increase from FY16. However, the losses were controlled against the whopping 16295% increase it saw in FY16 compared to FY15. As the company is fairly new in the space, its expansion plans have mostly hiked up its expenses and, thus, losses.
Furniture Rentals Set
With the Millennials coming of age and becoming a force to reckon with in India, the sharing economy has become the order of the day. And an increasing number of startups are cashing on this opportunity.
A report by BCG estimated that $23 bn in venture capital funding has poured into the sharing economy globally since 2010. A new Juniper research report from 2017 expected to share economy revenues to touch $40.2 bn by 2022, up from $18.6 bn in 2017.
The furniture rental market is expected to grow at a robust rate over the forecast period — 2017-2024. In India, the market for furniture rental is seen to be around $800-850 Mn.
Furlenco might be leading the race right now, but Rentomojo’s asset-light model seems to be more economical than Furlenco’s in-house business model.
Looking at the growth rate and presence, Rentomojo can be expected to match up with Furlenco in the FY18 filings.
[This is a part of the What The Financials (WTF) series launched by Inc42 Datalabs. We would be exploring the financial health of Startups and discuss its key metrics of growth, to read more articles click here.]