Inside Pepperfry’s Descent: What Drove Furniture Marketplace To A Distress Sale

A major development shook India’s new-age furniture marketplace last week. Once hailed as the poster child of online furniture retail, Pepperfry is being acquired in what appears to be a distress sale. Small-cap real estate services company TCC Concept has signed a definitive agreement to acquire Pepperfry.

Although the financial details have not been divulged, industry insiders and people familiar with the matter told Inc42 that the deal could be valued between INR 800 Cr and INR 1,000 Cr, implying a 66% erosion from Pepperfry’s peak valuation of $350 Mn (INR 3,100 Cr). Another insider, however, sees the deal being locked at under INR 500 Cr.

Interestingly, TCC Concept’s current market capitalisation stands at $200 Mn.  

Now, what makes the development even more dramatic is that Pepperfry was poised to go public in 2023. That bold plan has faded into oblivion.

So, behind this change of fortunes, what internal decay eroded the company from the inside out? Let’s find out…

No Hold On Manufacturing, Fundamentals

Pepperfry had been looking for a potential buyer for a while. Last year, it even appointed an investment banker, Ambit, to identify acquisition opportunities amid stagnating sales.

Inc42 learnt from sources that Pepperfry approached both traditional and new-age furniture players to get acquired, but the talks could not be walked through. Reason: Pepperfry’s flat revenues and shaky fundamentals.

“There are many structural and fundamental issues at the company — dwindling sales, high cash burn, poor unit economics, and overdependence on commodity designs (standardised, easily replicable, and widely available) and costly offline studios. But the core challenge is its lack of control over inventory,” an insider pointed out, requesting anonymity. 

Launched in 2011, Pepperfry enabled independent sellers to list their products, just as in a marketplace model. It followed this commission-based model until 2018. This period also helped it raise most of its total $300+ Mn funding.

Under the marketplace model, Pepperfry, at the outset, would earn a 15%-20% commission, while also handling logistics and customer support. 

To improve its margins, Pepperfry forayed into private labels around 2019, creating its own branded furniture lines and mattresses. However, instead of setting up in-house manufacturing, the startup imported engineered wood furniture in bulk from vendors in Malaysia and Vietnam, paying up front.

“And in the absence of a product design, and manufacturing or engineering capabilities, the decision brought new risks,” the insider quoted above said. 

Pepperfry’s bulk-import strategy proved to be a dud as furniture design trends changed quickly, leaving the company stuck with unsold stock. 

“You import high SKUs from vendors, hoping that they get sold out. But in reality, only 30% of the furniture moves fast, while 40% doesn’t move, forcing companies to clear the stock by the end of the year at a discounted rate,” said an expert with over a decade of experience in the furniture space. He added that what the company is following is a private label model, which comes with its own set of challenges.

Besides the import, Pepperfry also acquired some of the inventory of its existing sellers under its private label. But it still never truly gained full control over its products. As a result, Pepperfry’s servicing team often lacked detailed knowledge of the items, since most were sourced externally.

Surging Expense That Crippled Growth

It is an industry-wide understanding that the success of any furniture ecommerce space hinges on two critical factors — having a full-stack model to control every step of the sourcing, manufacturing and assembly process and ensuring an omnipresent presence across both online and offline channels.

While it faltered on the first critical factor for reasons stated above, Pepperfry’s push to build an offline presence was equally ambitious. Its playbook: consumers might browse furniture online but often prefer to purchase offline. 

Therefore, to capture this user journey, Pepperfry aggressively expanded its offline footprint. By the end of 2023, it was already operating 200 offline touchpoints, branded as Pepperfry Studios. 

However, things did not go as planned. Why? 

While one-third of its studios were franchise-run, the remaining were startup-owned outlets, located in premium neighbourhoods, implying high rental and operational costs. Even worse, all expenses related to staff training, branding or marketing for franchise outlets sit squarely on Pepperfry’s balance sheet, further inflating costs. 

Then, its high-visibility TV campaigns, often featuring celebrities, have also put a lot of cost burden on the company. Its most recent endorsement, in mid-2022, included Bollywood actors Saif Ali Khan and Kareena Kapoor Khan. 

The impact is also reflected in the company’s financials. 

In FY22, the year Pepperfry converted into a public company to list on the bourses, the startup reported a total expenditure of INR 458 Cr. Of this, the company burnt INR 130 Cr on marketing, which was also the single largest cost head, even surpassing procurement. Operating revenue, on the other hand, stood at only INR 247 Cr.

People close to the company told Inc42 that the startup was burning as high as INR 6 Cr per month until two years ago. Although the startup has since halved this number to INR 3 Cr, thanks to an expenditure reduction plan initiated in FY23. But the damage has already been done.

A company spokesperson told Inc42 that they have significantly halved their costs by reducing inventory time to 15 days from two months earlier. “We have also significantly stopped importing from Malaysia, and now 80% of sourcing has been happening from small Indian manufacturers since 2023.”

Besides, the startup has also reduced its warehousing capacity to 1.5 Lakh sq ft from 3 Lakh sq ft earlier in the past two years. The startup is also going slow on bulk buying, significantly reducing its costs. Pepperfry has also removed its loss-making SKUs, which has helped it become more flexible and agile, we were told.

Not only this, the spokesperson said that Pepperfry has also improved its margins to around 40% on net sales for market-listed products, and this number is around 55% for its private label. It has also been able to significantly reduce its marketing expenditure.

“These changes are visible in our balance sheet. Over the last few quarters, we have reduced our losses by half without compromising on top line. We also hit our first EBIDTA [Adj.] profitability in August 2025 and see this sustaining from now on,” the spokesperson said. He, however, did not divulge any numbers. 

Premium Pricing: The Last Straw?

Indian consumers are inherently price-sensitive. Furniture, being a high-involvement, low-frequency purchase, prompts buyers to research extensively before making a decision. 

This has not worked in favour of Pepperfry, whose products are often seen as overpriced, particularly with the entry of names like Wakefit, Ikea, and others. “On top of that, its compressed and engineered wood inventory has also failed to resonate with customers,” a local businessman in this line of work said. 

Without an in-house manufacturing setup, the startup is heavily dependent on outsourced imports, “which not only increases costs but also forces the startup to inflate prices to maintain margins”. 

According to industry experts, Pepperfry maintains a margin of around 25%-28% on its private label products, whereas players with integrated manufacturing capabilities could push the figure up to 40%-45%, all while keeping their prices lower than Pepperfry.

“Premium pricing, low margins and falling sales are a recipe for disaster for anyone,” the businessman said.

To offset this, the startup is now heavily pushing its home decor segment, which media reports suggest accounts for about 60% of its revenue. However, what sticks out as a sore thumb in this equation is that for a home furniture startup, expanding into home furnishing brings down the average order value without adding any value.

“For a furniture startup, home decor is an ancillary category. Customers primarily come to buy furniture and may add decor items to their cart, not the other way around,” the businessman quoted above said. 

Pepperfry’s pricing problem is even more pronounced in the small-ticket furniture segment, such as chairs, coffee tables, or study desks. In this category, consumers often turn to Amazon or Flipkart, the horizontal ecommerce marketplaces that offer similar or better options at a significantly lower price. This has further dented Pepperfry’s market share.

All in all, Pepperfry’s fall from being a poster child of India’s online furniture market to now staring at a distressed sale highlights the pitfalls of weak fundamentals, nonetheless. Its lack of control over manufacturing, dependence on imports, high burn from offline expansion, and premium pricing in a price-sensitive market eroded both margins and customer trust.

Despite raising over $300 Mn and once chasing an IPO, the company is struggling with stagnating sales and shrinking revenues. With rising competition from integrated players like Ikea and Wakefit offering better prices, Pepperfry has almost lost its edge.

However, Pepperfry isn’t the only startup that has gone down the distressed sale route. In 2018, Urban Ladder was acquired by Reliance for INR 180 Cr, at a steep decline from a last valuation of INR 800 Cr. Similarly, Kishore Biyani’s Future Group bought FabFurnish for around INR 15 Cr in 2016.

Edited By Shishir Parasher