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Young and hungry in second-hand market

''Zefo’s is an operationally heavy model. We don't have a lot of runway money to offer deep discounts."

Jan 8, 2019 by Ruiyao Luo
Young and hungry in second-hand market

Rohit Ramasubramanian and Karan Gupta stumbled on the idea for Zefo while researching second-hand products market in India. The duo was working as investment analysts with Helion Ventures. The idea stuck and soon Himesh Joshi (Rohit’s colleague from Boston Consulting Group) and his friend Arjit Gupta came onboard. Lo and behold! Zefo was born in 2015.

Zefo is an e-commerce platform which sells used goods such as furniture, cellphones and home appliances. The company follows a full stack approach with own supply, logistics and payment arms.

Rohit sat down with The Passage at Zefo’s office in HSR layout to share his insights on the used goods market and the company’s roadmap.

Zefo now has offline stores in Bangalore (3), Delhi (2) and Mumbai (1). The company, with over 200 employees, has online presence in all the above three cities as well as Hyderabad.

“The inventory for Hyderabad is sourced from Bangalore. Zefo has plans to expand to tier 3 and tier 3 cities. Franchise stores in Hosur and Kolar (both tire 2 towns) are just a start,” Rohit said.

Rohit believes in the value of the third party in the second hand market. “You may get 10% less of the price of directly selling to someone else, but we will give you cash immediately, and you don’t need to worry about any transport or potential warranty issues,” he said.

Along with the co-founders, Rohit was listed in 30 under 30 2018 of Forbes India. Also, he was selected as one of the entrepreneurs who attend the Alibaba eFounders Fellowship in Hangzhou, China.

Edited excerpts:

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TP: Could you walk us through Zefo’s services?

RR: Apart from second-hand products, we sell refurbished and unboxed products. These are products which sustained minor damages while handling. We aim to get the customer a discount on such products, which are good as new.

Today, the furniture is only about 30-35% of our business. We also offer home appliances and mobile phones.

Platforms like OLX, Quikr don’t have a high trust model. The transactions happen between people based on the classified ads. The model has a lot of issues from trust to convenience. Whereas, in Zefo’s case we take responsibility for the quality of the product.

We have come up with ways to build trust like offering guarantees, warranties, buybacks, etc. We are very transparent about the product and open about its defects.

Zefo also does a little housekeeping to maintain the inventory in optimum condition. We are not just selling second-hand products. We add a lot of value.

TP: What motivated you to make a switch from VC to entrepreneur?

RR: I think I was too young to be an investor, let alone a VC. However, I got to learn about investing in general and how people go about the trade. But I can't really add a lot of value as an investor at that age. I had neither operational nor investing experience. Beyond a point, I couldn’t see why somebody would want to take money from me.

Thanks to three plus years of operational experience in running Zefo, I have some perspective now. I think if I go back to investing, it'll be different from how it was back then.

TP: What do you think are the drivers behind the exponential growth of second hand furniture market?

RR: People usually sell furniture when they move or upgrade. When you are moving, people either have to give the furniture away or sell, and that accounts for half the market. Moving happens a lot in urban areas, where we source most of our supply.

The other half is the result of upgrading. People today are upgrading more, keeping with the times. The upgrade cycle is shrinking, but at a moderate rate. Previous generations tend to keep things until they became completely unusable.

We also partner with primary market places such as Flipkart and Amazon. We power their exchange programs. Suppose, if you want to exchange your TV for a new one from Flipkart or Amazon, we buy it through them and give you the best price.

TP:Do you have your own inventory?

RR: Yes. And that's part of our promise. If you're selling, we give you cash immediately. We have large warehouses in three big cities.

Zefo’s is an operationally heavy model. Such models go a long way in creating trust. E-commerce platforms like Flipkart and Amazon follow the inventory-heavy model in India because it works.

That is why pure market place models like Paytm, Shopclues, Snapdeal couldn’t scale to the extent of Flipkart and Amazon. Trust is key, especially when you introduce a new concept. Controlling the overall product experience is important. And then, over time, you can figure out part of the business model you could let go and make it asset light. The scaling can happen once the model gets acceptance.

TP: Tell us about your rental division.

RR: Rental business is a small market. For us, it accounts for less than 5% of total revenue. We offer the service through RentoMojo. It’s more like a payment option for us. We are in the business of product experience. How people pay doesn’t matter much.

The problem with rental is it's little on the expensive side. Zefo assures buyback on just about every product. When you opt for buyback, in effect, we are twice as cheap as rental.

TP: What made Zefo extend its operations from second-hand to new products?

RR: We do new products in small capacity, mostly to supplement our catalog. A specific product may not be available in the second-hand market. So this is to plug some gaps. New products make 5-10% of our stock. Ultimately, you don’t want to miss out on customers.

TP: How do you price a product in buyback schemes?

RR: Our sourcing and selling price have a correlation with our transaction history over the last three years depending on the condition and market interest for the product. We have to price the electronic products smartly as the price point fluctuates more often than not. But for furniture, it's more about the price history.

TP: How does Zefo cope with deep discounts and predatory pricing tactics of huge online marketplaces?

RR: It’s probably our biggest challenge. We don't have a lot of runway money to offer deep discounts.

So either we try and sell cheap or hold on. Sometimes the prices don't go back up. You have to bite the bullet and take the loss.

It’s okay if it’s a temporary hiccup. You either power through it or figure a way out as you go along. If it’s infrequent but permanent, you know there's a price correction in the market. You will then start sourcing a similar product at a cheaper rate and the market will correct itself. But if the prices drop continuously, it’s going to be a problem.

TP: Who are your target customers?

RR: We typically sell to people with an average monthly income between Rs 30k-70k (USD 430 - 1,000). That's our biggest market — those who earn between Rs 30k-70k and Rs 70k-100k (USD 1,000-1,430) per month. Financing solution for the blue-collar kind would be a big move for us. But we are not offering it at the moment.

Ruiyao Luo

Ruiyao Luo is a Beijing-based tech reporter. She focuses on emerging startups and tracks the trends in the startup industry in India and China. She can be reached at Ruiyaoluo@thepassage.cc.

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