Furnishing India Courtney Bowles Laura Dorn Andrew Schindler Nick Sonek January 8, 2019 Sierra Consulting Furnishing India

Who We Are Courtney Bowles Laura Dorn Andrew Schindler Nick Sonek

How can Pepperfry be profitable? Executive Summary Question How can Pepperfry be profitable? Goal Profitability, growth, survival Alternatives Online Focus Horizontal Expansion Brick and Click

Agenda Introduction Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

You Asked Us “How can achieve growth and profitability while managing competitors?”

You Asked Us Reality Check “How can achieve growth and profitability while managing competitors?” Reality Check We know that managing a strictly E-commerce business is rarely profitable Amazon’s E-commerce segment profitable 2 years ago

Competitive Landscape Industry Analysis (Porter’s) Product Life Cycle Analysis Company Analysis (SWOT) Operating Landscape Customer Profile Value Proposition Customer Overview Customer Journey Channel Analysis Competitor Analysis Competitive Landscape

Competitive Landscape Operating Landscape Customer Overview Customer Journey Competitive Landscape Industry Analysis (Porter’s) Product Life Cycle Analysis Company Analysis (SWOT)

Drill Down Analysis Industry Analysis Product Analysis Company Analysis Porter’s Five Forces Product Life Cycle SWOT High competition Fragmented market Low supplier power Furniture at mature stage Online furniture options pushing earlier into cycle E-Commerce Platform Logistic Excellence Limited Financial Resources Looming Giants Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Drill Down Analysis Industry Analysis Product Analysis Company Analysis Porter’s Five Forces Product Life Cycle SWOT High competition Fragmented market Low supplier power Furniture at mature stage Online furniture options pushing earlier into cycle E-Commerce Platform Logistic Excellence Limited Financial Resources Looming Giants Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Drill Down Analysis Industry Analysis Product Analysis Company Analysis Porter’s Five Forces Product Life Cycle SWOT High competition Fragmented market Low supplier power Furniture at mature stage Online furniture options pushing earlier into cycle E-Commerce Platform Logistic Excellence Limited Financial Resources Looming Giants Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Key Takeaway: We are in an emerging yet competitive operating landscape ripe for consolidation. Drill Down Analysis Industry Analysis Product Analysis Company Analysis Porter’s Five Forces Product Life Cycle SWOT High competition Fragmented market Low supplier power Furniture at mature stage Online furniture options pushing earlier into cycle E-Commerce Platform Logistic Excellence Limited Financial Resources Looming Giants Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Competitive Landscape Operating Landscape Customer Overview Customer Journey Competitive Landscape Customer Profile Value Proposition

Customer Target Customer Pipeline Customer Young Professionals Metros & Mini Metros Self-expression through décor Omni-channel 30+ years old Pipeline Customer Furniture Rental New to work force Self-expression Not ready to commit 22-29 years old Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Customers The Majority of our customers are returning. These customers are: 1. Loyal 2. Spend more on average 3. 10x cheaper to retain than to gain new customer Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Value Proposition Gains -Ease of access -Design ideas -Peer recognition of style Job -Stylish home that expresses individuality Pains -Too many options -Inconvenient -Damaged goods -Price Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Value Proposition Gain Creators -Omnichannel approach -Stylish options -Delivery -In-store experience Gains -Ease of access -Design ideas -Peer recognition of style Job -Stylish home that expresses individuality Product -Furniture & Home Décor Pain Killers -App, Website, Store -Superior Logistics -Affordability -Curated Options Pains -Too many options -Inconvenient -Damaged goods -Price Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Competitive Landscape Operating Landscape Customer Overview Customer Journey Competitive Landscape Customer Journey

Customer Journey Loyalty Use Purchase Consideration Awareness Word of Mouth Digital Ads TV Ads Consideration Website App “Experience” Stores Purchase Online In Store Use Furniture Home Décor “Self-Expression” Loyalty Stylish Products Low damage rates Customer Journey Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Competitive Landscape Operating Landscape Customer Overview Customer Journey Competitive Landscape Channel Analysis Competitor Analysis

Our Current Stores 34 Exist and are roughly 20% of our business INR 516 Million or 15.2 Million a store Customers coming to our stores spend 80-100% more

Suppliers Small and Medium Artisans Initial lack of experience with online platform Supplier Ecosystem Mobilize Small Artisans Provide Support Functions Data Analytics accurately forecast orders Communication Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Competitive Landscape Large Domestic Manufacturers Brick and Mortar – IKEA E-Commerce – Amazon India

Competitive Landscape Large Domestic Manufacturers Brick and Mortar – IKEA E-Commerce – Amazon India Vertical, Slightly More Online

Market Size You created a new market channel, but Online is 2% of Total Indian Furniture Market Total Market is growing 8.2% CAGR a year

Profitability Trends in Revenue Out of control Costs Falling Revenue as percentage of GMV Trending upwards

Key Performance Indicators Profitability Conversion Rate Customer Retention Order Size

Alternatives Online Focus Horizontal Expansion Brick & Click

Online Focus Pros Cons Focus on our core competency Marketing and Advertising are essential Develop new digital features to interact with customers Utilize our great delivery system Pros Core competency Keep our brand in front of the consumer Cons Small part of overall furniture market Not as sticky as physical experience

Horizontal Expansion Pros Cons Follow similar model to other ecommerce players FlipKart Amazon India Become less selective with suppliers Become less involved with supplier onboarding Pros Decrease costs Expansion Cons Questionable profitability Lack of customer preference Dead inventory/products Increased competition

Brick & Click Pros Cons We know: 80% of volume comes from smaller items Need to keep the customer coming back Offer smaller items in store Take home from gallery Online In store pickup Room design feature Pros Increase customer retention Promotes both online and in store sales Sales staff can upsell Cons Website Modifications Supply Chain changes

Analysis of Alternatives Focus Online Horizontal Expansion Brick & Click Profitability Conversion Rate Customer Retention Order Size

Analysis of Alternatives Focus Online Horizontal Expansion Brick & Click Profitability Conversion Rate Customer Retention Order Size

Why We Chose This Plan Reaches our customer Promotes the omnichannel model the best Works within financial parameters

We have named the Brick and Mortar alternative Furnishing India Chosen Plan We have named the Brick and Mortar alternative Furnishing India

Furnishing India Supply Chain Training/HR Marketing Expansion Road Map to IPO Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Furnishing India Supply Chain Training/HR Marketing Expansion Road Map to IPO Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Value Chain Infrastructure Technology Human Resource Management Administrative Inbound Logistics Operations Outbound Logitics Sales and Marketing Services

Supply Chain What we do well What we need to improve Dropping margins lower Low breakages relative to global industry What we need to improve Outbound logistics still expensive proposition in e-commerce How to best improve turnover and leverage omnichannel model

Integrate with Brick and Click Utilizing the Pareto Principle 80% from 20% Décor and utilities should be pushed in stores Predictive Analytics Data analytics to understand consumer trends Help suppliers understand consumer preferences

Furnishing India Supply Chain Training/HR Marketing Expansion Road Map to IPO Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Training & Human Resources Hiring for new company stores Teach employees in all store new purchase process Train sales people to identify items that go well together Emphasize our brands when relevant Emphasize customer service Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Furnishing India Supply Chain Training/HR Marketing Expansion Road Map to IPO Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Marketing Website / App Social Media Content Development Brand Focus: Self-expression & lifestyle brand Website / App Social Media Content Development Integrate in-store & online experience “Available near you” feature Develop new “design your room” feature Develop loyalty program on app Spotlight Privilege Partners Social Media Competition: Customers who are redesigning their homes submit photos Consider partnership with a family friendly Bollywood star Emphasize lifestyle rather than products Continue targeted TV ads

Marketing Website / App Social Media Content Development Brand Focus: Self-expression & lifestyle brand Website / App Social Media Content Development Integrate in-store & online experience “Available near you” feature Develop new “design your room” feature Develop loyalty program on app Spotlight Privilege Partners Social Media Competition: Customers who are redesigning their homes submit photos Consider partnership with a family friendly Bollywood star Emphasize lifestyle rather than products Continue targeted TV ads

Marketing Website / App Social Media Content Development Brand Focus: Self-expression & lifestyle brand Website / App Social Media Content Development Integrate in-store & online experience “Available near you” feature Develop new “design your room” feature Develop loyalty program on app Spotlight Privilege Partners Social Media Competition: Customers who are redesigning their homes submit photos Consider partnership with a family friendly Bollywood star Emphasize lifestyle rather than products Continue targeted TV ads

Marketing Website / App Social Media Content Development Brand Focus: Self-expression & lifestyle brand Website / App Social Media Content Development Integrate in-store & online experience “Available near you” feature Develop new “design your room” feature Develop loyalty program on app Spotlight Privilege Partners Social Media Competition: Customers who are redesigning their homes submit photos Consider partnership with a family friendly Bollywood star Emphasize lifestyle rather than products Continue targeted TV ads

Marketing for Stores Billboards Loyalty Program Events & Workshops Interior Design Flower Arranging DIY Decor

Furnishing India Supply Chain Training/HR Marketing Expansion Road Map to IPO Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Moving To more Studio sales 20% 50% Increase Stores to 150 in Total Over the Next 5 Years

Store Mix Makeup Metro Locations Company owned 10 per year Mini-Metro Locations Franchised 20 per year

Furnishing India Supply Chain Training/HR Marketing Expansion Road Map to IPO Intro Analysis Alternatives Implementation Risk and Mitigation Questions and Answers

Road map to IPO Target IPO value of 500 Million Profitable in 2021 Implement Brick and Click Profitable in 2021 Target IPO value of 500 Million

Revenue and profitability projections Profitability hit in mid 2021! Costs of opening stores keep us unprofitable in light of new revenue Key assumption: Revenue as a ratio of GMV stays constant

Timeline of Implementation Year 2018 2019 2020 2021 2022 Marketing   Social Meida contest Update website Dev. New App Feature Bollywood Partnership Dev. Loyalty Program Dev. Content Hiring Training Target locations Source Franchises Build Stores Workshops and Events

Budget Item Amount Timing Social Meida contest 200,000 2018 Update website 50,000 Dev. New App Feature 5,000,000 Bollywood Partnership 10,000,000 2020-2022 Dev. Content 2018-2020 Hiring 2,000,000 Training Build Stores 80,000,000 Total: 107,300,000

Difficulty Franchising Risks & Mitigation Stagnant Retail Sales Consider changing studio retail structure Increase marketing Difficulty Franchising Target strategy for development Slower growth IKEA threat not addressed sufficiently Pivot - Contingency Plan Impact IKEA Threat Difficulty Franchising Stagnant Retail Probability

Key Performance Indicators - Metrics Profitability Conversion Rate Customer Retention Order Size Profitable by 2021 Maintain 65% or higher 80% of customers make a repeat purchase Average order size increase by 30%

Revisit Executive Summary Question How can Pepperfry be profitable? Goal Profitability, growth, survival Alternatives Online Focus Horizontal Expansion Brick and Click

Appendix Furnishing India Horizontal Expansion Budget Who We Are Brick & Click Risks & Mitigation Agenda Why We Chose This Plan Key Performance Indicators - Metrics Drill Down Analysis Customer Value Chain Customers Supply Chain Advertisement Example Value Proposition Integrate with Brick and Click SWOT Analysis Customer Journey Training & Human Resources Porter’s Five Forces Suppliers Marketing Product Life Cycle Competitive Landscape Marketing for Stores Hiring Process Drill Down Market Size Moving To more Studio sales Contigency Plan Profitability Trends in Revenue Store Mix Makeup Back up Financial Projections Key Performance Indicators Road map to IPO Backup- Target Enterprise Values Alternatives Revenue and profitability projections Online Focus Timeline of Implementation

Value Chain Infrastructure Technology Human Resource Management Administrative Inbound Logistics Operations Outbound Logitics Sales and Marketing Services

Competitive Landscape

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SWOT Analysis Strengths Weaknesses Opportunities Threats Logistic excellence Pioneers in the field Online platform Weaknesses Not profitable Not financially deep-pocketed Opportunities Huge potential market Fragmented space not dominated by a competitor Threats New entrants with deep pockets (Amazon India, Flipkart) Low threats to entry

Porter’s Five Forces Substitutions Threat of new entrants Buyer Power Supplier Power Rivalry

Product Life Cycle Stage Characterized by Stage Characterized by Furniture Online Furniture Stage Maturity Characterized by Differentiation Cannibalization Stage Growth Characterized by Competition for market share New products

Hiring Process Drill Down Define Skills Write Job Description Look Internally Hiring Process Onboarding Communication Additional Training

Contigency Plan Contingency A Contingency B Go to A2 Become less selective Streamline services Increase offerings Contingency B Go up value stream Acquire some of largest supplirs Consolidate work for them (listing, pictures, shipping)

Back up Financial Projections Item 2017 2018 2019 2020 2021 20202 Revenue 2,580 3969.231 7938.462 12701.54 15876.92 19846.15 Profit(Loss) (2,486) -1824.62 -1649.23 -1358.77 701.5385 876.9231 Gross Merchandise Value (GMV) 6,500 10000 20000 32000 40000 50,000 Costs 5,066 5793.846 9587.692 14060.31 15175.38 18969.23 GMV/Revenue 252% COST/GMV 78%

Backup- Target Enterprise Values 2017 2018 2019 2020 2021 20202 152 190 237.5 296.8 317.8 463.82