Go karting

veryone thought I was doing something crazy,” recalls Peyush Bansal. After all, why would someone quit a well-paying and “immensely satisfying” job with Microsoft in the US only to return to Delhi and take over the basement in his parents’ home? But it was 2008, the economic climate was worsening and Bansal felt the timing was perfect to take a break and decide how to be a part of the big picture.

As a first step, Bansal, then 25 years old, joined IIM, Bangalore for an executive MBA program and also launched an online classifieds site called searchmycampus. He soon started another website called Flyrr that sold sunglasses, spectacles and contact lenses to American clients. The site ran into product delivery delays, but Bansal was ready with other plans. The result was Lenskart, India’s first online eyewear store. Launched in November 2010 by Valyoo Technologies, the company Bansal founded a couple of years earlier, Lenskart now gets about 45,000 visitors every day, of whom about 400-500 spend an average ₹1,200 on ordering contact lenses, spectacles and eye accessories. Bansal expects this activity to be reflected in the FY12 topline when Valyoo will have sales of ₹15-20 crore. Investors, too, seem eager — technology fund IDG Ventures pumped $4 million into Lenskart last year.

The initial success and plumper pockets have led Bansal to launch three more websites, each of which, like Lenskart, aims to become the category leader on the net. While Watchkart and Bagskart were launched last year, Jewelskart went online in January. Valyoo’s investor seems to approve of the strategy. IDG Ventures MD TC Meenakshisundaram says that Valyoo focuses on creating category leaders in product segments where supply chain inefficiencies lead to high costs. But is this a compelling premise to do business and can these product segments be popular among online shoppers?

Vertical thinking

While Bansal’s decision to launch Lenskart may have been impulsive, its business case rests on sound logic. Before the launch, Bansal roped in an optical store owner in Delhi to teach him the nuances of the business. Lenskart started by stocking contact lenses in bulk, which helped it negotiate rates with vendors such as Bausch & Lomb and Johnson & Johnson, plus ensure faster delivery. Discounts to the order of 10-15% were passed on to the consumers. By February 2011, Bansal had expanded his catalogue to include spectacles and sunglasses.

“We figured there was a definite opportunity in the spectacle market,” says Bansal. This is because optical shops typically sell frames even at 100-200% margins and an average person has no idea what a frame actually costs. “A frame that’s priced at ₹5,000-6,000 in a store actually costs only ₹2,000.” Also, Valyoo furthered the ‘convenience and value for money’ proposition by fitting powered glasses free of cost with each frame order. The company has a 14-day return policy, but its rate of return has been less than 5%. “You have to pay if you order a brand like, say, Crizal but for the usual glass lens, we do not charge anything,” says Bansal, who builds the lens’ cost into the price of the frame.

What really sets Valyoo’s business model apart is its focus on its private label. Given the huge margins in spectacle frames and glasses, the company decided in early 2011 to start its own range of these products. Valyoo has tied up with several optical manufacturers who manufacture products based on its designs and specifications. As a result, the company is able to sell its private label frames at Rs 499 and above, with power lens thrown in at no additional cost. “Now, 50% of sales from Lenskart are from our own label,” Bansal says.

The strategy is not exactly risk-free, though. Since Valyoo owns the designs, it takes delivery of all that is manufactured; and since the company prefers to stock high levels of inventory, that can mean a lot of unsold merchandise. Not surprisingly, inventory accounts for up to 60% of the company’s operating costs. It’s not just the tying up of working capital, if the style doesn’t ‘click’ or customer preferences change abruptly, the company will have to take that loss on its books. Bansal, though, swears by his ‘stocks always available’ policy. “That’s the only way to ensure fast deliveries,” he says. “If you do not manage this properly, it is certain that you will lose customers.”

Over extending?

Buoyed by the success of the Lenskart business model, Bansal quickly extended it to other product categories too. The choice of products was driven by the fact that watches, bags and jewellery need a lesser degree of fitting than, say, shoes and apparel, which makes them better suited to online sales. “A big business area for internet retailers is the gifting segment and such accessories are tailor-made for it,” says Bansal. The idea in the watches and handbags site is similar to what’s worked at Lenskart: stock as many brands as possible; promote private labels to maximise margins; pass on discounts to consumers; and ensure quality and quick delivery.

The duplication of the Lenskart model includes private labels in bags, jewellery and watches. Bagskart already sells its own branded wallets and will shortly launch bags. “We have found existing suppliers and have hired designers who design products suited to our needs,” says Bansal. On Jewelskart, the company’s silver jewellery is branded as Silverstone, and gold falls under the Feelgood and Myra ranges — all of which are offered at discounts higher than brands like Gili, Asmi and D’Damas, also sold on Jewelskart.

But what’s worked so well at Lenskart doesn’t easily extend to other categories. While it can be argued that customers for watches and bags will check out the products offline before turning to make an online purchase (at a discount), jewellery, especially unbranded, doesn’t lend itself to online shopping, wih trust issues being the major stumbling block.

And while Valyoo’s private label just may work in the handbags space, it seems iffy when it comes to watches. No-name watches are more likely to be picked up at random brick-and-mortar stores purely based on their looks and price; but will customers really go online to buy cheap, unbranded watches? Valyoo’s sites find many successful international parallels. For instance, online jewellery retailer Blue Nile, which was launched in 1999, reported net sales of $348 million in 2011. Given the increasing internet penetration and more people shopping online, Bansal can hope that Jewelskart, which went live only in January this year, can replicate some of Blue Nile’s success. Similarly, as per industry estimates, optical product sites like the US-based ZenniOptical expects to sell around 5,000 products everyday in FY13. Also, watches and bags sites like the US-based ebags, kenmarwatches and luggageonline and the UK-based watchshop report a brisk trade.

Currently, Valyoo’s four sites are keen to double the number of buyers while increasing the number of hits by 10 times a day. However, the jury is still out on how successful the new ventures will ultimately be. Meanwhile, as competition heats up in this space, the going will not be as easy as Bansal perhaps hoped it would be.