Meesho Looks To Reduce Costs, Extend Cash Runaway With New Seller Policies
Tuesday, 07 June 2022, 18:45 IST
Social commerce startup Meesho, which took on bigger rivals Amazon and Flipkart after entering the consumer facing ecommerce segment a year ago is now shifting gears.
It is bracing for relatively slower growth amid a slowdown in big ticket funding and an adverse macroeconomic situation.
The SoftBank backed company is targeting to cut its monthly cash burn to $25 million from about $40-$45 million.
The company has told at least one of its third party logistics partners among the largest nationally that it expects shipment volumes to decrease by about 25-30% in the next two quarters.
The e-tailer, which focuses on the low-end of the market, will push the pedal during the festive season, when the retail industry looks to corner a significant chunk of annual sales.
“There is a readjustment happening. As one of the largest ecommerce players relying on third-party logistics, they(Meesho) work with us closely and plan things in advance and recently this(shipment volumes issue) was discussed,” a person aware of the matter said.
Meesho has also begun preparations for the festive season sales, when Amazon and Flipkart unfurl competitive discounting and sales tactics.
Sources in the know said that Meesho’s internal initiative ‘Project Unbundle’ has gained in prominence as it is focused on reducing costs across the board and on monetisation.
Returns are typically higher for lower-priced ecommerce players like Meesho but the company maintains it is no different from industry peers.
What is Project Unbundle?
“Unbundling means unbundling the price as much as possible to offer a no-frills service, like budget airline tickets,” said a person close to the company.
Meesho, which was last valued at $4.9 billion, started working on ‘Project Unbundle’ in 2020, but implemented it only from January this year.
It has been actively pushing sellers to adopt services like its new return policy over the last two months, sellers said.
As part of the project, the Bengaluru-based company had begun offering discounts on products, with the condition that they can only be returned if they are defective.
Categories like apparel and footwear usually see more returns. Meesho conveyed to its sellers that the new rules would reduce returns by up to 40% for more than 5,000 sellers.
The company has also introduced warehouse pickup services for customers to reduce lastmile costs and is pushing online payments by offering discounts to reduce dependence on cash on delivery.
Meesho has been able to reduce overall return rates by 2-3% since it started ‘Project Unbundle’, one source said.
Sellers said that the new returns policy is not favourable for business as the option of not being able to return products ends up affecting reviews and ratings.
Control burn
Its new policies come at a time when Meesho has put its fundraising plans on hold over a valuation mismatch after setting out to raise at least $500 million, the sources added.
Rising interest rates in the United States and a pullback from foreign investors who can lead such rounds have made it further difficult to close a large financing round.
According to a person close to the company, Meesho has reduced its cash burn significantly in the past few months as the cost of acquisition has come down, partially because of the exit of Singapore’s Shopee, and as competitors also reduced their spending on customer acquisition.
Discounting has been restricted but that is fluctuating based on various categories and specific sales campaigns, another person aware of the developments said.
“They(Meesho) have to adjust to the new market reality as growth at any cost is no longer viable and burn has to be brought down to extend the company’s cash runway,” a person aware of the matter said.
While the online retailer still has sufficient capital from its two back-to-back funding rounds last year, conserving cash will play a critical role in its long-term bid to disrupt the ecommerce market where Amazon and Flipkart are well entrenched.
Multiple sources, including investors who have reviewed its pitch deck for the new funding round, said the steep ask in valuation topping $6 billion was a major hurdle for the company even before the economic downturn started.
“There were discussions for an internal funding round but that seems to be on hold for now as the plan is to cut costs,” one of the sources said.
It is bracing for relatively slower growth amid a slowdown in big ticket funding and an adverse macroeconomic situation.
The SoftBank backed company is targeting to cut its monthly cash burn to $25 million from about $40-$45 million.
The company has told at least one of its third party logistics partners among the largest nationally that it expects shipment volumes to decrease by about 25-30% in the next two quarters.
The e-tailer, which focuses on the low-end of the market, will push the pedal during the festive season, when the retail industry looks to corner a significant chunk of annual sales.
There were discussions for an internal funding round but that seems to be on hold for now as the plan is to cut costs
“There is a readjustment happening. As one of the largest ecommerce players relying on third-party logistics, they(Meesho) work with us closely and plan things in advance and recently this(shipment volumes issue) was discussed,” a person aware of the matter said.
Meesho has also begun preparations for the festive season sales, when Amazon and Flipkart unfurl competitive discounting and sales tactics.
Sources in the know said that Meesho’s internal initiative ‘Project Unbundle’ has gained in prominence as it is focused on reducing costs across the board and on monetisation.
Returns are typically higher for lower-priced ecommerce players like Meesho but the company maintains it is no different from industry peers.
What is Project Unbundle?
“Unbundling means unbundling the price as much as possible to offer a no-frills service, like budget airline tickets,” said a person close to the company.
Meesho, which was last valued at $4.9 billion, started working on ‘Project Unbundle’ in 2020, but implemented it only from January this year.
It has been actively pushing sellers to adopt services like its new return policy over the last two months, sellers said.
As part of the project, the Bengaluru-based company had begun offering discounts on products, with the condition that they can only be returned if they are defective.
Categories like apparel and footwear usually see more returns. Meesho conveyed to its sellers that the new rules would reduce returns by up to 40% for more than 5,000 sellers.
The company has also introduced warehouse pickup services for customers to reduce lastmile costs and is pushing online payments by offering discounts to reduce dependence on cash on delivery.
Meesho has been able to reduce overall return rates by 2-3% since it started ‘Project Unbundle’, one source said.
Sellers said that the new returns policy is not favourable for business as the option of not being able to return products ends up affecting reviews and ratings.
Control burn
Its new policies come at a time when Meesho has put its fundraising plans on hold over a valuation mismatch after setting out to raise at least $500 million, the sources added.
Rising interest rates in the United States and a pullback from foreign investors who can lead such rounds have made it further difficult to close a large financing round.
According to a person close to the company, Meesho has reduced its cash burn significantly in the past few months as the cost of acquisition has come down, partially because of the exit of Singapore’s Shopee, and as competitors also reduced their spending on customer acquisition.
Discounting has been restricted but that is fluctuating based on various categories and specific sales campaigns, another person aware of the developments said.
“They(Meesho) have to adjust to the new market reality as growth at any cost is no longer viable and burn has to be brought down to extend the company’s cash runway,” a person aware of the matter said.
While the online retailer still has sufficient capital from its two back-to-back funding rounds last year, conserving cash will play a critical role in its long-term bid to disrupt the ecommerce market where Amazon and Flipkart are well entrenched.
Multiple sources, including investors who have reviewed its pitch deck for the new funding round, said the steep ask in valuation topping $6 billion was a major hurdle for the company even before the economic downturn started.
“There were discussions for an internal funding round but that seems to be on hold for now as the plan is to cut costs,” one of the sources said.
