Daybreak - Why Rentomojo & Furlenco need to refurbish their strategy

Episode Date: August 28, 2024

There was once a time, not too long ago,  when you could walk into a young working professional’s rented home in a tier-1 city, and all the furniture would look pretty familiar. About a decade ago, everyone and their uncle was renting furniture from the two OG rental platforms Rentomojo and Furlenco. It just made sense. When Rentomojo and Furlenco were launched about a decade ago, they were like an answer to a lot of people’s prayers. It was a great deal – your fridge, washing machine, king sized bed and more would be delivered right at your doorstep. Use them for as long as you need, and return them when you are done. Cut to 2024, and things have changed. They are struggling to stay relevant. Tune in. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Want to be part of the Daybreak community? Introduce yourself here.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. There was once a time not too long ago when you could walk into a young working professionals rented home in a Tier 1 city and all the furniture would look pretty familiar. About a decade ago, everyone and their uncle was renting furniture from the two-overdusts.

RUG rental platforms, Rento Mojo and Furlenko. It just made sense. You see, the biggest problem a lot of us face when we take up jobs in other cities is setting up temporary homes. Purchasing things like mattresses, refrigerators, microwaves, all the essentials, becomes a huge expense that a lot of us just can't afford that early in our careers. So when Rento Mojo and Ferlenko were launched about a decade ago, they were like an answer to a lot of people's prayers. It was a great deal. You could get your fridge, washing machine, a king-sized bed and so much more delivered right at your doorstep. Use them for as long as you need, and then you can return them when you are done.

Now, cut to 2024 and things have changed. It's not that young people have stopped moving to big cities or renting homes, they're still doing that. But Rento Mojo and Ferlenko, which are still the two biggest players in the furniture rental space, are somehow struggling to stay relevant. Both companies are in a similar situation. They're dealing with mounting debt and VC money quickly drying up. In Furlenko's case, revenue has been steadily dropping over the years. This, despite the fact that the country's largest mattress and foam company, Sheila Foam, acquired a 30% stake for 300 crore rupees just last year.

It still hasn't been able to turn things around. Meanwhile, things are also looking pretty bleak for Rento Mojo. It's just about hanging on. It did raise 210 crores earlier this year, but at a significantly lower valuation than its last round in 2021. Its early investors also did not reinvest in the company in the current round. But Reto Mojo CEO and founder Gytanj Bamanja still seems pretty optimistic. He told the KERN that the company expects to hit a profit of 18 crore rupees in FY24.

He also said he was happy with the growth. that the company had seen in the last two or three years. He's optimistic for a CEO of a company that's so plagued with non-performing assets and dealing with a considerable amount of debt. To make things worse, there's also a new kid in town that's not really helping Ferlenko or Rentomojo in their fight for relevance. I'm talking about co-living spaces, which are popping up all over the place right now. So does furniture rental really stand a chance?

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rahal Philippos, and I'll be joining my colleagues Nikka Sharma every day of the week to bring you one business story that is worth understanding and worth your time. Today is Wednesday, 28th of August. Living spaces are really having their moment right now, especially after the pandemic.

People are constantly jumping between jobs and cities, so temporary no-strings-attached housing without any upfront costs naturally becomes a more practical option. You don't have to worry about coughing up, six months of rent a security deposit, the hassle of brokerage, none of it. In a co-living space, you can move in or out any time and don't have to worry about the hassle of returning or moving furniture either.

The math also speaks for itself. Take for instance a co-living setup run by Stanza living in Kodmangla, Bangal, which for context is considered a pretty posh part of town. For a single occupancy room, you're looking to spend about $20,000 a month. And this includes three meals, electricity, water, housekeeping and Wi-Fi. Compare that to renting an unfurnished studio apartment in a similar locality. Rent alone would cost you about $12,000 to $15,000. Then add about $2,500 for basic furnishing through one of these rental services.

Then you have food, utilities, Wi-Fi, not to mention, secure deposit and brokerage. It also doesn't help that rented items incur a fine if returned early. Whereas if you actually own a piece of furniture, you have the option of selling it when you are ready to move. The rise of easy

EMI payments on purchase products adds another layer of challenge for rental start-ups. These installments are usually at par with or lower than what one would shell out for a monthly fee on rented products with a plus point of owning the product in the end. But the

Bottom line is that the cost of procurement, delivery, servicing and refurbishing far exceeds the rental margins. More on that in the next segment. The rental business is a tough nut to crack. Think about it. Rental assets lose value as soon as they are bought. To make these assets last longer, typically over two years, rental companies also need to find ways to keep extending their lifespan. So they refurbish the items after each renting cycle. That's because a new consumer wouldn't want to rent it unless it looks brand new.

But these refurbishment costs can eat up to 30% of total revenue, which is three to four months rent per product. And then there's the fact that consumers aren't going to fully care for something that they don't own. And with the target cohort being that of young bachelors, it's very common to find things like cigarette burns and food spills that need the entire upholstery to be changed. Take the case of mattresses, for instance. These make up 15% of rent mojo's overall revenue.

But it takes one bed bug infestation for the whole asset to be trashed. So it's a risky yet essential product. On top of that, with rental periods averaging 6 to 9 months and the wear and tear from frequently moving bulky furniture, the depreciation speeds up. Now, to add to that, operational costs are also pretty steep. 20% of assets go to transport, installation and warehousing, another 30% goes to debt financing, 10% to marketing,

and the rest to cover salaries and administrative costs. There's also the issue of bad assets. Unlike with a loan, there's no way to force a customer to pay if they don't want to. These companies don't take pan or athar details, so they can't pursue their customers if they decide to move out. In fact, one Furlenko employee said that there have been instances where appliances were sold on online marketplaces like OLX. All of this would have still made sense

if the rental business had scaled exponentially. But it didn't. Expanding beyond major cities like Delhi, Mumbai, Hyderabad and Bangalore has been very tough because experts say this model just won't work in tier two or tier three cities. So where do things go from here? Stay tuned to find out. VCs don't seem to be interested in the furniture rental system.

space anymore. That's because they're mainly concerned with whether the business can go 10x from the starting point. In Rent Mojo's case, that just isn't possible. In fact, one employee said it's hard for it to even go 3x. The reason for that is simple. It would take decades just to repay the raised funds, let alone make any profit. Existing investors have realized this too, which is why reinvestments have been very hard to come by. In any case, these companies can't use equity to fund their inventories as it would dilute the founder's stakes. So instead, they need to raise debt. But this is risky in the long run, because repaying these loans has become difficult. Furlenko, meanwhile, has understood that putting all its eggs in rentals is very risky.

That's why it's going omnichannel to tackle the debt. Since 2022, it's been focusing on selling new and used furniture. It even opened to retail stores in Bangalore since the Sheila-Fooms deal. But when we visited these two outlets, they were pretty desolate. Only about 5% of the products were on rent, and the rest of the store looked like your average home centre. So you had sofa sets, mattresses, the works, all with a premium price tag. Rent Mojo 2 has set up stores. They can in fact visited its Kormangla outlet,

and like at Furlenko, there were no customers. Just some dust-laden sofa sets, a TV stand, a dining table set, and a fridge stashed in a car. honor. The neglect was glaringly obvious. At this point, the writing on the wall is clear. The two startups at once tried to create a category are now left dealing with a mass of broken products. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and poddors.

podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me Snigda Sharma and edited by Rajiv Sien.