Why ShopClues Failed? | Case Study Behind the Downfall of the Once Unicorn Startup in India

India’s long history of promising and successful eCommerce startups also includes some well-known crashes too. ShopClues, an online shopping marketplace venture is a great example here as it rose to great heights before facing a hard fall. The startup tasted success so well that it even acquired the status of India's fourth unicorn in 2016. But it couldn't maintain its status for long as a series of events contributed to its downfall. This article will go through the reasons behind ShopClues's failure.

The Rise of the Ecommerce Platforms in India
ShopClues - An Overview
Why ShopClues Failed?

• Aggressive Rival Tactics
• False Branding
• Poor Quality Products
• Internal Scandals
• Migration of Consumers
• Extreme Cost-Cutting Measures

The Rise of the Ecommerce Platforms in India

The advent and wide use of the internet have ensured at least one element - the ability to create branching platforms. In this manner, most aspects of the pre-internet era have transformed to become more accessible and attainable. One such facet is the marketplace.

The traditional physical marketplace has been replaced almost completely by an online space for selling and buying. Contrary to the belief almost 30 years ago, eCommerce spaces are here to stay and thrive at it. There are various reasons why the eCommerce marketplace is booming throughout the world. These include:

• It covers almost all borders and distances to bring products to a marketing platform.
• It ensures more widespread access to products that were previously closed off to people because of geographical distances, low awareness, lack of access, etc.
• It promotes and employs a greater amount of employees than any traditional selling platform.

These are some of the many reasons why eCommerce conglomerates like Amazon, eBay, Joi, Nykaa, etc., have created a successful space for eCommerce to flourish in most parts of the world.

In recent years, the Indian market has opened up multiple avenues to small businesses looking to transform into sustainable eCommerce businesses. The country also promotes established online commercial platforms. Therefore, eCommerce platforms like Amazon India, Snapdeal, Flipkart, Nykaa, Myntra, and more, have gone on to see great success in the Indian subcontinent.

However, these successes are balanced by major businesses that have failed to sustain themselves and secure a long-term future. One such company is ShopClues. Its rise and crash have been among well-noted cases in the eCommerce world.

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ShopClues - An Overview

ShopClues is an online marketplace, similar to Snapdeal and Amazon India. The eCommerce platform was founded 11 years ago in July 2011 by Sanjay Sethi, Sandeep Aggarwal, and Radhika Aggarwal. Owned by Clues Network Pvt. Ltd., the headquarters are situated in Gurugram, Haryana, India. The brand served the interests of the Indian consumerist client as an online shopping space.

The brand operates under the banner of ‘Made in India.’ At a time when Indians were beginning to look for ways to reduce dependency on China for goods and materials, platforms like ShopClues came to the forefront. People saw these online establishments as the perfect solution to a more patriotic and unified image of India. ShopClues certainly profited off of this value, offering goods made in India as well as foreign products at considerable discounts. Moreover, instead of focusing on large urban metro cities, the brand concentrated on selling basic and practical products related to cleaning, kitchen, apparel, electronics, and other items to Tier II and Tier III cities. Within two years of its existence, ShopClues boasted one million active users.

As a result, the brand saw major investors like Tiger Global, Helion Ventures, and Nexus Venture Partners invested in ShopClues. According to Forbes India, the brand possessed a value of $1.1 billion in 2016 and therefore, acquired the status of a unicorn startup in India.

With such success, where did the brand go wrong? How did ShopClues lose such a massive chunk of its revenue in later years? Let us go on to find out the answers.

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Why ShopClues Failed?

The success of an eCommerce venture goes beyond selling its products. From rival companies to internal affairs, a lot more goes behind the brand’s capability of running operations smoothly. Sustaining a project as well as ensuring a stream of profits at the end of every fiscal year is not as easy as it sounds. ShopClues also faced many hurdles that led to its downfall. Below, we are going to take a look at some of the most prominent issues ShopClues had to deal with and ended up failing disastrously:

Aggressive Rival Tactics

When ShopClues came about and gained traction in the Indian consumerist sector, eCommerce businesses were a thing of rarity. Its founders took advantage of this in 2011 and began to market its products accordingly. However, by 2014, Amazon and Walmart-owned Flipkart began to focus their attention on establishing online shopping platforms in India.

Whereas Flipkart was seen as only an online bookstore and Amazon as a western organization. Both began to aggressively market themselves to remove rivals. This affected the growth and consolidation of ShopClues, which became the small fish surrounded by sharks. New rivals with better and more refined marketing skills overpowered any model ShopClues could produce. This was one of the reasons behind the failure of ShopClues.

False Branding

The company also suffered losses in terms of its offerings. In 2011, the vision was to bring urban goods to sub-urban and rural spaces that lacked the opportunity to access the same. However, complaints from consumers began to stream in that the products were fake. The Luxottica Group, the owner of Ray-Ban, alleged that ShopClues had been selling Ray-Ban products under fake labellings. The accusation prompted the Delhi High Court to pull up the Indian brand for selling the products despite previous warnings. This adversely affected the image of ShopClues among the public.

Poor Quality Products

Alongside fake products, reports also came in that the brand was dealing people with poor-quality products. Despite the low costs and exciting offers, the products were not up to par. Many users complained of scams and dupes perpetrated by the company. People did not receive their goods or refunds on time. The customer support option was unavailable to most pleas for help. This created bad blood among users towards the brand and affected ShopClue’s image.

Internal Scandals

Multiple scandals rocked the company over and over. The founder and CEO of ShopClues, Sandeep Agarwal, was charged with insider trading allegations in 2013. Consequently, Aggarwal was arrested in the United States where he accepted a plea bargain on the accusations and pleaded guilty. He resigned from the post of CEO of ShopClues the same year.

2017 saw a stormy year for the brand internally. Sandeep Aggarwal blamed Radhika (his estranged wife) for forcing him out of the company. Subsequently, the couple split up and continued to spar publicly over voting privileges and charges of fraud. Aggarwal then made a humiliating Facebook post regarding his wife and also filed a case of criminal defamation against Sethi and Radhika. He accused them of downplaying his contribution as the creator and founder of ShopClues. All such scandals among the founders created a false image of the platform in the public eyes.

Migration of Consumers

With a clear lack of invigorating and innovative business foundations and adaptability, ShopClues was slated for failure when the big names came into the fight. Platforms like Amazon and Flipkart started gaining popularity and trust among the consumers and ShopClues did not have an adequate plan to retain its consumer base, leading to a collective exit of many consumers towards other platforms.

Extreme Cost-Cutting Measures

Due to continued failures, ShopClues decided to undergo extreme measures to save costs. Hundreds of employees were regularly laid off every year after 2016. In fact, more than 200 employees were laid off in 2017 itself. ShopClues’ expenses decreased by a whopping 60% between 2018 to 2020. The financial year of 2018 saw Rs. 363.4 crores in expenses which went down to Rs. 278 crores in 2019. 2020 saw a further dramatic decrease of Rs. 148.6 crores.

ShopClues shortened its budget for ads and promotions down to 80% in 2018. It further slashed costs to 60% in 2019. The shipment cost dropped completely down to 100%. There were no reports of transport or charges for hiring in the fiscal year of 2020, so it is assumed that these costs were also slashed.

Conclusion

ShopClues had all the makings of being a successful eCommerce platform with viability. However, various factors like competition, a lack of business initiatives, and unclear modules of operation left the company in the dust. Its internal affairs and state of handling procedure also had a hand in ShopClues becoming a redundant business that was once a shining avenue.

FAQs

Is ShopClues an Indian company?

Yes, ShopClues is an Indian company founded by Sandeep Aggarwal, Radhika Aggarwal, and Sanjay Sethi in the year 2011. The company has its headquarters in Gurugram, Haryana, India.

Who acquired ShopClues?

ShopClues was acquired by Singapore-based Qoo10 in a stock deal in the year 2019 for a valuation between 70 to 100 million USD.

Is ShopClues a failure?

ShopClues had many reasons that led the startup towards its failure. These include false branding, rival tactics, internal scandals, and the lack of trust among the customers.

Is ShopClues unicorn?

ShopClues acquired unicorn status in the year 2016 with a valuation of around $1.1 billion, making it the fourth unicorn startup in India. However, the company could not hold this valuation for long and ultimately got sold to Qoo10 at a valuation between $70-$100 million.