17 highlights
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For about a year and a half now, Bengaluru-based RentoMojo has been trying to raise money, but outside small tranches and debt capital, it has found funds hard to come by.
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Annual salary increments, bonuses and promotions haven’t been handed out. The company has also taken a step back from many of its moonshot ideas such as a foray into loans, offline retail, and bike and car rentals.
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What is keeping the company going is a $1.5 million tranche it had received from existing investors last month.
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While the pandemic has played a large part, RentoMojo’s story is also about the painful economics of renting out furniture, a business that was for a while hailed as part of the shift to a “rental economy”, as well as problems specific to the company’s business model when compared to its main rival.
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In the furniture rental ecosystem, there are broadly two business models: 1. The company procures and owns the furniture that it offers on rent and finances through on the books. 2. The company mainly finances through off the books.
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Bengaluru-based Furlenco operates on the first model (in fact, it now goes a step further and also gets furniture directly manufactured for itself).
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On average, furniture and appliances are expected to have a useful life of four years. This means that any asset has to be used for that duration to recover the initial costs (as well as maintenance costs) and make a profit.
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The company has to keep on finding takers for these assets because any time spent in a warehouse is a loss.
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What seven-year-old RentoMojo makes on renting out an asset, at least in the initial years, is measly.
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A rival executive says that customer acquisition costs coupled with inventory management is what is wearing rental startups down.
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Things weren’t too bad early in the pandemic; it was only when working from home became the norm that revenues took a hit. “The cancellation requests saw a spurt,” says the former employee, quoted right above. “Goods were lying idle in the warehouses and we were not generating any revenue.”
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And if all this wasn’t enough, eating the rental economy’s lunch is the “buy now, pay later” business in finance.
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In a country where ownership holds value for consumers, the BNPL or EMI model, where you stagger payments over months, often enough at zero interest rates, has a good chance of subsuming the rental economy.
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“Unlike the US or the UK, where renting and leasing furniture and appliances is commonplace, it is a relatively new phenomenon in India. It makes sense for a small section of the population, but for the larger subset, in the long term, mere dependence on rentals doesn’t help much,” he says, asking not to be named
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A lot of these issues also plague Furlenco, the other major furniture rental startup, but the company has two points in its favour.
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First, it has considerably more cash in the bank than RentoMojo.
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Second, its business model of owning its own inventory, even getting furniture manufactured directly, is now seen as a potentially stronger play. An investor with interests in furniture rental said that only an inventory-based model will allow a company to get into multiple verticals and have something to keep the investors keen.