Why has ShopUp been in the news?
In October 2020, ShopUp announced that it had raised a new investment round of $22.5 million, co-led by Sequoia Capital India and Flourish Ventures, with additional participation through VEON Ventures, Speedinvest, and Lonsdale Capital. ShopUp is the first investment by Sequoia Capital India and Flourish Ventures in Bangladesh. The company has raised about $28 million to date from investors and merged with Indian e-commerce platform Voonik earlier in the year as it looks to expand its presence outside of Bangladesh.
ShopUp said it has seen a rise in demand amid COVID-19. Neighbourhood stores’ weekly transactions increased by 8.5x between April and August on the platform, and RedX is processing 13x more daily parcel volume than it did in April. The company plans to deploy the capital to strengthen its partnerships with manufacturers and expand its tech infrastructure. “This fresh round of funding will support us in increasing our retail reach, deepening our partnerships with manufacturers, and focusing on building tech-first infrastructure,” said Afeef Zaman, CEO of ShopUp.
What opportunity set does ShopUp target?
ShopUp is targeted at the large network of 4.5 million “mom-and-pop shops”, known locally as Mudi Dokaans, in Bangladesh that account for 98% of the country’s retail sector. While it is an extreme example, this sort of fragmentation within retail in frontier markets is common. As in other markets, the vast majority of these small shops have little-to-no digital presence; both for their store, inventory, and order management, and in their relationships with their customers. These issues have been exacerbated by the coronavirus lockdowns.
A research report by the United Nations Capital Development Fund in 2018 highlighted both the importance of these shops for the Bangladeshi economy and the opportunity for businesses that can solve their problems when it comes to digitalisation*. The 1.3 million micro-merchants covered by the report have $18 billion in annual turnover and employ close to 2 million people, with a disproportionally high level of youth employment. Scaled up to include the larger “mom-and-pop shops” that ShopUp targets as well, the opportunity is clearly huge.
However, these businesses face an array of problems. Firstly, ordering from suppliers is most often manual and in cash. Secondly, they struggle to scale their businesses because they do not have access to digital store management tools. Thirdly, they typically do not have access to working capital finance at affordable rates, which, since 73% of their sales rely on credit instead of cash or digital payments, creates a massive liquidity crunch. These problems for small retail stores are practically universal across frontier economies, and yet there has been not nearly as much investor attention given to the SME opportunity as there has to B2C e-commerce and solutions.
What is ShopUp today?
ShopUp has built what it calls a full-stack business-to-business commerce platform to solve some of the key problems outlined above. It provides three core services to neighbourhood stores: a wholesale marketplace to secure inventory, logistics (including last-mile delivery to customers) and working capital.
The marketplace, “Mokam”, has over 10,000 products at wholesale prices for SMEs to purchase. The delivery platform, “RedX”, caters to the expanding e-commerce sector in Bangladesh by providing tech-first delivery support for both businesses and individuals. RedX delivers across Bangladesh in under 72 hours, with doorstep pickup and delivery and SMS updates. Crucially, it accepts cash on delivery (COD) and bank payment or bKash**
The ShopUp “eLoan” app allows businesses to receive a working capital loan for 3 to 12 months with zero collateral, and interest rates from 7% to 24% maximum, provided by ShopUp’s banking partners. The documents required are minimal, and the money is deposited within 7 days of signing the loan agreement. Repayment is possible in multiple different forms, including bKash, automatic deduction, and cash.