Bengaluru: When ethnic brand Suta started selling dresses and skirts eight years ago, founders Sujata and Taniya Biswas could hardly have imagined that they would become a ₹75 crore deal without venture capital.
Like Suta, several apparel brands in India have bucked the trend of start-ups relying on external capital to grow their businesses. Although capital is becoming scarce, the advent of social media and online platforms has democratized brands’ reach and enabled these companies to grow profitably, albeit at a slower pace.
Over the last three to four years, online channels such as Instagram have grown significantly in importance, allowing brands to connect directly with their target audience. These brands have benefited from the premiumization of products and rising disposable incomes, as Gen Z and Millennials are more willing to spend on niches and specific categories.
Suta has a customer retention rate of about 55% and generates a little over half of its revenue from its website and other social media applications. A significant portion of its income also comes from online marketplaces like Myntra, while its offline stores contribute the rest. Over the years, the company has added several more offerings, including sarees, blouses, men’s wear and accessories.
Similarly, Mulmul is another premium brand that sells ethnic wear like suits, saris and designer wear. ₹100 crore revenue mark over a period of five years.
The company is run by Harsh Modi, a third-generation textile entrepreneur who says he has produced fabrics for many international brands such as Zara and H&M. The company receives around 80 percent of its orders from major cities.
In its early days, the company gained traction through influencer marketing and social media platforms like Instagram, which accounted for the majority of its revenue. But just like Suta, Mulmul is heavily focused on its offline presence and plans to eventually venture into non-metropolitan markets as well.
Other small brands like Jaipur-based Phutari, which produces about ₹2 crore in revenue per year, have also taken similar steps to capitalize on the growing online consumer base. The four-year-old company generates 90% of its revenue through Instagram and has seen an increase in average order value by about 40% to ₹3,500. Although the company is still in its infancy, it plans to open its first offline store in January, said founder Rohan Malhotra mint.
The omnichannel path
As consumers return to their traditional shopping habits post-pandemic, several direct-to-consumer brands are adopting an omnichannel strategy. The combination of online and offline approaches is driven by the need to build trust and transparency among consumers, especially in Tier 2 and Tier 3 markets.
Several startups, including e-beauty retailer Purplle and meat delivery startup Licious, have recently raised money to expand their offline presence.
While opening physical stores can be an investment-intensive endeavor, many of these apparel brands have succeeded by taking a more frugal approach by opening stores more slowly.
Read also: Manish Taneja of Purplle and the art of raising capital without asking for it
This is in stark contrast to how venture capital firms operate. Founders of such companies are encouraged to aggressively prioritize growth, leading to excessive burnout in the early years.
“Many companies have realized that continuing to burn cash to grow only online is a trap. Therefore, many have taken the offline route, although that too comes with its own challenges,” said Harminder Sahni, founder of Wazir Advisors. He added that there are many opportunities like franchising where you can get franchisees to stay in their business and inventory without having to sell your equity to raise working capital.
Suta, for example, works with corporate operators who run the entire business. “All of our businesses are profitable today,” said Sujata Biswas.
The company also hosts several exhibitions and workshops to gauge the demand in a particular city. As more customers touch and feel the brand in a store, Suta’s online vertical is also growing significantly in that region, added Taniya Biswas.
The company is also exploring plans to start operations in international target countries such as Singapore, the US, the UK and Africa, as there is strong interest there.
Mulmul, which has opened around 18 stores in major metropolitan cities, has avoided large stores to keep its fixed rental costs under control. Right-sizing stores in less expensive areas has helped the company ensure that the business is profitable from the first month.
These stores will be opened in areas where Mulmul already has an established online customer base. “Ultimately, it’s just a matter of letting our target market know that we have opened a store in their city. We are organizing several influencer events to create the initial buzz and increase awareness,” Modi said.
The company also has a strong international presence and has dedicated websites for certain regions such as the UAE, the US and the UK. “Our international websites are very profitable and their contribution to the overall revenue is literally increasing every month,” Modi said. He added, however, that the numbers did not make enough sense to open an offline business internationally as the operational costs are extremely high.
Inventory challenges
The volume of the Indian textile and apparel market is estimated to be around $165 billion in 2022. According to a report by Invest India, the market is expected to grow to $350 billion in the next six years.
In recent years, many established companies in this space have increasingly lost market share to new brands, as they are more risk-taking, more innovative and more focused on the niche needs of their customers, as opposed to the mass production of the large companies. However, they are still faltering and face significant challenges in managing aspects such as warehousing, which many of these large giants already master.
“Product innovation and brand love have never been a challenge for us, but warehousing is something we still need to master, especially due to seasonality. We have spent a tremendous amount of time this year adopting warehousing and omnichannel technologies,” said Sujata.
Mulmul’s Modi echoed similar sentiments. “Inventory management was very challenging and difficult to predict… Being completely sold out during the festive season is both a good and a bad thing because while business is doing well in terms of revenue, we are also losing our future customer base,” he said, adding that robust back-end infrastructure and on-time delivery are crucial aspects for scaling a business sustainably.
To solve such problems, some new-age founders have considered enlisting the support of a venture capital firm as it could provide their company with networking, learning and mentoring opportunities, among others.
While several venture capital firms have shown interest in these new clothing brands, they have decided to wait and grow the business to a certain scale before potentially bringing in external capital, which would come with certain conditions, such as dilution of ownership in the company.
“I don’t have a single use case to raise capital today because we are funding our growth plans internally, so no one has been able to convince me to raise money,” Modi said. “Unless we find a partner who can add real value to our business with their experience and take the brand to the next level that makes it global or something like that, I don’t see that happening,” he added.
Wazir’s Sahni said founders today also recognize that raising too much capital and diluting too quickly could lead to problems later.
While the apparel market is constantly evolving, the evolution of some new-age brands shows that sustainable growth, even if slower, can be more rewarding in the long run.
Read also: Venture capitalists find it difficult to escape the sunk cost fallacy
