Bengaluru: When ethnic brand Suta began selling dresses and skirts eight years ago, little did the founders, Sujata and Taniya Biswas, imagine that they could build a ₹75 crore business without any venture capital.
Like Suta, several apparel brands in India have bucked the trend of startups relying on external capital to scale businesses. Despite capital becoming scarce, the advent of social media and online platforms has democratized brand reach, enabling these companies to grow profitably, albeit at a slower pace.
Over the past three to four years, online channels like Instagram have gained significant prominence, allowing brands to connect directly with their target audience. These brands have benefited from the premiumization of products and growing disposal incomes as Gen Z and millennials spend more readily on niche and specific categories.
With about 55% customer retention, Suta earns a little more than half of its revenue from its website and other social media applications. It also gets a significant chunk of its income from online marketplaces like Myntra, while its offline stores contribute to the remaining. Over the years, the company has added several other offerings that include sarees, blouses, menswear, and accessories.
Similarly, Mulmul, another premium brand that sells ethnic wear, including suits, sarees, and designer wear, has bootstrapped its way to the ₹100 crore revenue mark over a five-year span.
Run by a third-generation textile entrepreneur Harsh Modi, who claims to have previously produced material for many international brands such as Zara and H&M, the company gets about 80% of its orders from metro cities.
In the initial days, the company gained traction through influencer marketing and social media platforms such as Instagram which had contributed to the bulk of its revenues. However, much like Suta, Mulmul has been focusing heavily on offline presence and eventually plans to venture into markets beyond the metros.
Other small-scale brands like Jaipur-based Phutari, which clocks about ₹2 crore in revenues per year, have also made similar moves to capitalize on the growing online consumer base. The four-year-old company gets 90% of its income from Instagram and has seen its average order value grow by about 40% to ₹3,500. While the company is still in its early days, it plans to roll its first offline store in January, founder Rohan Malhotra told Mint.
The omnichannel way
As consumers return to traditional shopping patterns post-pandemic, several direct-to-consumer brands are adopting an omnichannel strategy. Combining online and offline approaches is driven by the need to create trust and transparency with consumers, particularly in tier 2 and 3 markets.
Several startups, including beauty-etailer Purplle and meat delivery startup Licious, have recently raised funds to go big on their offline presence.
Even though setting up physical stores can be a capex-heavy undertaking, many of these bootstrapped apparel brands have managed to do so through a more frugal approach, opening stores at a slower pace.
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This is in sharp contrast to how venture capital-led businesses function. Founders of such companies are encouraged to prioritize growth aggressively, which results in excessive burnout in the initial years.
“Lots of companies have realized that continuing to burn money to grow only online is a trap, so many have gone the offline way although that too has its own challenges,” said Harminder Sahni, founder of Wazir Advisors. He added that there are many opportunities like franchising where you can make franchisees must in their store and inventory, and not sell your equity to raise working capital.
Suta, for example, partners with company operators who run the entire setup. “All of our stores are profitable today,” Sujata Biswas said.
The company also conducts several exhibitions and workshops to assess the demand in a particular city. As more customers engage in touch and feel of the brand in a store, Suta’s online vertical from that region also significantly grows, Taniya Biswas added.
The company is also evaluating plans to set up operations in international destinations like Singapore, the US, the UK and Africa, where they see a lot of inbound interest.
Mulmul, which has opened about 18 stores in the top metro cities, has avoided large format stores to keep a check on fixed rental costs. The right store size in less expensive areas has kept the company in good stead to ensure the store is profitable from the first month itself.
These stores are set up in areas where Mulmul already has an established online consumer base. “It is eventually only a matter of letting our target market know that we have set up a store in their city. We organize several influencer events to create that initial buzz to boost awareness,” Modi said.
The company also has a sizable international presence with dedicated websites for specific geographies such as the UAE, the US, and the UK. “Our international websites are very profitable and their contribution to the overall revenue is increasing every month literally,” Modi said. However, he added that the numbers are not making enough sense to open an offline store internationally as the cost of operating one is extremely high.
Inventory challenges
The Indian textile and apparel market size is estimated to be about $165 billion in 2022. It is expected to reach $350 billion in the next six years, according to a report by Invest India.
In the last few years, many incumbents in the space have increasingly lost some of their market share to new-age brands, as they have a greater ability to undertake risks, be more innovative, and cater to the niche palate of their customer base as opposed to mass production by the big companies. However, they still falter and face significant challenges in handling aspects like inventory that many of these bigger giants have mastered.
“Product innovation and brand love has never been a challenge for us but handling the inventory is something we are yet to master, especially due to seasonality. We spent enormous time putting tech in place for inventory management and omni channel this year,” Sujata said.
Mulmul’s Modi also echoed similar sentiments. “Inventory management has been very challenging and difficult to predict… Being completely sold out during the festive period is both a good and bad thing as while the business is doing well in terms of sales, we are also losing out on our future customer base,” he said, adding that a robust back-end infrastructure and timely delivery are crucial aspects of sustainably scaling a business.
To resolve such issues, some new-age founders have considered the backing of a venture capital firm for the kind of networking, learning and mentorship opportunities it could provide for the company, among other things.
To be sure, these new-age apparel brands have received interest from several venture capital firms, but they have decided to wait and grow the business to a particular scale before potentially bringing in external capital, which would come with its terms and conditions, such as dilution of ownership in the business.
“I don’t have a single use case today to raise capital as we internally fund our growth plans, so nobody has been able to convince me to raise money,” Modi said. “Unless we find a partner who can really add value to our business with their experience and grow the brand to the next level that takes it global or something of that order, I don’t see it happening,” he added.
Wazir’s Sahni said founders today also realize that raising too much money and getting diluted too fast could create problems at a later stage.
As the apparel market continues to evolve, the journey of some of the new-age brands shows that sustainable growth, even if slower, can be more rewarding in the long run.
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