How Digital Fashion Brands Grow Without Outside Capital

Bengaluru: When ethnic brand Suta started selling dresses and skirts eight years ago, its founders Sujata and Taniya Biswas never imagined that they would grow ₹75 crore business without any venture capital.

Like Suta, several apparel brands in India have bucked the trend of startups relying on outside capital to scale their businesses. Despite the lack of capital, the advent of social media and online platforms has democratized brand reach, allowing these companies to grow profitably, albeit at a slower pace.

Online channels like Instagram have gained significant popularity over the past three to four years, allowing brands to connect directly with their target audience. These brands have benefited from the premiumization of products and rising regulatory revenues as Gen Z and millennials are more likely to spend money on niches and specific categories.

With around 55% customer retention, Suta earns a little over half of its revenue from its website and other social media apps. It also derives a significant chunk of its revenue from online marketplaces like Myntra, while offline stores contribute the rest. Over the years, the company has added several other offerings, including saris, blouses, menswear, and accessories.

Similarly, Mulmul, another premium brand selling ethnic wear including suits, saris and designer wear, has entered the market on its own with its own funds. ₹Revenues of Rs 100 crore in five years.

The company is run by third-generation textile entrepreneur Harsh Modi, who says he previously produced fabrics for a number of international brands including Zara and H&M. About 80% of orders come from major cities.

The company initially gained popularity through influencer marketing and social media platforms like Instagram, which contributed the bulk of its revenue. But like Suta, Mulmul is focusing mostly on its offline presence and eventually plans to expand into markets outside of metropolitan cities.

Other small brands like Jaipur-based Phutari, which has around ₹2 crore in revenue annually, have also taken similar steps to leverage their growing online customer base. The four-year-old company gets 90% of its revenue from Instagram and has seen its average order value increase by around 40% to ₹3,500. Although the company is still in its early stages of development, it plans to open its first offline store in January, founder Rohan Malhotra said Mint.

Multi-channel method

As consumers return to traditional shopping patterns post-pandemic, several direct-to-consumer brands are adopting an omnichannel strategy. The blending of online and offline approaches is driven by the need to build trust and transparency with consumers, particularly in second- and third-tier markets.

Several startups, including online cosmetics retailer Purplle and meat delivery startup Licious, have recently raised funding to expand their offline presence.

While opening brick-and-mortar stores can be a big investment, many of these emerging fashion brands have managed to do so by taking a lean approach and opening stores at a slower pace.

Read also: Manish Taneja of Purplle and the Art of Raising Capital Without Asking for It

This is in stark contrast to how venture-led companies operate. Founders of such companies are encouraged to aggressively prioritize growth, resulting in excessive burnout in the early years.

“A lot of businesses have realised that continuing to waste money on online-only growth is a trap, so many have chosen the offline route, although that too has its challenges,” said Harminder Sahni, founder, Wazir Advisors. He added that there are many options, such as franchising, where you can make it so that franchisees have to have their store and inventory, rather than selling their equity to raise working capital.

Suta, for example, works with business operators who manage the entire system. “All of our stores are profitable today,” Sujata Biswas said.

The company also conducts several exhibitions and workshops to gauge demand in a particular city. With more customers interacting and getting a feel for the brand in-store, Suta’s online business from the region is also growing significantly, Taniya Biswas added.

The company is also considering plans to start operations abroad, such as in Singapore, the US, the UK and Africa, where it has seen a lot of interest in tourist arrivals.

Mulmul, which has opened about 18 stores in major metropolitan cities, has avoided big-box stores to control fixed rental costs. The right store size in cheaper areas has kept the company in good shape, ensuring store profitability from the first month.

These stores are being set up in areas where Mulmul already has a well-established online customer base. “Ultimately, it’s just about letting our target market know that we have set up shop in their city. We are organising a few influencer events to create initial buzz and awareness,” Modi said.

The company also has a significant international presence with dedicated websites for specific geographies like the UAE, the US and the UK. “Our international websites are very profitable and their contribution to the overall revenue is growing literally every month,” Modi said. However, he added that these numbers do not make enough sense to open an offline store internationally as the cost of running one is extremely high.

Inventory Challenges

The Indian textile and apparel market is estimated to be worth around $165 billion in 2022. It is expected to touch $350 billion in the next six years, according to a report by Invest India.

Over the past few years, many of the incumbent players in the industry have increasingly lost market share to new-age brands as they have a greater ability to take risks, be more innovative, and cater to niche tastes of their customer base as opposed to the mass production of the big companies. However, they are still hesitant and face significant challenges in dealing with aspects such as inventory that many of these larger giants have mastered.

“Product innovation and brand love have never been a challenge for us, but inventory management is something we haven’t mastered yet, especially due to seasonality. This year, we have spent a lot of time implementing technology for inventory management and omnichannel,” says Sujata.

Modi of Mulmul also echoed similar sentiments. “Inventory management was very difficult and difficult to predict… The complete sell-out during the festive season is both good and bad because while the business is doing well in terms of sales, we are also losing our future customer base,” he said, adding that a solid back-end infrastructure and timely delivery are key aspects to scale the business sustainably.

To address such issues, some new founders consider seeking support from a venture capital firm, which could provide the company with networking, learning, and mentoring opportunities, among other things.

There has undoubtedly been some interest from venture capital firms in these cutting-edge fashion brands, but they have decided to wait and scale the business before potentially bringing in outside capital, which would come with strings attached, such as dilution of ownership in the company.

“I don’t have a single use case right now to raise capital 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 really add value to our business with their experience and grow the brand to the next level, which will make it global or something like that, I don’t see that happening,” he added.

Wazir’s Sahni said founders today realize that raising too much money and diluting it too quickly can cause problems at a later stage.

As the apparel market continues to evolve, the development of some modern brands shows that sustainable growth, even if slower, can prove more profitable in the long run.

Read also: Venture capitalists have difficulty escaping the “sunk cost” fallacy