How India’s D2C Fashion Brands Are Building Scalable Business Models To Capture A $43 Bn Market Opportunity

Compared to any other consumer-facing sector, the fashion industry has seen too many changes across every function and sub-segment, from design and trends to manufacturing and merchandising. It was a dark time when India’s iconic muslin and pashmina fell to mass-produced, machine-made clothes in the colonial era.

But with the revival of traditional crafts post-Independence, the emergence of new styles and the coming of age of new genres of fashion schools, both high fashion and mass clothing in India have evolved at a fast clip in sync with global markets. 

As new trends and ideas, along with new technologies, continue to push the envelope, the industry has grown steadily. In 2015, the organised fashion market in India stood at $41 Bn and grew at a CAGR of 10% to reach $67 Bn in 2020. It is expected to grow at the same pace and reach $107 Bn by 2025, according to Wazir Advisors, a Delhi-NCR based business advisory firm.

Interestingly, the rise of digital infrastructure across India, especially the fast adoption of ecommerce by new-age fashion brands, has played a significant role in this growth narrative. Online retail has made it easy for not-so-popular direct-to-consumer (D2C) brands to reach out to their target audience and grow their sales in a viable way instead of spending lakhs and crores on offline expansion and marketing. 

The first to adopt the new model was Yepme, a Gurugram-based fashion brand that started its operations in August 2011. Yepme’s online business model underlined how a primarily touch-and-feel category like fashion could see the retail action away from elegant studios and well-embellished retail stores.

To drive its business further and enhance customer reach, the company also targeted Tier 2 and Tier 3 cities where big brands rarely set up their physical stores. 

Incidentally, Myntra launched in 2007 as a gift personalisation platform but pivoted to a fashion marketplace in 2011 and launched its private label the next year. Koovs was another early entrant in 2009, but in its initial days, it operated as a deal site and later pivoted to electronics (2010) and fashion (December 2011).

In the next few years, a series of innovative changes and pivots took place as brands, new and old, started moving to the online space to make good of this tech-powered newfound selling opportunity. For instance, in 2014 retail fashion brand Biba entered the digital sphere. Then,  2016 marked the entry of Reliance retail and Tata Unistore entering the online fashion segment through AJIO and Tata CLiQ. 

Given the unprecedented growth, the online fashion market spurted. It was valued at $17.8 Bn in H1 2021 and is expected to touch $43.2 Bn by 2025, according to Inc42’s latest D2C report Decoding India’s $100 Bn+ Opportunity. More interestingly, the online market accounts for 33% of the entire fashion market in India and may capture about 50% of the market share by 2025. 

But taking home a piece of this pie is easier said than done. For instance, homegrown brands focussing on online play are yet to leverage the advantages of fashion tech that covers all aspects, from vision to wear, from online styling, fitting and customisation to applied sustainability and superior customer experience. Bridging this ‘experience’ gap has always been a tough challenge for these brands.

They need to find the right solutions (tech and otherwise) to offer an online experience similar to offline shopping and thus stand out from online and offline peers. 

Why Brands Need To Focus On The Future 

India is home to 100+ online fashion brands, according to a report by Avendus, Mumbai-based financial services firm. This data reveals two distinct aspects: First, the sector’s enormous potential, and second, the cutthroat competition in the online fashion space. 

The rise in competition in the online space (further triggered by the pandemic as offline brands have joined the fray due to frequent lockdowns) has pushed digital-first brands to think of innovative solutions that will serve present and future requirements.

According to industry insiders, grabbing the market share here and now will only work short-term. But to ensure long-term growth, D2C brands should remain prepared for the changes that will drive the future of fashion. They need to visualise a market of 300/400 Mn online shoppers compared to the current 190 Mn+. 

Besides, the competition will get tougher as more fashion startups and legacy brands are keen to enter this space to cater to a wider consumer base. Hence, the brands should focus on the future and develop scalable strategies to entice and retain customers. 

Decoding future trends and customer preferences may not be as difficult as it seems. Keeping an eye on global innovations, worldwide consumer behaviour and India-specific consumer data will help companies understand how India’s fashion story may pan out. 

Here is a case in point that tells us how a retail trend in China is likely to impact Indian shoppers. Lately, Chinese brands are betting big on influencer-led live commerce where online live streaming is linked to an ecommerce store. This allows shoppers to interact with their favourite influencer/brand representative via chat and shop at the same time, making things more engaging and fun. 

Interestingly, this trend is spreading fast in North America and Europe. According to a McKinsey article, a Tommy Hilfiger live commerce show reportedly had an audience of 14 Mn and sold 1,300 hoodies in two minutes. There is no exact replication of this format yet in India. But the country is witnessing a considerable focus on engagement after Nanjing-based fast-fashion giant Shein made a comeback to the Indian market as an Amazon seller in July 2021. 

The brand rewards its customers not merely for purchase but an entire gamut of activities, including log-in, uploading reviews with product photos, watching live streaming and participating in outfit challenges. Using these features, the brand goes beyond the routine activities of a transactional platform and adds more incentives for a customer to stay, engage and possibly purchase.

In essence, the world becomes a connected village when it comes to fashion, and countries or even niche consumer segments quickly catch up with global trends. So, it is easy to understand the importance of scaling up in tune with those trends.

From interactive fashion tech to live/social commerce, the options are plenty for D2C brands to zero in on scalable strategies as per their requirements. But what matters most is the quick and efficient implementation of such solutions, with an eye on customisation. 

For instance, Prabhkiran Singh, cofounder of the apparel brand Bewakoof, is keen to make shopping more social in sync with global trends. According to him, limited-time discounts on purchases or incentives for product recommendations, likes and comments will help online users get a taste of the social atmosphere that offline shoppers enjoy at physical stores. It also forms the core of social commerce that is fast catching up globally and in India.

“Shopping has always been a social thing to do. When we think of shopping, we think of going out with family and friends and having a good time. So, digitally native brands need to incentivise group shopping to compete with the offline experience,” he says.

Decoding The D2C Fashion Playbook

Digital-first D2C fashion brands have come a long way since the online business model took off in India. With well-established supply chains, marketing channels and manufacturing processes in place, these brands are now in a prime position to focus on innovation and stay future-ready.

At the recently concluded D2C summit hosted by Inc42, we interacted with a wide range of brands — from high-end fashion to fine jewellery to eyewear and more — to deep dive into the cutting-edge strategies of major players. Here is a look at the vision and the road map each company is following to make the brand stand out.

Melorra: Fast Fashion, Asset-Light Model Giving An Edge

Think fine jewellery, and you would still turn to an offline outlet or brand store that you have trusted for years. Set up in 2015 by Krishna Kumar and Saroja Yeramilli, Bengaluru-based online fine jewellery brand Melorra faced the same trust issue related to a large-ticket purchase. It was difficult to change overnight the time-honoured perception of offline buyers. So, the D2C startup decided to pursue product innovation to disrupt the industry. 

As a first step, the company moved away from traditional templates and went for trendy and lightweight functional items, identifying millennial women as its target consumers. Next, it opted for an asset-light zero-inventory model and only specialised in custom-built jewellery using 3D printing technology and adding stones later.

In an interview with Bloomberg TV, Yeramilli said that the model was adopted to eliminate the pressure of liquidating old or surplus inventory and focus on fast fashion. Melorra calls itself the Zara of online jewellery and releases a new collection every Friday. (Almost all fast fashion brands create weekly product lines as they cater to ‘52 micro-seasons’ per year.) 

Speaking about the challenges in this journey at Inc42’s D2C Summit, Yeramilli said it took more than three years of experimentation to perfect the asset-light model. Stressing on how innovation at the manufacturing level could be a strategy for disruption, the company claimed to have recorded a 200% YoY growth in FY20 and expected a 5x rise in revenue in the same year. However, it has not published its financials for FY20 yet.

Bewakoof: Thriving On New Process Creation 

There are T-shirts and T-shirts, and then there is Bewakoof that brings a smile to one’s face. The Mumbai-based e-retail business was started by IIT-Bombay alumni Prabhkiran Singh and Siddharth Munot in 2012. The company identified college students and millennials as its target audience and started producing funny T-shirts (we mean the messages printed on them are funny) to capture the market. The brand made waves, and in 2013, clocked more than 1 Lakh fans on Facebook, where it was primarily marketing its products. 

But as it scaled, the brand’s greatest strength turned out to be the biggest business challenge. Due to its large SKU (the brand releases a new design every day), the company wanted to keep a low MOQ (minimum order quantity). But it was unable to find a company that would make so few T-shirts. Eventually, Bewakoof set up its factory and warehouse in 2013. The brand now claims to sell more than 20K products every single day.

The company clocked a revenue of INR 210 Cr in FY20 and improved its earnings by 28% compared to the previous year when it earned INR 164 Cr. The online retailer also experimented with different models to aggressively scale its operations. 

But there is more to this growth story. Bewakoof launched its beauty and personal care brand Cosmos in July this year and entered video commerce with its in-app feature called B’Shots. 

“D2C is not just a niche creation to step away from legacy brands. It is, in its entirety, a process- creation to address issues at every product touchpoint,” said Singh at the D2C Summit.

Zivame: Banking On Body Confidence 

Women’s innerwear is rarely showcased and often sold surreptitiously at brick-and-mortar shops. But Bengaluru-based Zivame decided to bring lingerie to mainstream fashion and make a success story of it. Set up in 2011 by Kapil Karekar and Richa Kar, it was one of the earliest Indian brands to enter this space. It had too few competitors, which meant investors had less confidence in this segment due to its near-taboo status in India. 

This is no exaggeration. In an interview with Firstpost, Kar related the difficulties she faced in finding acceptance for her work. While staying in Bengaluru, she could not even reveal to her landlord what she did for fear of getting evicted. 

For Zivame, the biggest challenge lay in breaking the taboo and creating an environment where consumers can openly discuss innerwear shopping and equate it with buying other couture products. 

Therefore, the brand’s marketing strategy has evolved around spreading awareness and building a community where people can freely talk about lingerie as an item of necessity and luxury. As an extension of its philosophy, the company recently launched a body positivity campaign titled Dekho Maine Kya Kiya (Look what I’ve done). Through its commercials, social media posts and website, the brand has promoted body confidence and claims to have seen 50-60% higher traffic on its platform than pre-Covid times. 

The company has captured a significant market share of the premium lingerie segment and clocked a revenue of INR 222.8 Cr in FY20, showing a YoY growth of 57.1%. It also aimed to increase its offline stores from 35 to 60, focussing on Tier 2 and Tier 3 cities to ensure a more targeted omnichannel approach.

“Zivame aims to provide women with a personal and inclusive platform to shop for all their intimate wear needs. Plus, it is building a secure and private community to encourage conversations around their experiences,” says Khatija Lokhandwala, the brand’s head of marketing.

FabAlley: Customer Engagement, Predictive Analytics Gaining Traction

A western fast fashion brand started by Tanvi Malik and Shivani Poddar in 2012, FabAlley specialises in the mass-premium range (Delhi-NCR-based High Street Essentials is the parent company with the same founders).

As an early entrant, the company was able to tap into the influx of online shoppers and quickly built a brand identity. Better still, the brand has adopted fashion tech and uses an AI-powered recommendation engine that curates catalogues based on customer preference and data mining. The outcome: Users have a hassle-free experience and get to see the products they like most. 

All was hunky-dory with the brand until the first wave of the Covid-19 pandemic when fashion purchases took a hit. After mulling things over, FabAlley decided to take down its comfort wear range and created a work-from-home product line and protective wear (face masks) range. The products were a big hit among the consumer base.

Besides, the company focussed on post-purchase experience and started adding product notes to make people aware of fabric types and their pros and cons. It also used third-party tools like ClickPost Tracking to keep customers updated about shipping.

With the focus on the feedback loop, predictive analytics and fast time to market, the brand claims a 50% YoY increase in revenue in FY21. As FabAlley recorded a revenue of INR 180 Cr in FY20, a back-of-the-envelope calculation shows that the revenue in FY21 should be around INR 270 Cr.

Lenskart: Changing Perception, Increasing Touchpoints Work

Things must have worked out well for a brand that has topped the funding table in the D2C segment with $774 Mn since its inception. But the Delhi-based eyewear company, founded in 2010 by Peyush Bansal, Amit Chaudhary and Sumeet Kapahi, faced a couple of critical challenges from the get-go. 

First, much like other fashion items, eyewear is a typical look-and-feel segment. But here, the focus is on fit, comfort and accuracy, especially if companies provide prescription glasses. Understandably, consumer trust is quite low when it comes to online purchase of eye care products that may affect one’s vision. Second, in 2010, distribution channels were limited and expensive as brands had to sell through intermediaries.

In addition to fixing vision problems, eyewear as a fashion accessory has been here for a long time, but it has always been a niche segment. However, a decade ago, market experts saw a lot of potential in this category, and Lenskart decided to build a solutions-driven eyewear brand that would integrate care and style elements.

It came up with a host of features such as 3D try-on and eye check-up services at home to build consumer trust and engagement. Better still, it started operating as a marketplace and allowed other brands to sell on its platform. The product variety jumped along with Lenskart’s revenue. The company clocked INR 38 Cr in FY14, a 375% rise from INR 8 Cr in the previous financial year.

In the process, the brand was solving its first critical problem. It was building trust and changing perception through mind-boggling product varieties, widespread sales, at-home services and more. “You have to understand deep consumer needs. When we entered the market, glasses were still largely associated with eyecare and not considered fashion accessories. We tried to change that perception and make consumers think that even spectacles can be a fashion statement,” says Bansal. 

Its distribution channels have also grown exponentially. In 2015, the brand opted for an omnichannel model and started launching its offline stores. Lenskart now operates 750+ stores in more than 175 cities. 

Unlike many D2C brands, Lenskart’s primary strategy is to be available at every customer touchpoint and increase its visibility. From Google ranking and social media hype (through adverts and influencer marketing) to print media and television advertising, from marketplace play and m-commerce to offline retail, the brand has forayed everywhere to maximise its omnichannel play and grow sustainably.

Its strategy appears to have paid off as the brand nearly doubled its revenue from INR 485.5 Cr in FY19 to INR 963.7 Cr in FY20. It also reported a profit of INR 17.7 Cr in FY20. 

The Bottom Line

 Although widely different in terms of products, target markets, challenges and solutions, the journey of these five brands have a common script. And the narrative is all about how D2C fashion brands (in fact, the fashion sector itself) are working on (product) customisation, convenience, and care (read customer care and engagement) to cater to fashion enthusiasts across the country.

Their target customers are primarily millennials or Gen Z, but fashion, across categories and segments, never fails to appeal to a much bigger audience. 

Thanks to its burgeoning growth, the industry has also captured investors’ interest. Fashion D2C brands raised $756 Mn in funding across 123 deals between 2014 and April 2021. What’s more, fashion has topped the funding list among the D2C sectors. The message is clear. This segment will continue to present many opportunities as long as brands can identify their target audience and meet their specific requirements while doing intelligent problem-solving.