How D2C Brand The Souled Store Soared To Profitability After Slumping To 52x Losses 

The aggressive growth of D2C (direct-to-consumer) brands in India during 2020-2022 was fuelled by several factors. With a penchant for product discovery, combined with the rising demand for doorstep deliveries in Covid times and people’s desire to stay connected with the brands, the Indian D2C market is estimated to surpass $100 Bn in 2025, growing at a CAGR of 25%, according to an Inc42 analysis.

Given this market outlook, it is easy to understand which direction the D2C ecommerce players took when fierce strategy debates on profitability versus no-holds-barred growth erupted time and again.

Vedang Patel, Aditya Sharma, Harsh Lal and Rohin Samtaney, founders of the omnichannel lifestyle D2C brand The Souled Store, could not overcome the allure of rapid growth, either. They adopted an omnichannel approach for maximum reach, floated high discounts, did some expensive hiring and increased the marketing budget. But these resulted in a high cash burn.

The Souled Store started as an algo-driven business using data to identify trends, designs and product-market fit. It was run from a friend’s place, earned revenues from Day 1 and remained bootstrapped for five years with an initial capital of INR 5.25 Lakh in its kitty. More interestingly, the D2C brand was profitable for six consecutive years.

But the hurry to grow at any cost landed the founders in deep trouble. Despite the near-2x rise in operating revenue (cash flow from the primary business), the startup slumped to a net loss of INR 26.72 Cr in FY22, a 52x YoY fall from INR 51.27 Lakh net profit, at a negative EBITDA margin of 10%, Patel told Inc42 during a recent interaction.

“It was a big mistake. We have very supportive investors, but we got influenced by the ecosystem pressure. All startups were burning cash and growing and raising more money. So, you start to think that’s the right way [to do business],” he added.

The founders had to balance, almost on a razor edge, and returned to the drawing board to rethink and rework their operations. And The Souled Store was back on track after six to eight months of hard work.

According to Patel, the startup has hit an annual revenue run rate (ARR) of INR 400 Cr (in GMV) for the current financial year. He claimed a 2% positive EBITDA margin for FY23, while the startup eyes a 15% EBITDA margin for FY24. It has 5 Mn registered app users and aims to cross INR 1K Cr in GMV in the next three years.

Despite the ongoing funding winter, the D2C brand recently raised INR 135 Cr in a strategic round led by Xponentia Capital. Existing investors Elevation Capital and RPSG Capital also took part in this round.

In a candid one-to-one with Inc42, Patel revealed the D2C brand’s 360-degree turnaround story, the strategies implemented and the key lessons learnt from past mistakes.

Cash Burn Will Not Ensure Profitability

The Souled Store raised its first funding worth $3 Mn in November 2018. That’s when the founders increased product prices every three-four months to cope with the growing demand, recalled Patel. Meanwhile, marketplaces like Amazon and Myntra used to offer steep discounts.

“We kept increasing the prices, and marketplaces kept decreasing them. It looked like a missed opportunity [as we could not scale fast enough]. We decided to secure funding to fund our growth because our profits were not enough to support the kind of expansion the company needed.”

The D2C brand raised another $10 Mn in a Series B round from Elevation Capital in 2021. Flush with cash, the trio decided to raise the bar this time. Their advertising budget shot up 3x. They nearly doubled their employee benefit expenses and tripled travel and repair costs.

And then the company culture went awry. Profitability and accountability (taking complete ownership, according to Patel) were deeply ingrained in the company’s DNA. But with losses piling up, aligning everyone with the big picture became difficult.

“We rectified it, though. FY23 ended on a positive note, and we grew by 70-80% even after stopping aggressive marketing and reducing discounts from 20% to 7% max. I realised that business growth doesn’t have much to do with the burn. Also, growth and profitability are not necessarily different, and both can happen simultaneously,” said Patel.

Influencer Marketing Is Not For Everyone

The Souled Store started in 2014 as a branded merchandise specialist but diversified into casual wear, athleisure, loungewear, footwear and bags in the past few years. It currently holds licensing agreements for branded merchandise featuring 300+ characters from Disney, Warner Bros, World Wrestling Entertainment (WWE), the Indian Premier League (IPL), the English Premier League (EPL) and more.

The founders also decided to spend a major chunk of their advertising budget on influencer marketing in FY22. But after spending about $1 Mn (INR 8 Cr+), they realised this kind of promotion did not work for their product range.

The reason? Initially, shoppers at The Souled Store came to purchase ‘fandom’ casual wear, say, a Batman or Spiderman Tee, said Patel. But soon, they started buying non-fandom items due to their superior quality.

“I would say pop culture is the design language, and people are now buying us for our quality of clothes, not fandom. More than 40% of our products are not related to fandoms. For example, our best-sellers throughout the year are plain T-shirts in solid colours,” he added.

“Moreover, influencers do a good job but just think of this. They wear your black T-shirt and dance with a girl in the video. While the audience ogles the girl, the product gets lost. It is a big waste of money,” he said.

Patel emphasised that the main thing about branding is the long-term impact, and expenses should be able to justify things from that perspective.

“Instead of influencer marketing, which was quite expensive, an email survey on brand awareness/recall would have helped us more. That was another thing we learnt.”

Repeat Customers Matter Most

As the focus was more on growth in FY22, the founders pushed customer acquisition rather than retention. “Our user base continued to increase, but we lost many repeat customers on the way,” recalled Patel.

He did not share the drop rate of repeat customers during this period. But in the next fiscal (FY23), the D2C brand once again focussed on building great quality products, which would result in lower returns and a rise in repeat purchases.

The startup also maintains a strong feedback funnel. Every time a new product is launched, its return rates are checked every three to four months. Most customers get a call from the company to understand their reasons for returning an item so that necessary changes can be incorporated into the upcoming batches.

“Today, we have a one-digit return rate against 40-50% seen by Myntra and others. And the discard rate (for products) is less than 1%. We have a stabilised CAC (customer acquisition cost) of around INR 100 per order and a repeat rate of 130% a year, which are extremely competitive as per current industry standards. Your repeat rate needs to be more than 100%. If not, something is very wrong with the business,” said Patel.

Build Your Brand Well Before Selling On Other Channels

The Souled Store is one of the few pure-play D2C brands with a first-mover advantage. The founders spent INR 20K in 2014 to set up a dedicated website for online transactions, and 100% of the revenue came from that site for nearly five years. They started selling on Amazon only in 2019, and their offline stores became operational in the same year.

“Our intent was clear. Being pop culture fans, we wanted to celebrate fandom and make people aware of our brand. We didn’t want to focus solely on sales because you can’t make a hard sale in this category. A community cannot be built through marketing. It must uphold shared values, and brands must have genuine engagement with the audience,” said Patel.

Today, the startup earns most of its revenue via its website and apps [iOS and Android]. In contrast, most D2C brands rely on marketplaces like Amazon and Myntra to make money but struggle to optimise sales on their websites.

The D2C brand’s offline stores were started as part of a marketing strategy. While a billboard would cost INR 1 Lakh- INR 2 Lakh a month, the rent of a physical store would be INR 3-4 Lakh, generating more sales and helping with authentic feedback.

“Surprisingly, our stores were profitable from Day 1. The revenue per sq. ft is four to five times compared to industry standards,” said Patel.

Lage Raho To Crack It For Bharat

The Souled Store aims to expand its product categories and increase its presence from six to 15 cities in the near term. The founders also plan to grow offline stores to more than 30 from the current 10 and target 200 outlets in the next three to four years.

Incidentally, brands focussing on fandoms faced little competition a decade ago. But thanks to the surge in D2C brands since the pandemic and the rapid category expansion in branded merchandise, a new set of D2C brands are seen almost everywhere. Lifestyle brand Bewakoof, home décor brand Chumbak, Superhero merchandise brand Planet Superheroes and many others can easily give The Souled Store a run for its money.

Moreover, fandoms are no longer limited to celebs, Superhero characters, or big brands. In a digital-first world where content/communication is the new oil, creators from all genres are likely to rule this universe, and businesses must be in sync with all popular and niche demographics for seamless growth.

However, Patel was confident that the brand’s dual strength – data insights and a talented team – would provide a competitive edge and raise the entry barrier. Even during the Covid years, the brand earned INR 60-80 Cr in revenue and remained profitable, a feat many ecommerce apparel companies still struggle to achieve.

More importantly, the pan-India brand earns more than 50% of its revenue from cities away from the top 10 list. “That’s intriguing as it shows we have cracked the perfect (pop) design and pricing for Bharat,” said Patel.

As the founders’ passion for pop culture made them leave their cushy jobs and start The Souled Store, they are now trying to spread the same enthusiasm across the startup and its customer communities. However, they would now stick to their newfound knowledge, focussing on retaining and acquiring customers and staying profitable.

The D2C brand is also planning for an IPO. “Ab investors ko exit dena to banta hai (Our investors deserve a [good] exit now, after all these years),” chuckled Patel.

Edited by Sanghamitra Mandal