Lured by immense growth potential and high-margin business model, venture capital (VC) and private equity (PE) players are sensing a serious business in the fashion retail space, one of the fastest growing e-commerce category in India.
With increased internet penetration and new modes of payment such as cash-on-delivery coming into vogue, the country?s online retail industry, growing at 35% year on year, is expected to touch R7,000 crore by 2015 from R2,000 crore at present, according to a report by industry body Assocham.
Experts feel with rise in disposable income, today?s well travelled and fashion conscious Indian consumers are getting more comfortable to shop fashion and lifestyle products online, which has a higher touch and feel requirement than other categories like books and electronics. In the last few months, online fashion retail businesses has witnessed more than half a dozen investments from major VC/PE players.
Early this month online fashion and lifestyle retailer Fashionandyou.com raised $40 million from a group of investors led by Norwest Venture Partners and Intel Capital. Sequoia Capital India and Nokia Growth Partners also participated in the round. The invitation-only shopping site plans to utilise the fund for expansion including acquisitions, starting new business categories and entering newer geographies.
?We are seeing a 50% growth month on month, with close to 3 million members shopping with us under 2 years of operations. We?re serving around a 1,000 cities pan India and are charting anywhere between 2,000-5,000 orders daily,? says Pearl Uppal, co-founder and CEO, fashionandyou.com.
Recently, early-stage VC firm IDG Ventures India invested $3 million in Chennai-based eShakti.com, an online women fashion retailer catering to the US market. ?Women fashion is a major driver in the online space globally. And the India market is also growing rapidly. The company also have plans for India market in the next quarter. eShakti is growing at 100% annually,? says T C Meenakshisundaram, managing director, IDG Ventures India. The company plans to include accessories such as belts, bags, jewellery in the next few months.
In October, Delhi-based Valyoo Technologies, which runs eyewear e-commerce site Lenskart.com, also managed to raise $4 million in its first round of funding from IDG Ventures. The website sells fashion accessories including, eyewear, shades, watches, bags and belts.
Among other deals in this space include Zovi.com, an online clothing brand, which attracted funding of $5.5 million from private equity major SAIF Partners and angel investors like MakeMyTrip founder Deep Kalra. Zovi, which started with men?s formal shirts and belts, plans to expand further in men?s and women?s categories. Online wholesaler and retailer of shoes, apparel, bags and accessories, Bigshoebazaar also raised R40 crore from NR Narayana Murthy?s venture capital firm Catamaran and Nexus Venture Partners.
?Apparel and accessories are traditionally high margin businesses and therefore can be built profitably on the internet. We believe this could be an area of high return for investors. Helion is actively investing in this space. We already have 2 investments ? Yepme.com and exclusively.in,? says Kanwaljit Singh, managing director, Helion Advisors. Yepme.com is an online fashion apparel and accessories brand for men, while Exclusively offers ethnic Indian fashion products. Experts point out that the size of funding varies depending on the stage of the company. Typically it is estimated between $2 million-$40 million.
?Online models are more profitable compared to offline retail as the expenses are much less. There are no store rentals and staff cost. Three years is normally a time to breakeven in these kind of business models. Brands are also welcoming of the online space as it gives access to a larger market,? says Mukesh Bansal, CEO and founder, Myntra.com.
This year, Myntra.com also attracted funding from investors including IDG Ventures. However, the company did not disclose the details of the funding. ?Overall we have raised $40 million in three rounds of funding. For the next two to three years we are not looking to raise funds. Currently we are exploring expansion plans,? Bansal added.
Experts point out that fashion and apparel is one of the largest e-commerce category in global markets like the US, the UK and China.
?E-commerce worldwide is also entering a new major phase. Where products being sold are not just standardised stock-keeping unit (SKU)s such as books, electronics or toys but also products that have an emotional component to them such as fashion clothing. This opens a new frontier in e-commerce which the investor community is excited to tap,? says Bala Parthasarthy, Managing Partner, AngelPrime, a business incubator.
With people becoming more used to the convenience of the internet, e-shopping is seeing higher growth in tier II and III cities as well. According to eBay India Census 2010, about 3,296 Indian cities shopped on eBay last year, of which 2,234 were tier II and tier III cities.
Industry experts feel new media such as Facebook and Youtube has raised the awareness among middle-class in smaller cities towards the latest fashion and lifestyle trends. ?About 40% of our orders come from tier II and tier III cities. It?s all about affordability, quality and accessibility,? says Uppal of fashionandyou. For Myntra.com nine months ago about 60% orders were from the top 10 cities, but today it is a 50-50 business between tier II, III cities and the major metros.