®ETPrime Wome —_ehowse - Hons ti Taal ‘Online fashion’ and ‘profitability’ are terrible fits. Voonik and LimeRoad are fighting to alter that. ana va 3 “rhe road to hel is paved with gross merchandise value," sald nolarge e-commerce company rakes a different breed of business to accept this reality and solve fort By definition, you feniers inthe unicorn race. Flip-flops that for others willbe toasted as the highest ts wil be quietly gut-wrenching for them. And, even after compliment they wll ikely gets, “niche” ade peace with ths. The co-founder and CEO of women’s fashion platform 12013, had aharrowin 1017 and 2018.1 started with Al's decison to put the bottom line above vanity metrics ike Ga. were burning money to chase higher GMV, while stil running in loss,” Airemembers, “Gor ws, the primary question wes, how do we generate demand while chasing profitability?” {In November 2017, Ali let the team in on his plan, “obviously, we were going to make changes operationally,” he says, “It wasn’t like we held back salaries from our employees or payments from aur vendors,” unlike what was reported ac the time, “But we made small changes, like hikes were expected only when the company's goals were met, Dueto tis, alot of employees quit.” QBy December 2017, Voonik iad become “profitable at a monthly EBITDA level”, Aliclaims ‘of course twash’t like Mipping switch, In the past fve years, Vooilhas shifted business ‘models twice. “We went from an affllate toa marketplace oan inventory led model,” All says. We feel that was the most natural progression for us. The good things, there is growth opportunity for everyone inthe industry right now.” Indeed, overtime, online fashion has moved fom the bottom ofthe pet the leading ‘category within Indian e-commerce. According to Euromonitor International, a market— esearch fim, it accounted for nearly 17% of the total e-retail business in 2017, beating, electronics (15%). Apparel also continues to have the highest mark-ups in the industry. However, for ll this, profitability seems fa away for much bigger and older companies. _Myntra, the market leader, founded in 2007, made INR65¢ crote in losses in FV17, down from, INR823 4 crore the previous year, Jabong, founded in 2011 and now merged with Myntra, lost [INR363 crorein F¥16, the last year it fled its financials. (See graphics below for more deals.) this context, Voonlk's journey to profitability withina shorter time appears particularly lluninating, ‘Another women -centrc platform, founded a year before Voonik, is creating its own template to get there. "We think of ourselves as delivering litle shots of dopamine,” says Such "Mulkheree, founder of LimeRoad, "We are creating the ability for people to discover great product, which is affordably priced.” ‘on her Linkedin profile, Mukherjee calls LimeRoad a “social commerce” company. She claims itis within touching distance of profitability. \What does social commerce mean, and how does it help the bottom line? Avnish Baja has some answers, “Profits donot come in isolation ofthe business model. Profits are an outcome," says Bajaj, managing director of Matrix Partners, an early investor in Mukerjce’s firm, “LimeRoad is connecting 2 community of fashionista, with deeply integrated supply- ‘chain management, and the right buyers LimeRoad will become profitable before March 2019. Ws almost there.” Tiger Global Suchi Management, LimeRoad 2012 Mukherjee and LightSpeed Prashant Malik Venture Partner, Matrix Partner Global Founders Been Capital, Sequoia Crafsvila 2011 and Sarvninet — USDS3.5 Capital, NexusChandra million Venture Partners, Lightspeed Venture Partners Bal ‘stare Ventures, at esi ‘Amereus Group, USD13.8Helion Ventures Woopit 2013 Zacharia, eh = milion Partners, falal Sisteme, Trifecta Rajaretnam, and eer Soumen Sarkar 2 Source: Racin How niche fashion e-commerce firms stack up against leaders Niche players © Revenue FY16 @ Losses FYi6 @ Revenue FYI7 Losses FYA7 Market leaders 009 Myntra @ Revenue FY16 @ Losses FY 16 @ Revenue FY17 @ Losses FY17 Note: imeRoad and Jabong's FY17 figures are not reported Figures are in INR crore Source: Tracxn‘The two companies shine a ight on how to build a fashion e-commerce company with a playbook that's different from the cash-guzzling gants lke Myntra “The market leaders are working towards scalability at the expense of profitability, whereas LimeRoadis working towards profitability followed by scale," says Baja. Formula : working with the little guys, adapting the business model ‘While the market leaders work with amix of top national and international brands, rom Forover21 fo Puna to Mango to Dorothy Perkins, Veonik and LimeRoad have taken a diferent route with an eye on eking out higher margins. LimeRoad chose to work with stall and medium enterprises from the beginning, Mukherjee says, “The margin structure is fferent when working with SMEs We work on contribution ‘margin, which is basically the profit margin before you hit the fixed costs. And LimeRoad has from the very beginning worked with positive contribution margins. Because ofthis Aiselpline, we are so close to being profitable. and this has been possible because we work only with smal brands.” “india has nearly 20 million SMEs in the textile industry,” Mukherjee adds, “And there are only 125-130 national brands, which nave more than INR50 crore of revenue every year, The strength of India ies in the fact that ofthe total apparel market inthe country, 98% i sold ‘through unorganised retailers, sellers, and suppliers. This is primarily applicable to women, As women are less particular about brands and have a variety of outfits with awide price range ln hele wardrobe” ‘Voonikon the other hand followed an affiliate model tll 2015, doing curation for marketplaces suet as Myntra and Jabong, In 2016 it turned into a marketplace ise, working with boutique and small-time sellers. “We decided to move towards the marketplace model to havebetter control over customer expectations. With the affiate model, we weren't handling delivery or inventory,” says Al By early 2017, with the renewed focus on profitably, li shifted toa model that was a mix of ‘marketplace and inventory. Currenty, the spit sequal, but li says by 2020 the company will ‘beusing.a70:30 Inventory to marketplace rat ‘There's alsoa big push to private labels. lads, “Private abels helped us achieve almost double the margins compared with ther brands, [used to take 20% commission on each order. However, now with privat labels we are at 50% gross margin before shipping. Even alter shippingitis 40%. When you own the whole stack, that’s the primary benefit you achieve.” (robesure, private labels are het across companies. We earlier wrote about Myntra’s own artificial intlligence-dtiven privatelabels here.) Beyond all this, likes talking bout how his company has benefited from sharing deep Insights with its partners. Take the case of large shoeboxes, which were a significant cost, especially in the case of returns. “We worked with footwear manufacturers to reduce thet box sizes,” Ali says. “Which meant ‘we could deliver more boxes per delivery, and the prices for manufacturersalso came down as“we are probably the only company inthe country that is making money atthe prices at whlch \we sell footwear. Up until 2017, we were losing money on shipping, Today, we make over 208% Jn terms of gross margins on shipping charges of footwear.” Voonik and LimeRoad versus Myntra Who they work with C Ter) OPES ory Pesci) brands and Peas Formula 2: building acommunity LimeRoad says one ofits biggest USPs Is the active participation of the women using the platform in making it more personalised for themselves. “We ae the only platform currently inthe countey which has 40,000-plus women avoss India, who upload 2,000-3,000 styles per month on the website of thet owm accord,” says “Mukherjee. “These women are generally shoppers themselves, and over the course of repeatedly using our website, they have created what we cll stories’, which are essentially looks put together by then.” "This community building helps people fee lke they havea platform where they can express ther creativity. "his one woman, who has been designing looks on LimeRoad just fo fun from ‘Sambalpur, Odisha, was recognised by afew girls ina local shopping atea and was ecstatic." Last year, social commerce emerged asa buzzword in e-commerce circles, with fashion platforms like Wooplr, Meesho, et. offering women in smaller cities and towns the chance to become thle resellers inthe personal family and fiends lc, “when one of our community members designs something that leads oan actual sale, ‘LimeRoad shares a smal sliver of margin with these community members,” says Mukherjee. “It could be something as small as INR500-INRu,000, However, it provides our consumers a sense of accomplishment.” \Voonikon the other hand is expanding ts reach in a more old-school fashion: focussing on offline stores. The company has sx outlets in Bengaluru and plans to launch more than 50 outlets in the next 8-9 months, “The biggest challenge for this industry i customer acquisition. nd webelieve offline storesLgteaty netp "says A “We use organic [marketing] on media such as WhatsApp and Facebook, but not paid [campaigns),” be adds, “hiss nota fst in terms of marketing effectiveness, However, the brand recall and stikiness are much higher when you follow the argante path.” Formula 3 building a technology backbone ‘Both Voonik and LimeRoad have invested in in-house technology to bringin operational efficencies. LimeRoad manages the entire value chain, from receiving the order til delivery. "We like to ‘work with our suppliers closely,” Mulkherjee says, “We tll them how to make good business Aecisions, considering they are extremely small, and most of them donot know the e- ‘commerce business at al,” says Mulderje. “Depending on the equicement, we give the suppliers, data, visibility, design, technology, and even working-capital support And al ofthis possible because we have Integrated the entire value hain with the help of our technology,” she als, LimeRoad also makes 24-hour payment settlements forall ts suppliers given SMEs already workon tight working-capital cycles ‘At Vooni, lls alm has been to reduce the dependency on third-party technology providers. ‘All, aformer Amazon employee, considers himself tech guy”, and his focus on small things has led to hefty savings. Between 2017 and 2018, for instanee the company brought down ts ‘website-hosting costs from INRucroge Coup to INR lakh or Les. ‘Another area the company has focused onis courier reconciliation. Voonikcurrently works ‘with kart Logisties and Eeom Express as delivery partners. With the help ofits reconciliation tech, it can monitor all its deliveries much more closely, and respond to consumers in real UUme in the event of delivery challenges, “af the delivery person says the customer isnot at home, they send a text tothe team handling ‘etiveries, connected to ur customer-care. They get in touch with the customer to check theit availability and make sure that the delivery happens whenever the customer is available next," Ali explains, “The entire technology back-end used fr this courier reconciliations built in-house. tis almost 80% ofthe reason why we are onthe path to profitability.” ‘Thebottom ine ‘The war between scalability and profitability is a complex one. Choosing the attr over the former oils down tothe entrepreneurs choice, and there, both Aland Mukberje seem to hhavebitten the bullet and decided to build a sustainable business over alarge one, Yet, tough challenges remain. Vinod Murali, managing partner at venture-debt company ‘Atria Capital, which has invested in the fashion brand Wrogn co-owned by cricketer Virat Koh, says, “Woonile and LimeRoad are net brands, they are distribution channels. 1's much easier for good brands tohave strong margins. 1?sa whole different ballgame when i comes toadistebution channel” However, Mural ads, It appears both companies have arrived ata point where they have ‘gnificantly cut the bur, and are posed for scale if hey find the right capital suppor, “The next 12-15 months are crucial for both these companies as they need to prove that their improved margin structures actually hold,” Murai says‘The question for their next (fundalse] willbe orto cover the burn. 1thinkfor both these companies twill be the former.” xr they raising capital to fuel robust growth (Grapes by Sadana Saxena) "The atest rom ET Primes now on Telegram. To subscribe to our Telegram newsletter clicks. B counenrs Comment on this article. 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