The fashion and lifestyle space, India’s second largest consumer category, valued at $110 billion with approximately 10% online at $11 billion, is undergoing a significant change, says a new report.
- The report — Fashion: A changing landscape – brought out by Bain & Company and written in collaboration with TMRW, an Aditya Birla Group Venture, says that the historically fragmented online fashion market, with several small brands and sellers, overall is expected to grow to approximately $35 billion by financial year 2028 (FY28) at a 25% CAGR.
- Again, although venture capital/private equity funding in the lifestyle space has historically been relatively muted, the vibrant local manufacturing ecosystem and rich tradition of native fabrics have led to a structurally unbranded market, particularly in certain categories such as ethnicwear or indutvas.
The Highlights: The report focuses on understanding the historical growth patterns in the online fashion and lifestyle market, especially for digital disruptor brands. The report aims to do the following:
- Identify key factors that will drive growth for digital disruptors
- Identify shifts in consumer behaviour affecting digital growth
- Decode the path to profitability basis learnings from brands in this space
- Crystallise the growth playbook for digital disruptor brands in the next phase of market evolution
The Bain research suggests that the digital disruptor segment will grow rapidly.
- With a large current market size of approximately $2.4 billion and a projected annual growth rate of around 35%, digital disruptors have the potential to reach a value of $10 billion by FY28.
- The digital disruptors account for approximately 20% of the Indian online fashion market and are expected to grow.
Four major factors will underpin this shift:
- Young audiences have a greater propensity to try to buy from new brands. As they constitute a growing share of online fashion purchases, the market for digital disruptors will grow.
- Certain categories with underserved niches and brand fragmentation, such as expressive wear, indutvas, and fashion jewellery, allow digital disruptors to create new-scale brands.
- Brands that have invested in creating greater awareness are already seeing nonlinear returns on conversion and share of wallet (SoW). Increasingly, this will support returns to scale for such brands to achieve significant leadership positions.
- Over the last five years, beauty and personal care (BPC) ($950 million) attracted more funding than apparel ($430 million), excluding the top two outliers in each category. However, as brands demonstrate their scaling playbook, apparel is expected to attract more money.
Disruptor growth and path to profitability: Fashion—apparel, in particular—has relatively low barriers to entry. Nimble digital disruptors with a deep consumer understanding and a focused niche have entered the market in large numbers.
- Over 700 brands exist today that have created a high-quality product, have invested in customer engagement, and often have a direct-to-customer relationship on social media or via their site.
However, the Bain analysis suggests that, currently, less than 10% of these brands have scaled beyond ₹50 crore.
Learnings from brands that have broken through the initial scale threshold suggest four clear patterns:
- In fashion, the threshold scale for hitting profitability is low. Brands can be profitable even at ₹100 crore while retaining enough firepower for growth. Using outsourced production, riding on marketplace infrastructure (physical and digital), and achieving healthy gross margins in the category enable this. Houses of Brands further create significant leverage through shared horizontal investments and capabilities (including in technology and data science).
- Brands need to address underlying inefficiencies during the growth phase. During the first three to four years of explosive growth, while customer acquisition costs are elevated, it’s often possible for brands to lose sight of other core metrics such as gross margin and realized price. Irrespective of brand stage or type, discipline in range is critical to sustained economics.
- What you plan is not what you get. The complexity of assortment management for fashion can affect price realization, inventory, and returns, with a 4 to 5 percentage point (pp) impact on earnings before interest, tax, depreciation, and amortization (EBITDA).
- Brands, not platforms. Well-developed e-commerce infrastructure enables brands to run very lean operations. However, some brands that have attempted to build their own infrastructure have incurred high overheads, which can change EBITDA to the extent of 5 to 10 pp.
The reports asserts that the next wave of winning brands will not follow the platform playbook but will be true fashion brands, built on differentiated propositions, memorable branding, a sharp understanding of assortment, and tight data-led operations.
