Building the Indian Shein: why investors are infusing capital in new fashion ecommerce startups

A clutch of online fashion retailers targeting young shoppers has emerged backed by venture investors.

Fashion startup Newme, which sells clothes to Gen-Z women, is in the final stages of closing a funding deal with investors led by early-stage venture fund Fireside Ventures, industry executives told ET.

Virgio, founded by former Myntra chief executive Amar Nagaram, just months after starting the business, snagged $35 million at a valuation of close to $160 million. Investors are also cutting smaller cheques in challenger fashion platforms. Gen-Z fashion discovery startup Stumbl raised $1.6 million from Saama Capital and others in July 2022, while bags and wallet maker Zouk raised $3 million last month from investors led by Stellaris Venture Partners.

More investments are on the way, ET has learnt through conversations with top industry executives.

Fireside Ventures partner Dipanjan Basu declined to comment on whether the company is investing in Newme, but said the consumer brand-focused VC firm has a thesis on fashion tech brands.

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Newme cofounder Sumit Jasoria also declined to comment but said there is significant investor interest in his startup.“There will be a lot of brands which will emerge solving unique affordable fashion for Gen-Z customers, focusing on aspiring fashion needs across the country, including tier 2-3 towns and cities,” Basu, who was previously the CFO at Myntra, said. “These will be profitable and cash-efficient by using technology.”

Think tank Pew Research describes anyone born between 1997 and 2012 as Gen-Z.

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Fast-fashion for GenZ shoppers

The big action is taking place in the online fast-fashion space, with companies looking to build an ecosystem in India from scratch. The new fashion startups are trying to differentiate themselves as an alternative to incumbents like Flipkart-owned Myntra, Reliance’s Ajio and Tata Cliq.

While existing platforms are still focussed on a ‘season-based’ approach, new etailers are offering ‘fast-fashion’– partly inspired from Spanish fashion house major Zara and China’s Shein, where designs and looks change quickly.

The investors and founders ET spoke with believe that there are two areas of opportunity—companies trying to replicate China’s Shein model and those focusing on solving specific consumer needs.

Last year, Bengaluru-based Blissclub, which makes activewear for Indian women, raised $15 million led by Eight Roads Ventures and Elevation Capital.

Fable Street, which sells women’s workwear, racked up Rs 50 crore in September 2022 in a funding round led by Fireside Ventures.

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Building the Indian Shein

Shein is the most downloaded fashion and beauty app in the world. Most companies that have replicated its model have found success. In August 2022, Hong Kong-based Cider became a unicorn just two years after being set up.

While India has banned Shein following the border conflict with China, investors say that no one has been able to fill the space properly. “There is a lot of opportunity to build a Shein kind of model in India,” said Rahul Choudhary, partner, Stellaris Venture Partners.

London-based Urbanic, which is backed by Nexus Venture Partners and Sequoia Capital, is the largest player among those which tried filling the gap left by Shein. Industry executives said that products sold by Urbanic were largely imported from China, and that its revenue growth has stalled.

An email query sent to Urbanic remained unanswered.

Make in India challenges

Companies like Virgio, Newme and Includ want to manufacture apparel in India with cotton fabric, instead of polyester, which is widely used in fast fashion. But making fast fashion apparel in India won’t be easy as it requires significant rewiring across the supply chain.

India’s apparel factories are used to accepting higher minimum order quantities (MOQ) per design or outfit. Although fast fashion brands sell a much wider collection than the typical fashion brand, they would not want to hold 1,000 units of a particular design or apparel. That is slowly changing in India, with fast fashion startups being at the forefront of this change.

“India has the potential to create a fashion manufacturing and supply chain ecosystem like China,” said Basu. “Smaller B2B fashion manufacturers and factories are agreeing to smaller MOQs in view of continued business commitments.”

Virgio’s Nagaram said the growth of ultra-fast fashion companies in the last decade is attributed to the smart factory infrastructure China built. These factories are not only highly responsive but scalable too. He said India’s manufacturing will look different from that of China’s.

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“In India, we have smaller factories with 100/200 machines each,” he said. “What we are trying to do is connect all the factories together and build a virtual smart factory. India’s fast fashion story will look vastly different from China’s. It will be technology-led, not factory-led.”

There are even supply chain-specific players emerging. ET had reported on April 4 that B2B fashion ecommerce company Zoyd raised $3.5 million in seed funds from investors led by Lightspeed Venture Partners. The Gurgaon-based startup focuses on brands that are in the fast fashion space, giving them finished products in 21 days, based on their requirement.

“From being a high-depth industry–launching twice a year–now brands have to launch products at a much faster rate,” said Ankit Jaipuria, cofounder of Zyod.

High-width, low-depth model

The high-width and low-depth approach means having a wider collection but with less inventory per design. Fireside’s Basu said so-called fashion- tech platforms will create valuable companies if they hit positive unit economics

‘Whether you call it Shein or not. How will you create an inventory-less model, how would you use data, AI-ML to spot trends? It is a tech problem of the highest order. Whoever cracks that will be the most valuable fashion company in the future,” he said.

The target group of customers- Gen Z- are more impulse buyers, and the high-width low depth model is the only way to target them, say experts.

“For impulse purchases you need a large width for which you need technology,” said Ashwin Rastogi, cofounder of fast/fashion kidswear brand Includ. “ With technology, a summer collection plan can be made in March, you can ship a small batch to the market, get instant feedback, and double down on products that are working, he said. Rastogi is a former executive of Urbanic.

He said large width helps brands target customers through social media channels like Instagram.

What about the incumbents

It’s not only Gen-Z consumers, user behaviour is changing across the board as they looking for brands beyond the large marketplaces. “ The current ecommerce marketplaces will find it difficult to build a model like this as they are too big and their incentives lie elsewhere.. their business models are not built for just-in-time inventory planning,” Basu from Fireside said.

The maturity of ecommerce logistics in India is also playing a role in paving the way for new-age fashion brands to emerge, putting brands and marketplaces at an equal footing when it comes to delivery timelines. “I think in tier-1 cities logistics and customer services are mature with competitive cost structures” said Rastogi.

All said, entrepreneurs and investors are hoping these fashion platforms can be scaled into multi-million dollar businesses even as several online D2C brands see their sales plateauing amid rising advertisement costs online. Emailed queries sent to Myntra and Ajio did not elicit a response.