Myntra finds its niche: Taking fashion to small towns

Myntra.com's co-founders were not friends from the past; they were carefuly chosen after a comprehensive search

In over a decade in the Bay area in the US, Mukesh Bansal worked with four start-ups --- only one survived, while two fell by the wayside and one was snapped up by technology giant Cisco. When the Indian Institute of Technology-Kanpur graduate returned to India, he had closely witnessed the internet boom of the early 2000s, as well as its subsequent bust.

In 2007, Bansal, along with Ashutosh Lawania and Vineet Saxena, started Myntra.com. Lawania and Saxena weren’t Bansal’s friends (as is the case with several technology start-ups); they were chosen after a comprehensive search for co-founders. “They also wanted to start something and we made a good team,” Bansal says.

The lifestyle and fashion online retailer has a run rate of $100 million a year, growing at 20 per cent annually. It ships 20,000 items a day across 400 cities, with an average order of Rs 1,600. “We are hoping to clock revenues of a billion dollars in the next five years,” says Bansal, adding the company aimed to turn profitable by next year, making Myntra the first company among the current crop of e-commerce firms to break even.

MYNTRA FACT FILE

• Myntra founded in 2007 by Mukesh Bansal (left), Ashutosh Lawania (right) and Vineet Saxena
• Moved from offering personalised products to fashion and lifestyle retailing by the last quarter of 2010
• Has received a total of $75 million over multiple rounds
• Major investors: Accel Partners, Tiger Global, Kalaari Capital and IDG Ventures
• Run rate of $100 million a year, growing at 20% year-on-year
• Gets 12,000 orders that roughly translate into shipping 20,000 items daily across 400 cities with an average order of Rs 1,600.
• Competes with Flipkart, Jabong, Fashionandyou, etc

Through the past couple of years, the Indian e-commerce sector saw a sudden rise, with several new companies coming up, aided by private equity and venture capital funds. Now, the sector is straddled with a dry spell. As most firms are yet to find sustainable business models and continue to burn cash, private equity companies are now wary of investing more. Many ventures have shut shop for lack of funding, while some are aspiring to be acquired by larger players.

It’s a combination of factors that decides the fate of a venture, says Bansal. “The team has to be good, the company needs to have the right business model; it should understand customers and be flexible enough to change rapidly.” Often a vague business model leads to failure. “There is also a lot of churning in the management, internal politics, etc.”

Moreover, he claims the company doesn’t have a high burn rate, with a focus on healthy, not just excessive, growth. Myntra focuses exclusively on lifestyle and fashion products, which have a margin as high as 40 per cent; its strategy to charge for shipping products below a certain price range adds to profitability and reduces returns. Though the company doesn’t follow a marketplace model but the relatively more expensive inventory-based model to ensure quality and timely delivery, it returns the unsold inventory.

“While we did spend on television advertising in 2011-12, a time when Myntra was not known, to save on marketing dollars, we are only doing digital advertising now,” Bansal adds.

So far, Myntra has raised $75 million from four private equity players — Tiger Global, Accel Partners, IDG Ventures and Kalaari Capital. Even as industry sources say the company is in the market to raise more money, Bansal claims it has sufficient funds and doesn’t need more.

According to an official with a rival firm, Bansal’s statement that the company doesn’t need more funding is bold. “There is growth pressure on everyone and they face competition from several large players, which have now entered the apparel business. Large businesses can’t be set up with small funding in the initial phases,” said the official, on condition of anonymity.

Another industry expert familiar with the company adds Myntra is different from others such as Flipkart, as it isn’t a horizontal player and the focus is only on a few categories such as apparel. “Moreover, the addition on private labels is also leading to higher margins for them.” However, he says Myntra’s problem is the same as those of its peers — profitability.

But Lawania, Myntra’s co-founder, is optimistic. “In India, the understanding of fashion is at a nascent stage, as brands are still under-penetrated,” he says. The top eight cities of the country account for 45 per cent of the company’s sales. Business in small cities is seeing good growth, as lifestyle products are not easily available there. “It’s a positive sign for us. E-commerce will thrive in such places,” Lawania says, adding by 2015-16, the Indian fashion and lifestyle market is expected to stand at $100 billion. “Even if five-eight per cent comes online, it will create multi-billion (dollar) businesses,” said Lawania, who earlier worked with a software outsourcing firm that provided technology solutions to start-ups.

Armed with an understanding of start-ups, Lawania is trying to build a “Google-like work culture”, while ensuring Myntra remains hawk-eyed on its focus areas and market potential.