Digital Fashion Disruptors in India

The fashion and lifestyle industry is India's second-largest consumer category, with a market value of US$ 110 billion, of which approximately 10% is accounted for online (US$ 11 billion), according to a report by Bain and Company. The global online fashion market is predicted to increase at a 25% CAGR to roughly US$ 35 billion by the fiscal year 2028. Historically, this market has been divided into numerous small companies and retailers. The dynamic local manufacturing environment and rich tradition of indigenous fabrics have resulted in a structurally unbranded market (especially in some categories like ethnic clothing). Historically, venture capital/private equity funding in the lifestyle sector has been quite low. However, this market is undergoing tremendous transformation. Consumer preferences are changing, with a greater readiness to try new brands and a greater desire to wear aspirational brands. Fashion, and fashion labels, are becoming more widely accessible due to e-commerce. According to a study by Bain & Company, (since 2019) the category has witnessed annual compounded growth of roughly 30%. Certain formerly fragmented subcategories, such as ethnic wear and kid's clothing, are also undergoing a considerable transition because of the creation and scaling of new digitally led businesses.

Disruptors are at the forefront of this innovation wave, laying the groundwork for the next era of fashion. This push for innovation is most likely driven by consumers, with Gen-Z and millennial consumers wanting both ethical and cutting-edge alternatives to established procedures. Fashion designers and brands can create and showcase their latest collections in a completely new and immersive environment, allowing them to reach a wider audience that is beyond geographical boundaries, traditional fashion shows, and endless online scrolling, due to the additional aspects of a digital metaverse. As fashion in the digital metaverse becomes increasingly common, it provides an excellent chance for Indian multinational businesses to grow and diversify. Indian designers are understanding the importance of exhibiting India's rich cultural heritage and traditional textiles in a contemporary and innovative manner.

Digital Disruptors in India

Digital disruptors are brands that originate and operate in the digital environment, prioritising digital platforms and channels for consumer engagement and company operations, investing in brand recall, and disrupting markets with novel ideas and solutions. Fashion, particularly apparel, has relatively low entrance hurdles. Numerous agile digital disruptors possessing a keen awareness of their target market and a narrow speciality have made their way into the market. There are currently over 700 brands that provide high-quality products, engage with their customers, and frequently communicate directly with them via social media or their website. According to a study by Bain & Company, less than 10% of these brands have grown to be worth more than Rs. 50 crore (US$ ~6.01 million).

Life Cycle

Favourable macroeconomic conditions have accelerated the growth of several digital disruptors in recent years. According to a study by Bain & Company, the initial growth phase, which can cost up to Rs. 50 crore (US$ ~6.01 million) focuses on establishing a product-market fit and creating a distinctive offering to drive growth momentum. Following that, companies go through a breakout phase, usually between Rs. 50 crore (US$ ~6.01 million) and Rs. 100 crore (US$ 12.01 million), assisted by capital that allows expenditures in assortment development, marketing, and channel expansion.

However, as businesses reach the Rs. 100 crore (US$ 12.01 million) threshold, they frequently face difficulties in maintaining growth. Brands that become well-known and make over Rs. 200 crore (US$ 24.02 million) demonstrate creative supply chain management, organised channels, market strategies, and controlled product expansion. Crossing the complexity barrier of Rs. 100 crore (US$ 12.01 million) to Rs. 200 crore (US$ 24.02 million) frequently results in rapid growth for these brands. Fashion necessitates a higher level of discipline due to the ease with which subcategories can be entered through outsourced production, as well as the inherent difficulties in scaling inside new subcategories. Brands frequently lose sight of long-term growth and profitability by striving to establish technical infrastructure for scaling or expanding into unrelated areas that require significant upfront investments.

Stakeholders

The online fashion sector is worth roughly US$ 11 billion and has expanded at a rate of around 30% per year since 2019 (according to a report by Bain & Company), headed by four types of players: national brands, private labels, digital disruptor companies, and unbranded vendors.

• National brands have a long history and mostly started offline. Brands like Louis Philippe, Puma, and Biba are among them.
• Private labels such as Avaasa from AJIO, have been created and scaled by online merchants to broaden the range and fill price gaps.
• Digital disruptor brands like Bewakoof and The Souled Store, were founded online and have adopted a very different direct-to-consumer (D2C) strategy to grow their businesses.
• Finally, the fashion market has always included a big tail of unbranded vendors with an appealing price-led value proposition.

Trends Over the past 4 years

• National brands have doubled their online share and currently account for US$ 2.5 billion online in fiscal year 2023, having increased at a 34% rate between 2019 and 2023 (according to a report by Bain & Company). However, as the pandemic's influence fades, most national companies anticipate a more balanced development pattern with offline channels.
• Private labels have expanded to offer underdeveloped segments and price ranges, broadening the target consumer market for branded items.
• Since 2019, there has been a 33% annual growth in the value of digital disruptors, particularly in certain fragmented categories, reaching US$ 2.4 billion (according to a report by Bain & Company). These innovative companies have targeted underrepresented segments of the market and developed new offers based on value, design aesthetics, speed to market with new trends, or community participation. Their digital-first operational approach enables rapid decision-making based on data.

Source: Bain and Company, TMRW

According to the report by Bain and Company, the market for digital disruptors will expand quickly. Digital disruptors have the potential to achieve a market value of US$ 10 billion by fiscal year 2028, with a present market size of roughly US$ 2.4 billion and an annual growth rate of over 35%.

Emerging Factors of Digital Disruptors

• The growth of digital disruptors will be fuelled mostly by Gen Z and millennials, who have a strong proclivity to purchase fashion online. According to an article by Forbes, these segments account for 70% to 80% of traffic to digital disruptors, with Gen Z accounting for 30% to 35% and millennials accounting for 40% to 45% of total traffic. According to consumer purchasing data, 24% of 18-to-24-year-olds buy from digital disruptor firms, compared to only 13% of 45-year-olds and older. By fiscal year 2028, Gen Z and millennials will account for nearly 75% of disruptor spending, up from approximately 70% presently. Digital disruptors are also addressing younger clients through relevant associations, such as staying current through merchandise based on the newest pop culture themes or cooperating with end users to co-create "designs of the week" that speak directly to users. Younger viewers are more likely to experiment with new brands. With the increasing proportion of fashion purchases made online, the demand for digital disruptors is expected to rise.
• Digital disruptors can establish new-scale brands in specific categories including fashion jewellery, ethnic wear, and expressive wear because of their underserved niches and fragmented businesses. For example, fashion accessories have always been a fragmented industry with a few national labels. This category necessitates a very broad range, which might be challenging to handle. Here is where disruptive jewellery brands have reimagined the business model. One quickly growing firm has positioned itself as a "fast fashion destination" for gold jewellery. With over 17,000 designs (with an additional 1,000 added almost every quarter), the firm still operates on close to zero finalised inventory. Technology has enabled this by reconfiguring the supply model.
• Increasing brand recognition is vital since it fosters a nonlinear increase in purchases. According to Bain, brands with 60% target audience awareness have a 30% purchase rate, but brands with 30% awareness have a buy rate of less than 10%. Revenue growth often outpaces user traffic growth over time with rigorous branding, including the production of memorable and distinct brand assets, driven by loyalty- and retention-led growth. Brands that have successfully scaled generally spend 40% to 50% of their yearly marketing budget on brand building rather than being entirely focused on performance marketing. Brands that have engaged in raising awareness are witnessing nonlinear returns on conversion and share of wallet (SoW). This will increasingly help these companies attain the returns to the scale necessary to take commanding positions in the market.
•  According to Bain, Beauty and personal care (BPC) (US$ 950 million) received more investment than apparel (US$ 430 million) over the last five years, (eliminating the top two outliers in each category). However, it is likely to shift towards apparel brands as more fashion brands establish a path to profitability or scaled expansion.

     Source: Bain and Company, TMRW

New Business Models

The convergence of advanced technologies and demographic shifts have laid the foundation for several new business models and opportunities within a large and growing market.

• Virtual Clothing

The most widely discussed aspect of the digital fashion value chain is the creation of virtual clothes and their selling to customers. These outfits are worn in virtual worlds including online gaming, social networking, and augmented reality apps. Consumers can purchase digital clothing from internet markets or make their avatars by using virtual models to experiment with clothing. They are becoming an essential component of virtual events, gaming appearances, and crowdsourced designs.

• Digital Fashion Rental

Tuxedos and other formal attire are frequently rented by people in the real world, and the NFT rental standards have made it possible to rent digital apparel as well. These are rented out to customers for a set amount of time, and after use, smart contract automation returns them to the owner.

• Digital Styling and Hyper-Personalization

Artificial intelligence has enabled hyper-personalization in the creation of digital apparel that goes beyond the basic sizes of "medium," "large," and so on. Customers want the best fit, and AI-enabled design tools can provide that through submitted photographs, avatar generation, and predictive styling based on body types. The business strategy is driven by the elimination of physical fits and an improved customer experience.

• Augmented Reality Shopping

Customers may digitally try on garments and see how they look on them using augmented reality. Smartphones and augmented reality headsets can enable real-time fitting experiences, and the AR model can also reduce the need for physical stores, enhancing brand capital and carbon efficiency.

• Digital Fashion NFTs

This business model involves selling digital fashion products on blockchain networks as nonfungible tokens (NFTs). Customers can buy and sell digital fashion products as one-of-a-kind digital assets, and the value of these assets can rise over time. This concept allows creators to commercialise their digital fashion creations while also providing clients with one-of-a-kind and exclusive digital fashion goods.

• Digital Fashion Marketplaces

Customers can buy and sell digital garments and fashion accessories on marketplaces, which can also provide independent designers and niche players with reach and consumer access. Based on Metcalfe's Law, marketplaces can provide significant network effects and scale quickly.

• Digital Fashion Gaming Collaborations

This business strategy entails collaborating with video game firms to develop digital fashion collaborations that are worn by game characters or avatars or sold as in-game purchases. Brands may engage with new audiences and communities who are not email-native by creating digital clothing and accessories aimed at the gaming community.

• Digital Fashion Influencer Sponsorships

Social media influencers and companies can collaborate to create additional value through digital fashion content (for example, try-ons, style suggestions, or voting on new designs). Web3 can also drive direct ties between companies, influencers, and audiences via NFTs, enabling decentralised commerce.

Challenges in Scaling

• Managing assortment complexity

According to a report by Bain, in contrast to beauty and personal care, where the top 12% of stock keeping units (SKUs) account for the majority of sales, fashion has a long tail, with the top 20% of SKUs accounting for less than 50% of sales.

• New category expansion

Pursuing customer preferences could help identify the adjacent product categories, further expanding the share of wallet (SoW). Customers, however, frequently purchase only two subcategories from a fashion company.

• Investing in building the brand

There is a need to strike a balance between rapid client acquisition spending and medium-term brand investments with a three-to-four-year payout.

• Running efficient operations

Managing inventory and returns, as well as conducting rapid data-led pricing and markdown optimisation, can be difficult yet necessary.

Road Ahead

In the age of Triller aesthetics and second-hand digital behemoths like Depop, the worlds of technology and fashion are inextricably linked. From virtual trial experiences to luxury conglomerates crafting digital-only pieces, fashion has its sights set on some significant technological efforts. The metaverse will provide an engaging experience that will allow for a more personal relationship with customers. Fashion has historically profited from technological breakthroughs, and designers and artists are always looking for the next big thing. New horizons in mass customization, flexible manufacturing, 3D configuration, and virtual reality will greatly simplify supply chain and customer engagement operations as technology advances. This trend is likely to have a positive impact in India, which has a thriving market for luxury products. The metaverse provides an entry point for emerging and luxury Indian designers to develop virtual runways to present their current collections or even immersive experiences geared to various demographics.

A new paradigm for digital fashion is being created by the convergence of many cutting-edge technologies, which is also giving rise to new business models. Businesses are shifting their focus towards sustainability as a result of changes in the fashion industry, affecting everything from manufacturing and consumption to distribution and interaction. Many digital disruptor brands that have adopted enabling digital fashion will develop in the next few years.