In the dynamic landscape of India's Direct-to-Consumer (D2C) market, the years 2020-2022 witnessed an aggressive surge in growth, driven by factors such as product discovery, the surge in demand for doorstep deliveries during the Covid era, and consumers' desire to maintain a connection with their favourite brands. According to an Inc42 analysis, this flourishing trend is expected to propel the Indian D2C market beyond the $100 billion mark by 2025, with a remarkable Compound Annual Growth Rate (CAGR) of 25%. Amidst this growth, a cautionary tale emerges, exemplified by The Souled Store, a once-profitable D2C brand that faced a challenging turnaround.
A Snapshot of The Souled Store's Journey
The Souled Store, founded by Vedang Patel, Aditya Sharma, Harsh Lal, and Rohin Samtaney, started as an algorithm-driven business with a focus on data-driven trend identification, design innovation, and product-market fit. Remarkably, the brand remained bootstrapped for five years, achieving profitability for six consecutive years. However, in the pursuit of rapid growth, the founders found themselves entangled in the pitfalls of aggressive expansion, marked by high discounts, costly hiring, and an inflated marketing budget, leading to substantial cash burn.
Despite witnessing a near-2x rise in operating revenue, The Souled Store plunged into a net loss of INR 26.72 Cr in FY22, a stark 52x YoY fall from its previous net profit of INR 51.27 Lakh. The founders had to recalibrate their strategy and, after six to eight months of concerted efforts, successfully steered the brand back on track.
The Turnaround: Learning from Mistakes
Acknowledging the mistakes, Vedang Patel disclosed the brand's 360-degree turnaround story, highlighting the strategies implemented and lessons learned. The Souled Store achieved an Annual Revenue Run Rate (ARR) of INR 400 Cr (in GMV) for the current fiscal year, boasting a 2% positive EBITDA margin for FY23. Looking ahead, the brand aims for a robust 15% EBITDA margin by FY24, with a user base of 5 million registered app users and a target to surpass INR 1,000 Cr in GMV within the next three years.
Despite the prevailing funding challenges, The Souled Store recently secured INR 135 Cr in a strategic round led by Exponentia Capital, with participation from existing investors Elevation Capital and RPSG Capital.
Unravelling the Growth Strategy: A Lesson in Balance
The Souled Store's growth trajectory provides a valuable lesson in finding the delicate balance between profitability and expansion. The brand, originally rooted in profitability and accountability, faced challenges when losses accumulated, leading to a misalignment of the company culture. The shift from a profitable entity to one experiencing a significant net loss prompted a reevaluation of their operations, emphasising the importance of sustainable growth over hasty expansion.
Diversification and Market Presence
Originating as a branded merchandise specialist in 2014, The Souled Store diversified its offerings over the years, incorporating casual wear, athleisure, loungewear, footwear, and bags. Holding licensing agreements for merchandise featuring over 300 characters from popular franchises like Disney, Warner Bros, WWE, IPL, and EPL, the brand strategically expanded its product categories to cater to diverse consumer preferences.
The Omnichannel Advantage
The Souled Store's success is also attributed to its omnichannel approach. Starting with a dedicated website for online transactions in 2014, the brand gradually expanded to offline stores in 2019. Despite the common trend among D2C brands relying heavily on marketplaces like Amazon and Myntra, The Souled Store maintains a significant portion of its revenue from its website and apps (iOS and Android). The offline stores, initially a marketing strategy, provided authentic feedback and contributed to increased sales.
Future Prospects: Navigating the Evolving D2C Landscape
Looking ahead, The Souled Store aims to expand its product categories and presence from six to 15 cities. The founders envision growing the number of offline stores to more than 30, with a target of 200 outlets in the next three to four years. In a market increasingly populated by D2C brands, competition is fierce, with new players entering the scene regularly. The Souled Store remains confident in its dual strengths – data insights and a talented team – which it believes will provide a competitive edge and raise entry barriers.
A Tale of Resilience and Adaptability
The Souled Store's journey from profitability to significant losses and back to a positive trajectory is a testament to the resilience and adaptability required in the dynamic world of D2C commerce. As the brand continues to evolve and expand its footprint, it serves as a case study for aspiring D2C entrepreneurs, emphasising the importance of strategic balance, sustainable growth, and staying true to the core values that define a brand's identity.