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Building the next-gen fashion retail giant | Nitin Chhabra @ Ace Turtle
333 Plays1 year ago
Ace Turtle is a 55 million-dollar fashion retailer behind some of the most loved brands in India and is truly setting a benchmark for retailers to go omnichannel. Nitin is a veteran of the retail space. He shares his journey from founding Ace Turtle as a SaaS venture, helping brands become omnichannel, to the pivotal aha moment of becoming a retainer themselves!
Read the text version of the episode here.
Read more about Ace Turtle :-
2.Vertical Commerce: The next chapter of the retail industry
3.Technology implementation critical for omnichannel retailers
4.Lee, Wrangler to transform India biz to omnichannel entities
5.Ace Turtle enables puma, fossil, arrow and ray ban slash omnichannel transformation cost
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Transcript
Introduction and Omni-Channel Retail
00:00:00
Speaker
Hi, I'm Madan. I'm the co-founder and CEO of Astrid.
00:00:16
Speaker
If you speak to any fashion retailer, you will come away convinced that the future of retail is omni-channel. But what exactly does omni-channel mean? It means that you build an organization in which your online sales and offline sales are not working in different silos but are complementing each other.
00:00:33
Speaker
Customers may visit your store to discover products and then buy them online. If you can get visibility of customers and fulfill their needs seamlessly across channels, then it is a winning strategy for the new normal.
Building Effective Omni-Channel Organizations
00:00:45
Speaker
But what does it take to build an organization that is truly omni-channel from the ground up?
00:00:50
Speaker
That is the question that Nitin Chhabra, founder of Ace Turtle, answers in this episode of the Found the Thesis podcast. Nitin is a veteran of the retail space, having built up reliance on fashion retail business in India. He shares his fascinating journey from starting Ace Turtle as a SaaS business to help other brands become omnichannel till the moment of realisation when they decided to be a retainer themselves and how they built from the ground up a truly omnichannel retail organisation.
00:01:17
Speaker
Today, Ace Turtle is a $100 million fashion retailer behind some of the most loved brands in India and is truly setting a benchmark for retailers to go omni-channel. Stay tuned and subscribe to the Founder Thesis Podcast and any audio streaming app to learn how to create the dominant businesses of tomorrow from ground up.
00:01:43
Speaker
So I started off my retail journey with Arvind and there I worked with them for about close to seven odd years. Arvind has, when I left, there was Arrow, LeadAngler, there were the three main brands. Tommy had just been launched and we, of course, they had Flying Machine, Newport and their Mega Mart, what they call on the value side.
Career Shifts and Brand Development
00:02:03
Speaker
So that was the portfolio they had. And some of these were in-house brands and some were franchisees.
00:02:09
Speaker
Yeah. So flying machine and Newport and rough and tough. These three were their own brand, Excalibur as well. Now, remember four brands were their own. Of course, Aroly, Wrangler, U.S. Fuller was just about sign. About when I left. And Tommy, they were all like the licenses or master franchise thing. Okay.
00:02:26
Speaker
And in a master franchising agreement, you are essentially doing everything from manufacturing to selling, just under the guidance of the brand, and you're giving royalty to the brand. In case of master franchise, the general norm is, it means essentially you can't do your own product. You have to buy products from there, but you can do retail and marketing in the local market.
00:02:46
Speaker
And then I moved on from Arvind, where I spent about close to eight years. Then I moved on to Reliance and it was me, my boss, at that point of time, and two of my other colleagues. We all quit Arvind and we joined Reliance to set up Reliance brands. So we were the four people who started off Reliance brands. And at Reliance, it was like a startup within a corporate. And there I was wearing multiple hats. I mean, all of us are wearing multiple hats because
00:03:12
Speaker
It was really just four of us and we started adding the team, et cetera. So I was heading over a period of time. I was heading some businesses for them at the same time, also responsible for international business development, which largely meant, and they both shared international brands and launched them in India. The brands was doing same as what Arvind was doing. Yeah. Arvind was focused more on the value and that time, let's say the premium segment.
00:03:35
Speaker
Whereas Reliance Brand's focus was largely on premium plus, all the way to luxury.
Retail Segments and Market Penetration
00:03:40
Speaker
So that's how they were fundamentally different. And at that point of time, Reliance Brand was because the nature of the brand was such, you had to only import the product from the principles or the nominated factories. So that was the model in that point of time. Okay. Reliance Brand was not manufactured.
00:03:55
Speaker
No, otherwise brands were not manufacturing. You mentioned these segments value premium plus, just what's the entire universe of segments? See, it varies from category to category, but you have for the unorganized sector, right? Which of course in India, you pick up any category, you will find 8% penetration, 9% penetration. Some categories might even have 10 to 11 penetration, but that's about it. 90%, 25% plus is still organized.
00:04:19
Speaker
So that gives you a lot of headroom for growth. But if you look at the pyramid, you have the unorganized sector. And above that you will have above value, you will have the premium, above premium you will have the high premium, then bridge to luxury and then luxury. So if I had to say value would be something like a max, a max is value.
00:04:36
Speaker
Then when you get into something like premium, which will be, let's say, Lee, Rania, Levi's, they'll be all premium. And then your high premium would be brands like Gantt. That will be high premium. A British luxury will be your Michael Kors and Coach. And of course, luxury will be your Gucci, Prada, LB and so on.
00:04:55
Speaker
because you had about 10 to 12 relevant malls where you could open stores for, let's say, better brands or let's say, high premium brands, et cetera. And there was no multi-brand channels, literally, like you have in Macy's, for example, in the US, right? You can build a brand with Macy's because you can get that large volume from them because they have about close to 900, 1000 doors and the product would be very high. And you have so many of
Omni-Channel Adaptation and Consumer Experience
00:05:18
Speaker
them in the US, right? They also have Nordstrom and so on and so forth.
00:05:21
Speaker
Yeah. And then the value side, you have Target and you'll have Walmart. Whereas in India, you had, you have Shop Stop, Lifestyle, Pantilone. But though none of them have that kind of a scale like these American Department of Stores or the big box retailers do. So as a result, all the brands are forced to focus on retail. And again, on retail, if you're on the high premium segment, the challenge was where will you open stores? Because again, those 10, 12 malls, again, you will go to.
00:05:44
Speaker
They had come in. You had, Mintra had just about pivoted. You had Flipkart, where Flipkart's normal fashion was in that time of the category. And I do remember that one of the platforms met us and they spoke to me to say that they wanted one of our brands that point of time. And we had Timbaland as one of the portfolio brands.
00:06:02
Speaker
So they wanted Timbaland, and I asked them, okay, what is your current average selling price? They told me, if I remember right, it's about 600 rupees was the average selling price. And the Timbaland starting price point that time was about 8,000 rupees. So the question I had was, how will this work out? They were quite convinced about it. We did start business in a small way. And when we launched with them, we saw the orders started coming in from
00:06:27
Speaker
cities like Jamshedpur, Guwahati, and so on, which were not even in the 15-year business plan of Templeton. So that was definitely an eye-opener that there is something there. So there was an issue of reach. There are aspirational customers which are all over, but e-commerce could be that way to reach those customers in the pockets. And there was one particular retailer, I remember, John Lewis. They were out of the UK. They were using their stores to fulfill the orders as well.
00:06:54
Speaker
for the online orders. So this model seemed very interesting to me. And because I felt that today, as consumers, that point of time itself, I mean, consumers never have been channel bound. Today we cause omni-channel or whatever, those terminologies came on later.
00:07:09
Speaker
But consumers' adoption is always way faster because they don't have any legacy, any processes or any hindrances to start to a resistance to change. At the same time, reach is what e-commerce was giving you. So the thought was that why don't we work out a model?
00:07:27
Speaker
connecting both online and offline to make the user the best of both worlds. That was the whole thought process. Then I spoke to my colleague, who was Berry. He was working with me there as well. Because Berry joined us after the four of us joined, Berry was the first set of people we hired. And then I spoke to him that this is the thought process I have. And I think this will be important going forward, where people, I don't know how many people really discovered or were able to mine gold, but the people who were selling the showers made a lot more money.
00:07:56
Speaker
Instead of building an Amazon, you would build a Shopify, basically. Yes, exactly. So we both quit our jobs.
Ace Turtle's Evolution and Business Model
00:08:03
Speaker
We served a longish notice period. And then we started off. We both came from retail backgrounds. So we knew what the problems of retail were. But we didn't understand technology that well. We of course took some angel money and we first started hiring people from IBM and larger companies. And then we realized that that was the mistake we made.
00:08:21
Speaker
Because in these larger organizations, people work on small pieces and what you need is you're building something from scratch and you've got a very different mindset, right? So that you will not find the corporate world. So, and then we started getting into the founder's bills, started meeting some other people, and then we got into those right circles to get the people who love to build things. So that's where I would say.
00:08:44
Speaker
Literally, we took it about a year to start going on that. And finally, we got the right team and then we started building. And then these brilliant minds would come out with the architecture and of course, then we'll write the software. And we launched.
00:08:59
Speaker
in about a year's time. 2013 is when you quit your jobs. So yeah, 2013 we quit our jobs and 2014 is when we started the operation or rather we started full-time working when I started. We registered the company to go home today, but we started all of us joined in 2014. In fact, January itself, the beginning of the year.
00:09:17
Speaker
Initially, the idea was that we will help the brands do business on their websites, help the brands do business on their website, to integrate the brand's website onto our platform, and the fulfill will happen from the stores. So that was the model. The fulfillment was happening from the stores where the orders were coming from online. That was the initial thesis we started.
00:09:37
Speaker
So you built a bridge between their offline retail system and their need-to-say system because typically these systems don't talk to each other in most companies. That's what a platform would do. And this was a subscription model, like a SaaS? Actually, initially we had different sorts of models. We had five, six models, whatever the client agreed on, we had those models. So there was nothing specific. The model eventually evolved into a subscription which became a minimum.
00:10:05
Speaker
and the revenue share as the upside. So we would charge the revenue share and the revenue share was a tiered model. So the more commerce happens with the platform as a percentage, we would charge less, but we would get paid more from an amount perspective. So we focused on the enterprise side of the business.
00:10:19
Speaker
So we were very clear, we're working with large brands. Let's protect the downside we're having in subscription and how much percentage. So we would charge typically about 3 or 0% and of the net sales value and of which shows, which are going through a platform. And as they cross certain thresholds that we would become beyond the threshold to when it would become one and so on and so forth.
00:10:41
Speaker
So that was a revenue shared model we worked on. And then subscription free would be about depending on what all use cases they were live with, because over a period of time, they were evolved and we made all the channels part of the same platform. So then it truly became only channel. So depending on number of channels, what all use cases, we would charge anywhere between 1 lakh to 3 lakh rupees a month at the subscription fee.
00:11:02
Speaker
And what did the software do? Did it own the process till customer doorstep or did it receive the order from the D2C website, figure out which is the store that can fulfill it, pass it on to that store and that's where it ends. Yeah. So quickly, we realized that if you have to do more business, we need to have as many channels as possible.
00:11:19
Speaker
Right. So our thought that time was not, let's say we were not even thinking only channel or whatever. We're just thinking that how do we generate more commerce from the same client to the platform? So then we integrated the marketplaces as well. We integrated wherever they had our social commerce piece as well. So we had whatever channel we started integrating. We also created endless aisle for the in-store guys to use so that they didn't have something in the store or it could be shipped out from some other store directly to the consumer out of the store. Like a standard industry term.
00:11:46
Speaker
Yeah, it's an industry term now, more or less. Yeah. I like this first hearing it. So then we had a lot more channels and then the idea was, okay, then then the whole thing about started, how do we make sure that no matter where the consumer is connecting with the brand to commerce, we are able to fulfill their commerce aspirations from that particular brand.
00:12:04
Speaker
So then the entire inventory was connected to the platform. So all their stores, all the fulfillment centers, in some cases they had distributors, their distributors inventory also
Logistics and Inventory Management Challenges
00:12:14
Speaker
was under the platform. So we literally, what we give them was a single view of inventory, right? Which was, which the platform enabled. And then what we would do is the single view of inventory will publish across all the demand channels.
00:12:26
Speaker
Now, what do you need for commerce? What does the user need on any of the platforms for commerce? You need to know the inventory, right? With the product availability is there. Second, you need to know the catalog or you need to sell, you need to push the catalog so that the user sees the catalog and makes a budget decision. And then third was the delivery assembly, right? Then how much time will deliver to the end customer? So all these things were being published on the platform onto these demand channels. And when an order would come from any of those channels, the algorithm would then figure out
00:12:56
Speaker
That is number one, the right fulfillment point to allocate the order to. That could be a store, could be a fulfillment center, and then it gets allocated to them. And then over a period of time, all the different agencies also we developed to take care of, which was what happens if there are multiple products in a single cart, in a single order.
00:13:14
Speaker
But those are not available in a single store. How do we split the orders? Which all places the orders should need to get stripped? Because you have to, the promise to the customer is already made when the order is placed. So what a platform RubyCon would always was, I say was, that now made the promise. So that's what RubyCon would try and do. And that's what the algorithm will then allocate. They would be having some points, let's say a weightage. There would be some weightage for other parameters like the cost of fulfillment, time taken to delivery, the cost of fulfillment and so forth.
00:13:42
Speaker
And then every time an order would hop, say we allocated the order to one fulfillment point, let's say a retail store, but they're not able to fulfill the orders for whatever reason. And then the order hops to the next stock point, then the parameters weights would change because now probability is a far bigger, important parameter for you rather than cost because making sure the promises met is far more important to the customer. This already been a delay. And then we'll also allocate the last mile partner accordingly.
00:14:08
Speaker
Because what would happen is when the order would get fulfilled, let's say from an ETL store, then we would know when it gets invoiced. Then we would know that, okay, this is now the stop point where it's finally going to get shipped out from. Because when we allocate the order, we are not sure it's going to get fulfilled in the same place or not, right? It pops based on various reasons. It might be some customer has walked into the store and picked the same product. It's only one product line or it's damaged or it's a mismatch in system inventory or physical inventory. So anyway, so what would happen is the moment it gets invoiced from the store. So now we know this is the point going to get shipped out.
00:14:38
Speaker
Then we'd run one more algorithm to allocate the last-mile partner also, because not all last-mile partners are efficient in every code. So then based on the pass data across the platform, across all the transactions, we would say, okay, now whether this is the last-mile partner or the other last-mile partner will allocate the manifest to them through the API, they would get the manifest, and then they would come and collect the order and deliver to the end customer. And the same process would be followed for returns also.
00:15:03
Speaker
and we kept growing. So you brought the last five partners along with you or you? We integrated because these brands alone didn't have that much volume. We as a platform had a lot more volume, so we were able to negotiate better rates, a better service, and so on so forth. So like, say, if it is hyper-local, then maybe a Shadowfax or someone like that could be doing it. If it is intercity, then you would give it to someone who does intercity and accordingly.
00:15:28
Speaker
Yeah, and then there were multiple partners because like I mentioned, because then the platform will decide that, okay, which is the right partner to give it. Right. And again, there were other parameters there, which were considered like, for example, SLA was the most important parameter. And then how many times we delivered in the SLA and so on and so forth. Course was of course a matter as well. And then later on, more optimizations were done. So it just kept getting smarter. You handle returns.
00:15:49
Speaker
So returns would be a double whammy for you. On the one hand, there is that cost of processing the return, and on the other hand, you are getting a return that revenue is actually coming down.
00:16:00
Speaker
In the initial set of clients, that was the mistake we made in the commercial arrangements. And as we learned, the most of the clients started coming in, we then started charging for that as well. But for the logistics costs in the business, we were not bearing it. And that was a pass-through. Yeah, that was a pass-through, right? But yes, the hosting costs, it's going through our platforms, those costs were our costs initially.
00:16:21
Speaker
Would he see that unit and would you ship it from Kerala to Jaipur? It did happen. And then there were some clients that were okay with it, depending on which category. Because we started with fashion, then we got into eyewear, we got into watches, footwear, we got into pharma. So, depending on the margin. And we also had FMC, GPMG. So, there were a lot of different categories. So, depending on the category, they were okay with it because they had the margins.
00:16:45
Speaker
But, and then with each new category, we learned something new and how each category works, different intricacies. For example, you also had consumer dotables and they're the after sales part is also important. So we learned from one of these different industries. By the time this plateau, which year we're talking about now, when this, this flat was started happening, I would say around 2019. And how many clients? We had that time about close to 80. And what kind of revenue were you doing?
00:17:14
Speaker
I think about 5 million. 5 million USD around. How much funds have you raised by then? By 29. By then we had raised about 5 million. So then what happened was that we, existing clients had a plateau. So the only way the growth was coming was through the newer clients. And then we got deeper into why the existing clients are getting a plateau.
00:17:33
Speaker
So a few things which we realized was that one was, of course, adoption, which was always a challenge because you're working with large enterprise organizations and fundamentally you're telling them to take consumers not channel, but they're not built that way, right? Their entire systems are not built that
Retail Company Operations and Client Support
00:17:48
Speaker
way. Give me an example of this.
00:17:50
Speaker
So how a retail organization is, or a brand, let's say, let's talk about any XYZ rack, or let's say the entire organization would be structured, would be on the front end side, on the business side, we would have a team for retail stores. It's a retail team, which is for their own retail stores. Then they would have a team for your distributors, which are working with these mom and pop stores. Then third, they would have department to store the so-called modern trade at that point of time.
00:18:12
Speaker
Then e-commerce had started, then there was one more channel, one more team for e-commerce. So each of these teams were silos, working in silos. So each of these teams had their own teams to manage, large teams to manage each of these channels with their own layers. At the same time, inventory, which was meant for these channels. So none of this inventory was fungible between the channels.
00:18:30
Speaker
So we also face some of the distance where the retail team would say, oh, if I give this for the online order, what if one hour later or tomorrow an offline customer comes to me? I have only two pieces of this. So let me not give it, let me try and send it if it's not part of my target. Right. The epitope of what you wanted them to be like would be say, let's cut like probably best in class in terms of the approach of customer not chat.
00:18:54
Speaker
So Lenskart also has fewer channels, but larger brands, typically traditional larger brands would have multiple channels. Second other issue, which we saw that we were only providing software that quantify, we're only giving technology. And that's what we thought the role was to just focus on that.
00:19:10
Speaker
But when we deep dive, then we saw that why some of the clients were hitting 200 dollars per day or 300 dollars per day or 500 dollars per day, that point of time, and not able to scale beyond it. Because they did not have the operational capability, especially on the logistics and fulfillment side. Their warehouses were meant to service largely B2B. And now e-commerce, which are smaller business at that point of time, has started working. But those warehouses were not able to fulfill orders at scale. We also were built for though
00:19:39
Speaker
10 units, 20 units, a particular SQL, put them in the carton and this is a whole different ballgame, e-commerce fulfilment, single shipments and all of that. So they were not used to that. That was one challenge. Second issue on the store side also, what do they realise that, for example, if you want to do fulfilment scale from stores as well, you would need those fulfilment tables, those quality assurance processes. You need some space at the back end. And this was not planned. Yeah, this was not planned at all. So the last one was logistics because we had left it to them.
00:20:06
Speaker
They were not able to manage it because they're out of the balance. So they were not getting enough, let's say from the logistics company as well, not able to get the right prices, et cetera. So we said, if we have to scale, we have to start offering some of these operational services as a value added service. So to the clients who were using our platform, we started off offering optional value added services.
00:20:25
Speaker
You want fulfillment centers, you take fulfillment centers from us. You want last-line logistics, we will offer that service to you. You want customer support, we will offer customer support to you. So you want cataloging, because that is one big challenge. The goods will be in the fulfillment centers and stores, but the catalog will take three months to get created. Because again, there was no ecosystem and they were not.
Pandemic Challenges and Recovery Strategies
00:20:46
Speaker
So then we also started doing cataloging for them and charging them on paper use for those value-added services. And then we started doing a scale again.
00:20:54
Speaker
You would always be like Amazon has that fulfilled by Amazon service. They take the inventory and keep it with them and do everything there. So this would be something uncivilized. Yeah, something similar. Warehouse bit for the fulfillment center bit, but the store bit will always happen from the store, but they were, we were offering last mile logistics. And then, and then the training, then we also started the training with the customer success team. We'll train the store teams every time a new store would open, stores have a lot of churn also. They will continue this training and all that. So all that started happening, how to fulfill the orders and all that.
00:21:24
Speaker
And then let's just start about hitting again. And then what happened was the pandemic struck.
00:21:29
Speaker
So when you plan your runway, you always plan that, okay, that's my revenue. This is my expenses. That's my net bond. You never plan for a scenario where revenue will become zero, right? And your bond is a hundred percent, right? So that does not happen too soon, too fast, right? What percentage of new was your bond? That point of time we were about 10 to 12% debita negative. So that's where we were. So not that bad, but actually when suddenly became zero, it was a hundred percent. Not only did our revenue became nil.
00:21:58
Speaker
Right. A lot of the clients refused to pay us for our outstanding amounts with them as well. Right. Because you would raise the revenue share. So you would raise sign voices end of the month for them to pay the other 30 days. So did you have exposure to future group also? That point of time discussions were going on, but we didn't have, fortunately for us. Payment terms were like 30 days after invoice you get paid.
00:22:21
Speaker
After invoice and the invoice was raised end of the month because only then we will know how much they've sold. It's literally, it was about close to 60 days and clients would be anywhere between 65 to 75 days. Our investors actually helped us out a lot of greater than they told us that we have some amount of money, which we have kept for you. And you draw down in branches.
00:22:41
Speaker
So of course it all comes at a cost. So we, without thinking twice, the very next day, we drew down the first charge because we don't know how long it's going to last. What do you mean when you say it comes at a cost? So there was a convertible note. So it was a discount to the next round's valuation. So that's how it was. And at that point of time, you don't want to negotiate anything because you're trying to survive. So we did when I would give a lot of credit to our investors at that point of time.
00:23:07
Speaker
especially I think what takes the lead role there to get us through that point of time. So a lot of credit to them. And then the first lockdown opened up, then platform at a very different scale. Not only the existing clients start scaling very fast, a lot of new brands wanted to come on board the platform. So it's a different problem we had at that point of time, about a good problem to have. And we became a bit of positive as well. This was because of increased revenues.
00:23:33
Speaker
A lot of scale because cost was same, right? The revenue surge happened. So then with that scale, the profitability was a net result, but it was first time in the company.
Captive Business Model and Market Expansion
00:23:42
Speaker
It was great. Then we also saw that on the platform, some clients were scaling more than the others. And the submission was very similar to what we discussed earlier. It was largely because of adoption, because it's a side approach, multiple channels as channel wise approach.
00:23:56
Speaker
Culturally, it's difficult for them to change the processes, et cetera, because they've been following those for decades and decades, right? And that's the reason why disruption always happens from outside. It's never from the industry itself. So we then start pitching to the global headquarters of those brands and to take over the entire business from end to end.
00:24:14
Speaker
When was this? Yeah, this was after the first lockdown opened up, right? We're just coming out of a lockdown. And the second lockdown, nobody knew it was going to happen or not, but it did happen. And then when the lockdown opened up, as I mentioned, a lot of the existing clients also had a very different scale. So almost all of them came back to re-nevershed with us. I think we never expected the business will be growing much faster, like it did. So they want to re-nevershed the commercial, the revenue share largely, right? Because you had another revenue share with almost everybody at a good scale.
00:24:43
Speaker
And it also got us thinking that today, 100% of our business model is dependent on third parties. So there has to be some amount of business which is captive to us so that we do not have a situation like this again. So that was the whole idea. So when we presented to the board, we presented to them that this is a SaaS vertical. We want to launch by using the same type of platform, everything was same. A new vertical called the captive vertical because it's a captive business.
00:25:08
Speaker
because there will be long-term contracts, 15 years, 20 years. The expectation was that 3% of new, I guess, in retail will win a margin, but more importantly, a captive business. So we are not dependent to survive on only third parties. And our thought process was that over a period of time, this will become 25-30% of our business. SaaS will be 70-75% and this will be 25-30%. That's how we all started off.
00:25:33
Speaker
In a typical retail business, what is the margin there? It depends from category to category. If we talk about fashion, classic fashion, it would be about around 6-65%. The EBITDA, or like... No, the gross margin. Gross margin. Okay. And how it should be the EBITDA? Yeah. So the EBITDA would be typically anywhere between 10-12% would be of most of the good companies. Some outstanding companies like Fijin, Trustee, etc. would be around closer to 20% as well. Right.
00:26:00
Speaker
So we then started the business. In the first six months, the business took off like a rocket. Which was the first deal you put? Actually, we were negotiating with Toys R Us first. But what closed first was Lee and Wrangler.
00:26:16
Speaker
The Indian Wrangler already had a franchisee licensee in India. No, they are the ones subsidizing there. So we took over the business from their subsidiary and then of course then they shut down the subsidiary. Where to go with the business? So in the first six months itself, the business hit a different scale, which neither the alien Wrangler owners, the global owners, which the companies called Konto, they had thought about, nor had we thought about. But for us, a few things were clear. One thing was that, okay,
00:26:43
Speaker
This scales much faster, right? Because we have complete control over adoption, over product, right? And we knew what more we could do to even scale it much, much, much faster, because we could see so many inefficiencies, which tech would solve, right? Through our kind of a model. How much did it scale? Like when you acquired the top line? See, in the first set itself, it did more than what these two brands had done ever in the history of India. They were more than 25 years.
00:27:10
Speaker
that I'm not comparing the pandemic number because they were much lower, right? So, and of course, it grew profitably. It was a bit positive in the first year itself. To acquire the manufacturing plants when they were working with third party manufacturers.
00:27:22
Speaker
No, so they were working with third party approved factories. So we then we started working those factories, but we added more factories that we went along and all. What about like, so far you have the supply chain jobs. What about the design jobs? Very good question, Akshay. So what we did was from contour, we took on board from the India subsidiary. We took on both the design and merchandising teams. Because that's the skill set which company, which Chaser did not have.
00:27:46
Speaker
So that's what got migrated. So then it became very profitable. And then on the other side, we started discovering two sets of problems. One was the more we got deeper, we realized that retail had not evolved at all. So for example, how we told workers apart from the whole Amnichal commerce piece, even the retail operations was very operational, heavy, very person to person interaction dependent.
00:28:08
Speaker
which essentially made it not really scalable and not very transparent. So what would happen is, for example, to manage the store, this was done for each channel, but to manage those stores, what would happen is that you would have in a territory, you would have an area sales executive who reports to an area manager. Area manager reports to a regional manager, regional manager reports to a national manager, and the national manager will then work with the functions in the head office, which are actually going to solve the problem.
Technology Integration in Retail Processes
00:28:33
Speaker
So now we didn't see a need for to have all these layers because now through tech, you can connect the stores to you. More importantly, what happens is that when all of these entire, all these layers in the radial log, when they visit the stores, the interaction that happens, it's not captured as a data point.
00:28:52
Speaker
Somebody would make a report and the report gets marked by a perception, something has got missed out and you can't make much sense out of it. So we said, okay, the first step is how do we decipher this black box? So one, we have to start deciphering the black box. First, let's try and convert everything into a data point.
00:29:11
Speaker
So that's the first step we started off with. Then we launched very quickly. I remember if I might say a dirty product, literally in about three odd sprints, an app to handle the operation, which we call Connect. In fact, we just released a couple of days back the second version of that. But anyway, so we launched Connect. So this is like a point of sale with some added features.
00:29:34
Speaker
No, it had everything which a real guy needs. Because see, today, earlier, the requirements of the consumer from the stores and expectations were different. Also, similarly, the skill sets and the operation work for the store was different. But today, in our omni-channel environment, a store is not just fulfilling the requirements of the customer, right? Of the old world who's just coming and buying, because it doesn't happen that way anymore. When you and I go out to buy something, we research online what we want to buy.
00:30:01
Speaker
When we go to the store, we often sometimes find we know more about the product than the poor guy was selling us to us. And you can't blame him because he's got thousands of products in the stores. And you are searching for what you want. And he has to, you can't expect him to remember and go deeper on those thousands. So first step was it, how do we enable them to give them information on the palm of the hand? So mobile was the natural device to use that. That's why I built that mobile app called Connect, which had all the product information.
00:30:28
Speaker
And also to make it easier for them, they don't have to search. With the customer, somebody searching, it's not a good experience. We said, okay, you take the app, scan the barcode immediately. It will give you everything about the product, right? Where it's made, what it goes with, even suggestions for the customer. So it's like a cheat sheet also for the store guy to tell the customer.
00:30:47
Speaker
And then you could use it as a post as well. You can also buy both of the tilts. How did you feed the content in it? We already had the content of the catalog management system of Rubygon because it was just an extension of that. Right.
00:31:00
Speaker
And Rubicon is the catalog management product. Rubicon is the omni-channel commerce platform. So it has four modules, or now it has more, but that time it had four core modules. One was catalog management system. Second was inventory management system. Third was auto management system. And the fourth was logistics management system. So the catalog management system, it will have images, content, and publish catalog and transform depending on, because each platform will differently. So all that will happen on that. The second was inventory, which takes care of single group inventory and so on and so forth.
00:31:30
Speaker
and reduction of inventory, and because when you are doing a single piece of inventory, you are adjusting inventory with multiple applications. Not all of them might be real-time, not all of them are legacy applications. For all this problem, we had solved over a period of time, so the inventory management system would take care of all of that. But we needed real-time information for inventory, for commerce. And then third, would you auto-manage the system with all the heavy duty algorithms to figure out where to fulfill the order from, how the order hops, where it goes, how do you split, and all of that. And then the low-stick management system will be to say, okay,
00:31:57
Speaker
which whom do you indicate the order to? Has it got reached? Has it not reached? Then again, that hops there. All those systems are built as a logic manager. We were four core modules of the group. So the Catanil Management System was feeding on the Connect, and then they were able to see about every product. They could scan the product. They would know everything about the product. They would also know what they want to know. They would also tell them in how much time somebody wants some other size, whether it's lying in the backstalk or it's lying in the store. That information, they would also get it there.
00:32:25
Speaker
So they know that, okay, if it's lying in the back stock, so I have so many pieces, I can go and get it to the customer. You don't have to say, sir, I'll go and check. But for us, it was a data point. What are they searching for? So all this thing, what is not available in the store. So we started getting the data points then training.
00:32:42
Speaker
Wearing with the second point. Otherwise, this information never goes back. Yeah, if they go to the pause and pause on his own corruption because inventory is not matching, system is not matching, they don't know visibility across, not real time. All those things, we're all guessing systems, we have those problems. Even the window shopping behavior is never captured, but through this now, you're also capturing the window shopping behavior.
00:33:03
Speaker
So then, and we are going deeper, I might share with you whatever I can today. So, so then what we did was we said, okay, next week is training. Training is very important, right? So how do you make sure training is done and you're not capturing? So we said, how do we get the data point? Whether the course is also right or not? So we said, okay, the best way to do it is again, thanks to the pandemic, it take a taken off, consumption of content was very high. So I said, okay, again, push content through our current app itself. We said, okay, now training modules were there at the end of every training module, there was a quiz.
00:33:33
Speaker
And then training is product training or like behavioral training? It was product training, customer training. There were lots of these things, right? So this was second day. Third thing we said, okay, visual merchandising. Because you were told you can't do visual merchandising because it's how you make the product look beautiful inside the store, how you put it together. You know, there you need to have hands.
00:33:53
Speaker
So, but again, we said there are other ways to do it. And what we did was, it was very simple actually in the end. And again, the guidance will get published. If you don't know what machine is getting pushed out to the stores, guidance will get published to the stores. Stores will have a necessary tool to follow the guidelines, set it up, take the photograph from the app itself, but there's something interesting also which happened. So initially we said, just take the photograph from your phone and upload it. And then we started realizing that some of them were giving it by uploading old photographs.
00:34:23
Speaker
So we have told it's interesting. So we then said, okay, you can only upload only from the app, you can take the photograph. So we said, okay, then you take the photograph from the app, publish, and our visual merchandising team shooting in the corporate office will get it. They will put pins on it to say, okay, this work question needs to be done. And again, we gamified it based on who was doing it faster and better. They were being rewarded as. The central team would decide, for example, that these five jeans models should be put on the mannequins. Yes. So in the office, we created a mock of a store.
00:34:53
Speaker
So in that model, they will put it all together, take photographs, and put guidelines, step one step, two step, three step, four step, have videos, and also guidelines, text and images, and push it through the VM module on Connect, right? Then we also started looking at other things as well, typically attendance.
00:35:10
Speaker
So attendance we also made on Connect because attendance was again like a manual thing. So we geofenced all the stores. So the moment you are in, we know you are in. But more importantly, now we are getting data points. So now we know the footfalls which are coming in. At what point of time the footfalls are higher? We installed smart cameras in the stores. The old world footfall counter, what is that? So essentially what you do is if you walk past it, it will count you as a footfall. These cameras had like, there was a machine vision algorithm running.
00:35:37
Speaker
The camera said just smart vision, nothing else. And every cloud today gives you that. And we are open source guys for us too. So anyways, we got the hardware from somebody else and then put in our applications on the back of it to get it going. But largely then, what did the smart cameras started doing? We knew that when you were coming in, how many of you were coming in? Every time a new store guy would join in, we would take the image of the store guy. So we know the camera would have to mess the store, so it will not count as a footfall.
00:36:03
Speaker
At the same time, and let's say we will know that, okay, how many people walked in? And then we will not say, okay, actually it's walked in because we'll not take your PI data. Even if you buy it from us in the store, but we will assign you a number. So we know that XYZ34X walked in. And second time when they walked in, how many months is actually coming back again? Which means how many times we need to refresh the store.
00:36:25
Speaker
Yeah, yeah, refresh the store as well, right? Then we started seeing that how many people means that how many girls start coming in, how many women are coming in, how many kids are coming into the stores, how many coming together, how many are coming alone. So we started dissecting what is approximate age group, yes, the demographics. We started getting all this data as well.
00:36:43
Speaker
So those are all company operated? No, we do all franchise stores. So, but it's controlled by us. So we control the assortment. So how the model works is when we took over the business of fleet, we shut down all the wholesale business.
00:36:56
Speaker
Why? Because on wholesale, you don't get the consumer data back because we want to know what the consumer is buying or not buying. We've, as soon as possible, we want to know what's the price sensitivity. So we, and all this data, we feed back into our supply chain. And then that's how the new products are designed and manufactured as well. So that's like a full load, but still would be providing to the, the, the Bob and pop stores would be getting. Right.
00:37:19
Speaker
We got rid of all the mom and pop stores. We shut down all the distributor business, which was there. We went to all department stores and spoke to them, share the data. We don't want the PI data, but we definitely want the sales data as soon as you can. If you can give us real time, you'll take it. If your systems are not aligned, we will work with you to get the data.
00:37:38
Speaker
And wherever we got the data, only where we work, wherever the data was not there, we just discontinued the channel of the partner. We were very, very clear because that would just break the whole model. Right. So that's how the whole model started. We started discovering new problems. We said, okay, now, even in the gene, we saw a lot of genes were getting altered. So one year from a cost perspective, which means your consumption of fabric is higher. You can save some money there. Second, from a consumer perspective, the consumer has to get altered, then wait to go to consumer experience. Yeah.
00:38:06
Speaker
And the third was the whole model is that they will give you some sort of a voucher, right? That alteration is done, right? And then you will call or he'll call. So the whole journey was quite broken. So what we're just making live now is to capture data points on the alteration also. What fits are getting altered? What lengths are getting altered? How much is getting altered? So everything is now happening.
00:38:26
Speaker
And the consumer gets to know and connect itself that, yes, your has been submitted. It has been altered. The consumer can select you want home delivery, or you want to come and collect it. You want home delivery, then pay delivery charge, which a lot of customers don't mind paying, right? Or if you want to carry it, you can come to the stores. But more importantly, now we've got that journey is quite seamless. We're getting a data point out of that.
00:38:46
Speaker
right? And multiple data points, right? Consumer data point, we're getting the product data point as well. So I think these are some of the things which started getting added. Then we looked at the factory side. We thought, we saw that in the beginning, we will come to know a week before the factory was supposed to deliver us some products to say is getting delayed by another two weeks.
00:39:02
Speaker
We say, but how can you come to know a week before it's going to be delayed by two weeks? So because again, it was like a blank box. So then now the next phase is we now start deciphering the blank box on the factory side as well. So that's what the new tech that you're building on that side to see how can we get clear visibility there as
Brand Expansion and Consumer Insights
00:39:19
Speaker
well. And how can this whole system become more and more agile? It's been a good journey. So whatever you're building now, the same tech is now being used by the newer brands as we put into the funnel.
00:39:28
Speaker
So the next day's toys are with RS. We're going to announce one more brand next week, and there are some more in the pipeline. So do you collect the customer's information when he actually buys? That is like standard practice, right? Yes, because we take consent there. So we take consent and we collect that data. So we also have a single view of customer, but for customers who have given us consent to use the data and connect with them.
00:39:54
Speaker
How are you able to leverage that? Let's say in the fashion business, the repeat pitches are not that high, so then you can reward like an airline or a hotel at the loyalty points. But yes, after a certain point of time, when we have a large portfolio brand, which I think we should have by end up next year, then we could do across brands. But today is more on the CRM side, on the relationship and engagement. So we study the behavior as well, because the behavior is very interesting.
00:40:19
Speaker
How does it help you? You're able to build cohorts. So you now know that how, and we are seeing there are some channel specific behaviors also, which we are building cohorts on to try and figure it out. And we have seen many, a lot of times now people want deals. They're trying to go to online, right? And the new product, they always want to try in the stores. I would not say always, but that's a large cohort wants to do that. But we are understanding a lot of things and we are actually now building a few more things on to take care of that.
00:40:45
Speaker
What have you understood? Give me some more insights. Like this is an interesting insight that for new launches. So one thing to walk away here that the online ESPs are higher in the smaller towns than the metros and tier 1 towns. ESP, average selling price. Average selling price. So they are buying better products during the sale events or the discount events as compared to what your metros and tier 1 guys are buying.
00:41:13
Speaker
Right. So, and our relations are also higher. And like I mentioned to you, there are instead of customers who are going online only for deals, coming for new products from stores. But one thing is very clear, we lost women's wear, right? Because what the data also showed us that a lot of women customers walking into the stores and we didn't have women's merchandise.
00:41:32
Speaker
So we launched Women's Watching Dice and we did make small quantities into a few other channels because we were just worried that whatever doesn't sell because we know the total is there, but will they adopt? Then we launched the Wrangler and Wrangler does have the biker image and all of that. So yeah, exactly. So we were just kind of concerned and, but to a surprise, it's sort of very, very well.
00:41:55
Speaker
Right? And now we are doing a much larger piece around women's work for both Wrangler and Li, where we assign to big celebrities to promote them as well. But how do you know the same customer is buying online? No, but we have websites, right? So we know we get the data from the websites. Okay. Got it. Okay. So what are the brands now besides Li and Wrangler?
00:42:19
Speaker
We have Lee Rangla, we have Toyzaras, we have Bibi Daras, and the next one we're announcing next week, which is going to be launched in December. So that's the shift brand. And we'll be announcing, this is the fashion space. We don't make the announcement that's happening next week. By the time we release, it's going to be, we typically release about six, eight weeks after recording. So on the women's side, the two big celebrities we have signed, for Rangla, we signed Shweti Nandana. And on Lee, we have signed Sara Ali Khan.
00:42:49
Speaker
League and Rankter have women's wear across the globe, but this is like an India innovation. Internationally, they have. India also, they had earlier. But few years back, they had stopped doing it because the Saints were low. The fifth brand, which you're signing up, is also in the fashion space.
00:43:06
Speaker
In the fashion space, so we focus brands largely on in the space where the trends don't change fast. Like for example, jeans, you don't, the trends don't change as fast, right? So that's why we are staying away from, let's say women's fast fashion and some of those categories, which are very trendy. So that's not part of a business model because we prefer businesses because where you have the risk is higher, the margins are lower. We prefer business which have good margins and we can go deeper because the deeper you go in your production cycles, the margin also increases.
00:43:36
Speaker
focus on certain set of brands from that perspective. And then also we are also focused on brands which are focused on the middle class.
00:43:44
Speaker
Because we are not going for luxury, we are not going for value. Because the moment you go beyond that pricing segment, the time drops, the market size drops dramatically. And the moment you go below that, it's a large market, but the Euroeconomics drop dramatically. So we want to stay in this last sector. So we are focused on brands which are more on the
00:44:07
Speaker
I would not call them classics, but maybe classics, but it's better to try to don't change rapidly. And third, which have a salience in the Indian market and within the Indian country. So the brand which we partner with. So what we do is when a new brand approaches, or we look at approaching an output market, we look at the organic searches. How many organic searches are happening? Okay, okay. For Lee and Rangla, what is the offline to online split? How much of the sales is?
00:44:36
Speaker
It's 50-50. Here, we have legacy brands, well-established in the offline world. Yeah, 135-year-old brands, these are iconic brands, literally heritage brands, as they call them. Even in India, they've been around for decades. Yeah, yeah, that's right. And that's what we're working on now. Because see, the consumers keep evolving, consumers are moving on too. So the way our whole model is also structured is, because what Rubicon does is, since it's not stand-agnostic, all our assets, whether it's inventory, digital assets, they're all
00:45:05
Speaker
at Robicon, so they are being transformed. So we have to launch a new channel. We don't have to create a new asset. We have to just create a transformation layer or maybe some API integrations happen and we can go live on a new channel. So for us, the cost of adding a new channel is very, very low. So also the removal channel is also very low and the speed is very fast. For Toys R Us, like with Lee and Rangir, you already got retail stores when you took over. Actually, we got the retail stores, we shut down 85% of those.
00:45:33
Speaker
Because why we shut them down was because we evaluated, because we knew the importance of adoption, right? So we evaluated all the franchisees and the locations and everything. But more importantly, it was also about the franchisee apart from the location, whether the franchisee adaptable to our kind of a model, because we are trying to do new things, we are trying to challenge everything. So in a quarter, we might be doing 10 new things, but only three might work.
00:45:56
Speaker
Four work, brilliant, but that's normally the hit ratio. So if franchisee also need to adaptable to that kind of commodity, right? So that was very important for us. So we met almost everybody and the teams met and then we decided to take that call, which are the ones we want to partner with, which ones we want, but not be heading into our kind of commodity.
00:46:15
Speaker
So we reduced that by 15, not percent.
Transition from SaaS to Tech-Driven Retail
00:46:18
Speaker
But we opened about 40 odd stores last year. They said we're opening about 50 stores, each in Lee and Wrangler. Tell you about 100 stores coming up this year. And then of course, toys are us. Okay. You now also have a franchisee onboarding teams. Yes. To set up. Gas life. And then when every time we do size, we go deeper, we discover that our new problem is tech and so on. Right. So we just go deeper there and there. So we took a decision. It was a tough decision for us last December to exit the SaaS business.
00:46:45
Speaker
Because the most premium resource for us is the bandwidth of our tech team. So we wanted to spend that bandwidth to build the tech to solve the new problems which you are facing. And we were discovering and there are enough problems to solve here. So we decided to start serving termination notice on our SaaS clients from September last year onwards. Our target wall by March will get out of all the SaaS businesses. Okay. And what's your ARR currently or do you have a target ARR?
00:47:14
Speaker
So we crossed 55 million last year in the USD. This year we're going to cross 100. Amazing. So the SaaS business would really have been like a very, very small. Yeah, it is not even a million dollars. Insignificant percentage of this. Right. Yeah. Makes sense to shut that down. At the peak before we decided to take the call, we were at 10 million. So let go of the 10 million dollar business.
00:47:38
Speaker
Okay. Amazing. So you have raised a fair amount of funds, more than $40 million till date, I believe. So what's been the journey there? What are some lessons you learned with respect to fundraise? I think we raised first money in the initial rounds was for the SaaS business. Right. You're like a new age Alliance brands basically today. Yeah. So we're like a new age retail business, fundamentalist technology. For example, we don't have a sales team in the company.
00:48:04
Speaker
A franchisee onboarding team is somewhat like a sales team, right? But they're not selling to the franchisee. They just appoint the franchisee, finalize the location and then they move on. That's the role. You have enough inbound leads for franchisee appointments?
00:48:21
Speaker
Yeah, so that team works on that funnel as well. And then what happens is then the system takes over. Based on the data, what we get, what's selling, we optimize, and then we decide on the pricing. We change the assortment to keep on moving because no franchisees can select what they want for the store. It's done through the system itself.
00:48:39
Speaker
It's a, it's a lean model because we have, whether much fewer people you build this, but it's more scalable as well. Right. Because the same is same tech is not getting used for
Manufacturing Processes and Reflection on Growth
00:48:48
Speaker
multiple people. You can open multiple stores. You can open multiple online channels as it has to keep evolving. So all that can start happening from the same base. So it's, so it's in a good space. Yeah. So it's in a way you're right. I would say it's more like a new age page. That's how I would describe it because page also like us is taking long-term licenses or brands. They have jockey and they have speedo, right? So they have two brands.
00:49:09
Speaker
So it's similar. So we have long-term licenses of brands. We also do design manufacturing. We also do it. The difference is that we build a very good business, sound business on operation efficiency. And our business is being built on tech efficiency. Help me understand the manufacturing piece here. So you want to have like an asset light approach on manufacturing, like work with third party workers.
00:49:32
Speaker
Yeah, so at both the ends, we are asset-like, so we don't like CapEx, right? It goes from the SaaS days. So neither do we invest in CapEx on the factory side, nor we invest in the CapEx on the store side. So the franchisees invest in the CapEx, the rest of it demand-driven. To drive the demand, assortment, inventory, all that, we take care of.
00:49:51
Speaker
And on the factory side, we work with third-party manufacturers. We started off with manufacturers who were working with other brands as well, because these are large brands, so they need to work with compliant factories. We had not just terms of product quality, but also in terms of social compliance and so on. So, which reduces the pull to work with by some other factories. But now we start adding more factories, but we also now start adding captive factories, factories which are only doing business for us. Because now we have scale.
00:50:20
Speaker
So that transformation would lead to say a purchase order getting released faster. So those are already there. So we're not so worried about the purchase orders, but we are worried about the visibility. The visibility on the production line, where is it? In how much time it can be delivered. So we want to optimize on that. How will you get this visibility? By deploying tech on the factories as well. So on their systems as well.
00:50:49
Speaker
Then a combination of both. So today, for example, our quality assurance is already happening through smart cameras. In our model, it is, we just assume the smart cameras and we identify the problem there is and the approvals happen digitally. But we're also working on further improving it. So there are lots of these areas where we're going deeper, but on the factory side, everything is being literally built from scratch because we realize there are not enough products based on what we require in the market.
00:51:11
Speaker
Okay, so like a factory management system where you punch in the order, then it will generate the... See, they already have some system or the other one is the large factories. But to draw the data that you know where exactly it is in there, because their factories are meant for their own purpose, for different purpose, we need to have complete visibility. Because if data is telling us, this particular style has slowed down, this washes slowed down, can we change the wash midway?
00:51:34
Speaker
So once we have the visibility, we can change all of that, right? Because far more nimble, far more agile. And then even to the lead time between the design to factory is a few days. Can it be literally just a few hours, right? So we're just trying to work on all of these pieces as well. Okay. My last question to you, how have you evolved as a person in this entrepreneurial journey? I think one thing is, and I would say that I know pandemic played a big role in it.
00:52:03
Speaker
So you need to have an ecosystem of people whom you can have an open discussion with about anything, right? It may not be just on the business or something, which is some business relationships or something you want to sound up with somebody because what happens is that boards tend to become more formal, right? And that's how they are supposed to be.
00:52:22
Speaker
So whether you call it advisory board or equality or ecosystem of some people who are, who understand a founder's journey, preferably other entrepreneurs, whether it's how to, which investors to go to, which things they would have done, you learn from them. If you think you want to sound off, sometimes we have doubt, you talk to them and you realize that you're not alone. Others have also gone through it. And I think that ecosystem, both in terms of the emotional support and the learnings, both on the business side as well, and the network, I think that is very, very critical. I think that's very, very important.
00:52:52
Speaker
And I think the second is what I would say is that go deeper into the problem, but don't fall in love with the idea, right? So, and like it has evolved for us. But if you say that's how it started off and how it needs to be, then that's where you will start having problems. Because our markets evolving at a very, very rapid pace, consumers evolving. Right. And what I would say is that there is no better time in India than now to be an entrepreneur.
00:53:19
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to this show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in this show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.