Clovia's Secret

Pankaj Vermani got inducted into the business of lingerie early. His father ran a lingerie store in Meerut's Sadar Bazar, the town's primary market. Around 1994, when Vermani was in standard XII, his father mandated him to spend two hours every day in the shop. "It builds character," he told him. Mostly men came into the shop, whispered what their partners needed to his dad, who then diligently wrapped the products in a brown bag.

Vermani's father hasn't been able to keep pace with the times. He now runs a toy store (for children).

Clovia is thriving in this Rs 18,000-crore lingerie market. Over the past six months it has emerged as one of the top lingerie brands in marketplaces such as Myntra and Flipkart by exploiting a weakness in the offline distribution system that was retailer-driven and not consumer-driven. The retailer sold what was easy to stock. There was little out-of-the-box thinking or little variation in designs and fits. Clovia offers 100-150 new options every month and currently sells 250,000 to 260,000 units a month with an average selling price of Rs 300. Third-party marketplaces, however, only form 35 per cent of its sales. A majority of its business, 50 per cent, is generated through its own website, while offline adds another 15 per cent - the company has kiosks in nine airports. About 60 per cent of its revenue pie is from tier II and tier III cities. Interestingly, the company is operationally profitable. "The first emotion that e-commerce brings out is 'burn'. We have been operationally profitable post marketing ever since we have started. Our marketing is always funded out of our margins," Vermani says, sitting in his office in Noida's Sector 6.

Wife Neha Kant, the company's Chief Revenue Officer, sits next to him. They are joined by Chief Operating Officer Suman Chowdhury, who has christened himself a 'bra-smith'. Everyone drinks coffee. This writer's Americano is served on a coaster that has a picture of a blonde in a green-printed bikini, saying: "You're naughty only if you get caught."

The Nodia office is also its design centre. Designs and raw materials are shipped out to 10 outsourced manufacturers. Quality teams in each of the factories maintain a strict vigil. Once stitched, the lingerie is stored in a warehouse in Delhi. The way it manages the different moving parts, including its inventory, has been the secret to its operational profitability.

Clovia raised Rs 30 crore in Series A from IvyCap Ventures in June 2015. "Between then and now, we have grown 4.7 times as a business," Vermani says. "So far, they have utilised just Rs 15 crore to reach where they are right now. It is not a small thing," says Vikram Gupta, Founder and Managing Partner of IvyCap Ventures. "There are competitors that raised four times of what these guys raised. But the reality is for everyone to see."

Rival Zivame, for instance, raised $49 million, according to data from Crunchbase. It recently pivoted from a marketplace model to a private label business. Clovia also competes with brands such as Jockey. Marketplaces are cash- guzzling, while a private label business is inherently a high gross margin one. A brand buying at X (raw material and cost of manufacturing), can potentially sell between 3.5X and 6X.

But even a private label business needs a good team and IvyCap says Clovia's management has been great at executing.

"You need the right team. We bet on the team and they have delivered. We were definitely expecting a good outcome, but they have surprised us even more pleasantly," says Gupta.

The Data Play

Clovia positioned itself at the lower end of the market - when it began in 2013, it started out by selling lingerie at the top-end (Rs 1,500-2,000 a bra) but quickly pivoted to the other end of the spectrum (Rs 300-1,000) where there were volumes. At the earlier price point, a customer bought just once a year. Now, she could afford four products at a time. Clovia initially targeted working women in the age bracket of 25 to 32. Now, it also focuses on a younger demographic, those between 18 and 24. "While they don't spend as much as those between 25 to 32 years, they shop more often. They have a much larger wardrobe - even her lingerie drawer is more crowded," Neha Kant says. "She also keeps two sizes because she knows she can gain weight or lose weight."

VIKRAM GUPTA, Founder and Managing Partner, IvyCap Ventures

Volumes meant the need for good inventory management, and Clovia uses data science to predict demand, list products that move, and drop the ones that flop. This helps them both with the top line as well as the bottom line.

The company built a technology called 'Requirement Simulator'. It takes into account three factors - speed of sale of the test quantity that it launches, the feedback from customers once the test quantity starts getting delivered, and the feedback it gets from other sources such as mailers. A weighted average is arrived at based on these. "We can then decide if we should produce more of the same or not. Second, the algorithm tells us how much of it to make. Typically, we have 30 days of inventory at any point in time. It churns every month. For panties, our average inventory holding is 10 days. For bras, it is 40-45 days," Kant says.

Once, there was a brief that the company produced three times in a month. "For stuff where we already have the fabric and it's a repeat style, we have reproduced bras in 12 days and briefs in seven days. The industry standard is three months," she adds.

Apart from inventory management, data science is being used for geographical understanding of tastes. "The north-eastern sizing is very different from a Punjab sizing or from a south Indian sizing. The tastes are different, so are the colour choices. The fabrics are different because the seasons are different. We are trying to use data to understand what works best where," Vermani explains.

Lingerie is still a very fragmented market. Such understanding would help Clovia organise the unorganised - and maintain its lead.