Go Colors managed to spread outside Chennai to Bengaluru, Mumbai, Coimbatore, Ahmedabad and Kolkata by March 2014
Image: Madhu kapparath
Bengaluru, July 2014. The taxi was crammed. En route to a restaurant at an offsite, GV Ravishankar was preoccupied with ‘space’. Battling with constricted legroom, the seasoned venture capitalist (VC) at Sequoia India posed a swift question to his young team member. “Does it have enough legs to stand on?” he asked. “Well, they closed FY14 at Rs26 crore,” replied Tejeshwi Sharma, an analyst who met the founders of Go Colors, a women’s bottomwear brand started by the Saraogi family—Prakash Saraogi, Rahul Saraogi and Gautam Saraogi—in 2010. The Chennai-based company, Sharma continued to add muscle to his bony investment pitch, started with churidars and leggings, opened a tiny kiosk of ‘Go Colors’ at a mall in April 2011, and scaled it to over 80 kiosks by early 2014. “I think they have managed to find a strong product-market fit,” he added.
Ravishankar, though, was looking for more answers. “But can it stretch its legs?” the investor continued to probe relentlessly. “I mean, churidars and leggings seem to be highly undifferentiated to an average person,” he quipped, pointing out how Go Colors has to battle with tons of low-priced rivals and copycats. “Can a brand be built around a basic product which does not have any visible bragging rights?” he asked. “In fact, can there be a brand built out of bottomwear?” Ravishankar added another layer of scepticism.
The extent of scale also came under scanner. Despite the fact that Go Colors managed to spread outside Chennai to Bengaluru, Mumbai, Coimbatore, Ahmedabad and Kolkata by March 2014, the scale was still not hefty enough for Ravishankar and his team to reach a consensus. The raging debate carried on for over 40 minutes, the car pulled over at an eatery, and the foodies decided to satiate their hunger pangs. For now, an intriguing and nascent investment opportunity was left on the plate. “It was on the top of our mind though,” recalls the investor.
Meanwhile, back in 2010, Gautam was trying to build a business out of the bottom of the apparel pyramid. The 22-year-old grad finished his college in 2009, joined the family venture of exports, and a year later, the second-generation entrepreneur was taking a stab at stitching a brand out of a product which prolifically dotted the vast unorganised apparel landscape across the country. “I wanted less competition. The idea was to sell the product easily,” recounts the executive director and chief executive officer of Go Fashion, the parent company which retails under the brand name Go Colors. There were two triggers, he explains, to get into the women’s bottomwear business. The first was a nascent shift from sarees and salwar kameez to trendier apparel. Gautam wanted to be well placed to ride the trend whenever it gathered steam. Second, there was no brand in bottomwear. “I could sense that the world of womenswear was about to transform bottom up. Literally,” he says.
The beginning, though, was anything but easy. The young founder started with two products—churidars and leggings—and took the MBO (multi-branded outlet) route to make a dent. After eight months came a realisation. Go Colors didn’t have legs. Neither the brand scaled nor were the distributors across Delhi, Mumbai and Chennai enthused. Gautam now decided to change the strategy. In April 2011, he opened a small kiosk in one of the malls in Chennai. “The idea was to reach out directly to the consumers,” he says, adding that experimenting with a kiosk was more of a pilot.
The captain was stumped with the flight trajectory. The demand was overwhelming, consumers lapped up the products, and kiosks kept popping up at malls across the top cities. Meanwhile, Ravishankar met the founding team a few days after the offsite, was impressed with the product-driven team and realised that there was a gap in the market which the father-son duo was trying to capitalise. There was another big takeaway. “If you offer a high-quality product, then a brand can be built around it,” underlines Ravishankar, who decided to gauge the pulse of the market. He, along with his team including Sakshi Chopra, hit the markets of Chandigarh, visited stores, and spoke to consumers to know their understanding about bottomwear.
The finding was interesting. Consumers displayed loyalty to a brand that offered quality, variety and affordability. The market was undergoing a silent shift from Indian ethnic staples to a mix-and-match behaviour among women for daily use. Kurta with jeans and sporting a T-shirt on top of leggings was becoming all pervasive. Surprisingly, leggings were fast emerging as a convenient alternative to ethnic bottom wear. “Consumer stickiness was equally surprising,” he underlines.
Ravishankar discovered other pluses as well. He lists out a few: The core nature of the product, high frequency of purchase, high product gross margins in the category, and limited fashion and inventory risk. Buoyed by the findings, Sequoia Capital India invested $10 million in November 2014, and become the first outside investor in the company. A few months later, the revenues of Go Fashion jumped to Rs46 crore in FY15 from Rs26 crore in the previous fiscal. “We could sense that Go Colors will have a vibrant future,” he says.
The company did bloom over the next few years. By FY19, Go Fashion’s revenue touched Rs285.2 crore and the company posted a PAT (profit after tax) of Rs30.9 crore. The growth continued over the next fiscal: Rs392 crore and Rs52.6 crore revenue and PAT, respectively. Then came Covid, and the lockdown in March 2020. For a predominately offline company—Go Colors had 448 EBOs (exclusive brand outlets) across 110 cities by FY20—the pandemic came as a prophet of doom. The experts predicted that the Rs3,000 crore organised bottomwear market in FY20 would shrink alarmingly. There was widespread uncertainty for brick-and-mortar players who watched the spectacular growth of their digital-first direct-to-consumers counterparts from the side lines.
Go Fashion did sag in FY21. The revenues fell to Rs250.7 crore, and the company posted a loss of Rs3.6 crore. Gautam, nevertheless, stayed ruthless with his EBOs and offline strategy. He, though, rationalised to cushion the impact of Covid. Go Colors closed 41 stores in FY21, opened 42 new stores, and marginally stretched its legroom by expanding to four new cities. Seven months later, it hit the IPO market in November 2021. While the issue price was Rs690, it was oversubscribed by 135 times and the stock got listed at Rs1,316.
Fast forward to September 2022. The company made a gusty comeback in FY22. Revenues jumped to Rs401.3 crore, and the company was back to its profitable way of life. The impressive run continued in the first quarter of FY23. While revenues leapfrogged to Rs165.2 crore from Rs31 crore during the same quarter last fiscal, the company posted a PAT of Rs24 crore as against a loss of Rs19 crore during the same period.
The public market seems to have taken note of the glowing report card. On September 29, around 2.30 pm, Go Fashion was trading at Rs1,314.25. Though not an apple-to-apple comparison, having a look at how the market has treated some of the new-age tech companies that had a blockbuster IPO in 2021 would be interesting. Zomato, which got listed at more than 50 percent premium to its issue price of Rs76 in July last year, was trading at Rs59.8 on the afternoon of September 29. Paytm, which got listed at Rs1,955—a discount of 9 percent from the issue price of Rs2,150 in November last year—was trading at Rs640.35.
Gautam, for his part, gives credit to a profitable way of life. “Public market absolutely values profitable companies. I can say this even if I would not have got listed,” says the executive director and chief executive officer of Go Fashion. “For us, profitability entirely comes from gross margin,” he underlines, explaining how having a business model built around reaching directly to the consumers, albeit in an offline avatar, helped the company. Around 71 percent of the sales come from EBOs, which have swelled to 533 across 135 cities. There are another 1,597 large format stores, which get 23.1 percent sales. A paltry 2.5 percent sales come from online!
Marketing experts and analysts are not surprised with the success of the ‘offline-first’ approach. “Brand stickiness, proposition and value proposition are more important than medium of sale,” reckons Rajan Gahlot, assistant professor at Delhi School of Economics. An offline-heavy company rebounding strongly after the pandemic only goes to prove that if you get the right product-market fit and build a brand loyalty, there is not stopping growth. “What has also worked for Go Colors is its laser-sharp focus on the women’s bottomwear segment,” he says. There is enough temptation to diversify and get into multiple categories to drive more growth. “The company didn’t take the easy way out,” he says.
The growth prospects still look rosy. The organised bottomwear market, which is expected to touch Rs9,000 crore by FY25, would still be 9.6 percent of the women’s apparel market by 2025. “Go Colors has just scratched the surface,” he adds. Another factor that has driven growth is its sweet price point. Ranging from Rs249 to Rs1,599, around 83.3 percent of the products are retailed under Rs1,049. “Staying away from the discounting game has also helped in building the brand,” he adds.
For Go Colors, though, the going might not be easy in spite of the favourable factors. “The biggest threat is from a sea of unorganised player who can gate-crash into the party,” says Ashita Aggarwal, marketing professor at SP Jain Institute of Management and Research. The products are already competitively priced, and there would be little room to take on price warriors that might pop up across the country. Another big challenge is the heavy dependence of Go Colors on the offline channel. “A nimble and aggressive digital rival can disrupt the market,” she adds.
Gautam, though, contends he will stay bullish on their offline strategy. In a business, he explains, where the customer’s experience is possibly the most decisive differentiator of why businesses succeed or fail, Go Colors will grow its direct engagement in a controlled and calibrated manner. While ‘controlled’ means growing business to the extent cash flows permit and without the use of debt, ‘calibrated’ means proprietary-driven growth. In the face of an unprecedented opportunity, Gautam reckons, it would be conservative to undershoot our ambition. “Our focus is to emerge as the largest bottomwear brand of India,” he signs off as he gets back to hunt for more legroom for growth.