Winning design: As Gen Z shoppers take fancy to Indian wear, venture investors look to stitch deals

New-age ethnic garments brands are venture investors' latest pick — spurred by an uptick in business as Gen Z employees develop a penchant for formal ethnic wear, be it sarees or kurtas.

In May, Libas raised Rs 150 crore ($18 million) from ICICI Venture, while Bengaluru-based Koskii secured Rs 61 crore ($7 million) from Baring Private Equity last year. Several other Indian clothing-focused new-age internet firms are also on the radar of venture funds, multiple industry executives told ET.

Libas founder and chief executive Sidhant Keshwani said the Noida-based company has repositioned itself from being an ethnic wear brand to an "Indian wear brand" to target the Gen Z audience. Nearing market saturation in urban areas, it also expects to derive growth primarily from tier II and smaller towns.

Launched in 2014, the company clocked Rs 500 crore revenue last fiscal and aims to reach Rs 1,000 crore by the end of FY26.

"We never thought Gen Z consumers would be a market but so many wear a saree now," said Sujata Biswas, cofounder of Mumbai-based Suta. The bootstrapped fashion startup clocked Rs 75 crore revenue in FY24 and is aiming to close FY25 with Rs 100 crore.

Another such startup is Gurgaon-based urban ethnic lifestyle brand Truebrowns, which was founded by Udita Bansal and acquired by ecommerce rollup company Goat Brand Labs.

Chennai-based Fashor is also nearing the Rs 100-crore revenue mark for FY25. The startup is part of the portfolio of Sprout, an early-stage venture capital fund.

Pushing offline too

The branded or organised Indian ethnic wear market is worth Rs 30,000-35,000 crore, growing at a rate of 20-25%, according to industry executives. However, with the unorganised market accounting for nearly 80% of the segment, there is huge headroom for growth.

"A lot of western trends are adopted by ethnic wear brands. Our studies have shown that around 40-50% of the workforce in major corporate offices are wearing ethnic apparel," said Keshwani of Libas. "After Covid, we have also seen a trend of consumers choosing comfort over fashion."

In a post-earnings analysts call last month, Aditya Birla Fashion & Retail chief financial officer Jagdish Bajaj said the company's portfolio of designer wear brands and premium ethnic wear has an annual revenue run rate of Rs 2,000 crore-plus. "It continues to grow rapidly, led by network expansion, same store sales growth and category extensions," he said. "This quarter (January-March), our ethnic portfolio achieved revenue of Rs 474 crore …..posting a year-on-year growth of 51%."

Libas, which is profitable, opted for the external venture funding to push its offline strategy. The company has opened 14 stores in the last 12-18 months and plans to open another 100 over the next year. Currently, it earns 80% of its revenues from online channels — on marketplaces as well as its own website and app.

A New Delhi-based venture investor, who has looked at an ethnic wear startup for a potential investment, said that while daily wear as a segment is growing fast, special occasions would always be the biggest driver for expansion in the category.

"There are scores of festivals and celebrations in India every year...and that is when consumers both men and women, buy Indian apparel styles. That is one area where westernisation cannot creep in, "he said.