The Opportunity Koovs Sold for $37 Mn & How it Got Around India’s Ban on FDI in Ecommerce

Fashion e-tailer Koovs recently raised $37 mn through a public offering on AIM, a sub-market of the London Stock Exchange. But how did the company manage to convince foreign buyers of the India opportunity? How does it work around the ban on foreign direct investment in e-commerce? The company’s filing at the exchange offers some answers. Edited excerpts

How does it get around the Ban of FDI in retail?

India doesn’t allow foreign direct investment in e-commerce. To raise money from foreign investors at the exchange, “Koovs India now operates exclusively as a wholesale trading entity supplying branded and private label fashion products, currently only to Marble.”

Marble, which is independently owned and managed, now operates the Koovs.com retail e-commerce website under the terms of the Supply Agreement with Koovs India and fulfills all of the roles of a retailer.Koovs

What is the plan?

The company is planning to build a private label and establish its credibility in the fashion space. It will also bring international brands and designers to the Indian consumer.

What opportunity did Koovs show its investors?

– India’s GDP is forecast to grow at approximately 6% per year over the next 3 years. Private consumption is set to drive this growth.

– Retail market in India will reach US$845 billion in 2017, of which approximately 8% is expected to be apparel retail.

– The demographic shifts in India in recent years are very favorable for fashion retail, particularly e-commerce fashion retail.

– India has a population with a median age of 26 years, which is significantly lower than typical Western economies.

– Rapid urbanization in India over the last two decades, there has been strong growth in the middle classes, who have higher disposable income levels and a greater interest in international fashion trends.

– Concurrent with this increase in the size of the middle classes in India, is a generational shift in the adoption of Western fashion trends.These factors are combining to drive the strong growth trajectory of international fashion brands in India.

Who is Lord Alli?

Lord Alli, the is the Executive Chairman of Koovs. He was the Chairman of Asos Plc between 2000- 20012. Asos is one of UK’s largest online fashion and beauty products retailer. He was appointed to the House of Lords in 1998 and is currently Chairman of Silvergate Media Limited, part of a group of media companies which specialize in children’s television, publishing and merchandising.

How much money does Koovs make?

In the 18 months leading up to 30 September 2013, Koovs had a

Revenue of £3,225,000
Net operating margin of 37.3%
Koovs India sales: Rs 4.67 cr

What is Koovs risking?

Besides the standard risk related stuff you see in a regulatory filing, there are a couple interesting ones in this filing.

Koovs India is not a wholly owned company. After the public offer, the relationship between the company and Infotel E-commerce will be governed by a shareholders agreement. A breakdown in this relationship could have an adverse effect on the company.

Also, as Marble is currently the only channel through which Koovs India’s products are sold to consumers, the Group’s revenue is dependent upon the Supply Agreement with Marble and therefore upon the success of Marble in servicing its customers, delivering products as promised,recovering payment from its customers and maintaining high levels of customer service.