Navigating the financial opportunities and challenges in rapid business expansion

Navigating the financial opportunities and challenges of rapid business expansion demands a delicate balance of strategic investment and fiscal discipline. Success lies in precise financial planning and the ability to swiftly adapt to changing market dynamics. 

Since joining Souled Store in October 2019, I have witnessed an extraordinary journey marked by rapid growth and unexpected challenges. One of the most significant trials was navigating the unprecedented impact of the COVID-19 pandemic, which tested the resilience and adaptability of our financial strategies.

Before the pandemic struck, we were operating with monthly revenues of around 6-7 crores. The crisis hit us hard, leaving us with a very less amount in the bank. Our working capital cycles, heavily tied to the anticipated revenue from the IPL, were disrupted as the event was postponed. This situation posed a severe threat to our company’s survival.

In response, we developed a comprehensive plan, involving strategic negotiations with creditors, enabling a cooperative environment among employees, and creating an atmosphere of ‘collective effort’ to ensure the company’s survival. This strategic move helped us weather the storm and emerge stronger.

Post-pandemic, we revisited our financial strategies, focusing on building adequate reserves to handle unforeseen events. This shift has been instrumental in our current financial health. In March 2023, we raised funds, which remain largely untouched, thanks to our internally generated profits. Our focus on profitability over mere top-line growth has proven effective, allowing us to reinvest in our business without heavily relying on external funds.

Balancing expansion with profitability

Our expansion strategy is guided by a strict focus on maintaining profitability. We carefully select prime locations for our new stores, ensuring they contribute to our bottom line from day one. This meticulous approach to location selection ensures that our stores achieve payback within three to six months and maintain high profitability, with some stores contributing up to 40% earnings.

Besides, by focusing on customer lifetime value (LTV) and optimising our customer acquisition cost (CAC) ratio, we effectively manage our marketing expenses and sustain growth.

Competing in the D2C space

The rise of direct-to-consumer (D2C) brands targeting Gen Z has intensified competition. Despite the presence of major players, our ability to attract and retain customers lies in our distinctive product designs and quality. 

We continuously innovate to cater to the evolving preferences of Gen Z while maintaining our core brand identity. Our fandom-based collections resonate deeply with our audience, fostering a strong emotional connection with our brand. 

Balancing Fandom and Fashion

As we evolve, we maintain a balance between our fandom-driven collections and our ambition to become a fashion-forward lifestyle brand. Initially, 90% of our sales were through licensed products, but today, private labels account for 45% of our sales. 

Our goal is to ensure that our customers’ journey with us extends beyond their initial fandom interests. We offer a range of private label products, including simple designs and solids, appealing to a wider age group and sustaining customer loyalty. This strategy not only diversifies our product portfolio but also strengthens our financial stability.

Enhancing customer experience

We are working on optimising our logistics to provide faster delivery, especially for customers outside our primary western belt. Establishing regional warehouses will reduce delivery times and improve customer satisfaction, further strengthening our market position.

Authored by Chirag Mavani, CFO at The Souled Store.