India's Online Fashion Runs Into Hard Math

The economics of online fashion retail in India are hitting a wall, particularly in the crucial value segment that serves price-conscious shoppers.

Every time an online fashion retailer delivers a package, it costs 120-130 rupees ($1.38-$1.49), regardless of the order size. For value fashion companies whose customers spend about 1,000 rupees ($11.48) per purchase, this creates an unsolvable equation.

After accounting for gross margins of 30-40%, online retailers are left with just 180-280 rupees per order to cover all operating expenses, according to a Goldman Sachs analysis.

In comparison, brick-and-mortar value retailer Zudio earns 150 rupees in operating profit per transaction. An online player, even in the best-case scenario, would make just 25 rupees - and that's before accounting for higher return rates from value customers, the bank said.

This gulf in profitability explains why offline expansion has proved more sustainable. Zudio has grown to 180 cities, building a 1% market share while maintaining 37% gross margins on items priced under 999 rupees.

The company's trajectory suggests several years of supply chain investments are needed before a value fashion business can meaningfully scale.

"Online-only is not a scalable model in India value fashion," Goldman Sachs analysts wrote in a note.

The timing of these findings is significant. Reliance Retail has relaunched Chinese fast-fashion giant Shein in India through a licensing agreement. But two regulatory conditions could impact its operations: all products must be sourced from India, and all consumer data must remain in the country.

Before its ban, Shein processed 20,000-50,000 orders daily in India. Industry data reinforces the challenge. India's broader fashion industry grew just 6% in fiscal year 2024, while fast fashion surged 30-40%, according to RedSeer data cited by Bank of America. But this growth has largely been captured by offline retailers targeting value customers.