There was a time not too long back when PE funds were reluctant to enter the baby and kids segment due to uncertainty regarding valuations on this segment post the Lilliput debacle.
Global PE firm Bain Capital had sued EY(Ernst & Young) in a US court on accusations of wrong advice about investing in domestic kids wear chain Lilliput almost a year back.
Baby & kidswear has never been an easy segment as several online and offline retailers in this segment from the likes of Hushbabies and Hoopos to Catmoss and Lilliput were forced to shut shop.
Today, investors are willing to take a chance in this $10 million (₹ 64,000 crore) segment with online sales being the biggest trigger.
The largest baby and kids retailer First Cry has already raised $69 million from a host of funds such as Saif Partners, IDG Ventures and Valiant Capital.
The incubating VC arm of Mahindra Group, Mahindra Partners, has also invested in buying out Baby Oye.com to give its kids retail brand Mom & Me under Mahindra Retail, a new lease of life in the online space.
“We have realised that in the baby and kids space a physical model will not succeed unless it is complimented with an online presence. It is a super tough category as the range is wide from a 10-gm diaper pin to a 25-kg baby bed. There is a lot of money needed to burn and those who did not find investors had to exit,’’ says Supam Maheshwari, CEO & Founder, First Cry.
Struggling online kids & baby retailer Baby Oye was lucky enough to get acquired by Mahindra Retail, although both were still not making money in the segment.
Sources indicate that Mahindra Partners (the $900-million Private Equity and Venture Capital division of the Mahindra Group) invested ₹450 crore in setting up Mom & Me stores for its group company Mahindra Retail and continues to invest, despite its losses of more than ₹200 crore.
“We were weak in e-commerce and with the acquisition of Baby Oye, we were able to ramp up quickly. Today about 26 per cent of our revenues comes from e-commerce and we should be able to take it up to 35 per cent and become operationally profitable by the next financial year,’’ says Prakash Wakankar, CEO, Mahindra Retail.
Early this year Hopscotch, raised $11 million in a second round of funding led by Facebook co-founder Eduardo Saverin and Los Angeles headquartered early stage investor Velcos Capital.