Good morning [%first_name |Dear Reader%],

When someone mentions D2C, or direct-to-consumer, you immediately think of e-commerce. At least in the Indian context.

Take boAt, the popular D2C wearables brand that filed to go public last year, although it hasn’t listed yet. About 88% of boAt’s revenue in the year ended March 2021 came from marketplaces such as Amazon and Flipkart, and its own website. Just over one-tenth of its sales could be attributed to physical retail stores.

Most D2C brands, cutting across categories like foods, electronics, and cosmetics, are bound to have a similar bias towards selling online. So D2C’s immediate association with e-commerce isn’t all that surprising.

And personal-care brand Mamaearth was no different until 2020.

But that has since changed, quite drastically.

And Mamaearth has reason to both cheer this shift and be wary of it.

IPO-bound Mamaearth’s necessary yet costly love affair with retail stores

Last week, Mamaearth’s parent, Honasa Consumer Ltd, filed a draft red herring prospectus (DRHP) ahead of its planned initial public offering (IPO) to raise Rs 400 crore (US$48.3 million)—a flotation that will also see its founders and investors selling shares.

Even a quick glance at the 378-page document will make this one fact pretty apparent: brick-and-mortar stores are no longer a nice little thing to have for the brand, but an absolute must.

In the year ended March 2020, Mamaearth’s offline sales were just Rs 10 crore (US$1.2 million), or 9% of its total revenue. And for the six months ended September 2022, revenue from physical outlets came in at Rs 256 crore (US$31 million). More crucially, physical stores accounted for 35% of the company’s total revenue during that period. That’s a significant spike for a digital-first brand. (‘Digital-first’ is mentioned 79 times in the filing.)

What’s particularly fascinating is that the share of the offline channel kept rising through the pandemic years of 2020 and 2021, when e-commerce was a big gainer in general. Even if one could discount it thanks to the offline business’ low base back then, the trend has continued in 2022.

On the face of it, Mamaearth seems to be heading in the right direction. After all, 85% of the personal-care market was offline in 2021, according to the IPO filing. And three-quarters of it comprised small, unorganised retailers.

The company itself admits that physical outlets are “critical” in product categories like shampoo, hair oil, and face wash, though it doesn’t explain why it has singled these categories out.

There’s also this line: