Bengaluru: Online apparel rental start-up Klozee has shut shop within six months of raising its maiden round of funding, after it failed to gain scale, signalling a stress in the pre-owned apparel sale and rental segment, which has seen success stories such as Poshmark and Rent the Runway in the US and Secoo in China.

The team of a dozen-odd people at Klozee, owned by Humble Egg Technologies Pvt. Ltd, has been absorbed by Sequoia Capital-backed online fashion store Voonik Technologies Pvt. Ltd and Bessemer Venture Partners-backed online home design start-up Livspace (Home Interior Design E-commerce Pvt. Ltd), said two people aware of the development.

The founders of Klozee—Aman Haji, Pratik Moona and Prashant Jain—have joined Livspace, they said.

Sujayath Ali, co-founder and chief executive at Voonik, Anuj Srivastava, co-founder and chief executive at Livspace, and Haji from Klozee confirmed the development.

The development is the second instance of a start-up in the sector hitting a bump. In February this year, Spoyl, an online marketplace for pre-owned apparel, had acquired rival Revamp My Closet.

Klozee was one of the 15-odd start-ups that mushroomed in the past 18 months to tap the market for pre-owned branded and designer apparel and renting garments. Companies such as Share Wardrobe, Elanic, Envoged, Etashee and Stylish Play are marketplaces for pre-owned premium women’s apparel brands, while LibeRent, FlyRobe and SwishList rent premium brands and designer wear.

The Indian start-ups have, however, struggled to replicate the success of global peers, despite there being headroom for growth. According to Wazir Advisors, a consultancy firm, the premium women’s wear market is a 9,000 crore segment, about 6% of the 140,000 crore women’s apparel market.

Even venture capital firms have not placed enough bets on such start-ups in India. Apart from Klozee, other start-ups to have received funding are Elanic, Envoged and Zapyle.

This is in sharp contrast to the US and Chinese markets, where investors have poured in funds into companies in these sectors. About 12 online marketplaces in the US, including Poshmark and The RealReal, have raised about $230 million, according to data provided by Tracxn, a firm which tracks start-ups. In the rental space, at least 10 start-ups in the US, including Bag Borrow or Steal and Rent the Runway, have raised about $162 million.

“The reason why we got into the business was because we thought it was a very interesting market. But, we felt that the market is not prepared for this (business). We did not see demand shaping up the way we expected. Klozee was doing around 12-15 orders a day. The idea was very sound but it would have taken a lot of money and investment," said Haji, co-founder and chief executive at Klozee.

The company, which had raised an undisclosed amount from TracxnLabs, the private investment arm of Tracxn, a start-up tracker, in August last year, finally stopped operations in February.

According to industry experts, the renting model works better for higher value items such as furniture, which has seen businesses such as Furlenco and RentoMojo raise funds from institutional investors. Besides, while Indian consumers are warming up to pre-owned mobile phones or gadgets, the sentiment is yet to translate to a significant demand for the fashion category.

“Rental in India for fashion will take some time. Rentals will do well with big ticket items, but it may not immediately translate to success for the fashion category. In the course, some companies will do it right and some will not be able to crack it," said Brij Bhasin, principal India investment lead at Rebright Partners, a venture capital firm.

“Some markets inherently have a latent demand, say food. But, when you are creating a market (for sale of pre-owned apparel and rentals), efforts go into creating and popularizing the concept. That takes time to build scale," he added.

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