Behind Sorabel’s shutdown: could it have been avoided?

Sorabel had been on the right track. The Indonesian fashion ecommerce startup was seeing healthy growth after a rebrand in early 2019 and was on a path to profitability, says co-founder and recently resigned CEO Jeffrey Yuwono.

It just needed to raise money first via a series C round targeted for US$30 million from mostly Chinese investors, with plans to close by April 2020.

Then Covid-19 happened. Sorabel’s investors, facing uncertainty as well as travel restrictions in China and Indonesia, dropped out. Meanwhile, its customers had to tighten their belts as they dealt with furloughs and job cuts.

Like many other startups and tech companies, Covid-19 exposed Sorabel’s key liability: a short financial runway. It wasn’t sufficient enough to make it through the pandemic or even to pivot into short-term strategies. It also told employees last week that it would not be able to pay salaries beyond this month.

Now, about six years after its founding, the company is under administration as it searches for a potential buyer.

Less-than-ideal timing

Sorabel had started out as Sale Stock, which was established by husband-and-wife team Lingga Madu and Ariza Novianti to sell affordable clothes to Indonesia’s middle-low segment. Unlike marketplaces Zalora and Berrybenka, Sale Stock adopted a “private label” approach. While this involved extra costs, it also gave the business better margins and the ability to quickly meet consumer trends.

The company raised US$27 million in series B funding in 2017 from high-profile investors, including Alpha JWC Ventures and Gobi Partners, along with Indonesian conglomerates Sinar Mas (through its venture capital arm, SMDV) and MNC Media.

Two undisclosed bridge rounds followed in 2019. According to ACRA filings for Sale Stock’s Singapore entity, the company has a total of US$69 million in paid-up capital.

Yuwono joined as president in 2016, became an official co-founder, and eventually took over the CEO helm in 2018. At the center of his strategy was the company’s rebrand from Sale Stock to Sorabel, which happened in early 2019.

Sorabel was not yet profitable, though it had gross margins of 58%.

The name change heralded its transition from a “low-cost fashion provider” – as implied by the word “sale” in the name – into an “up-to-date, risk-free shopping” place, Yuwono said at the time. While revenue had initially fallen, he said that it rebounded within a few months, and Sorabel was back on track towards the end of 2019.

“We grew really quickly over the year,” Yuwono tells Tech in Asia. “We grew revenue by 2.4x, and the awareness for the Sorabel rebrand started to accelerate in Q4 2019.”

Along with “double-digit” growth by the fourth quarter of 2019, the company was also CM3 positive, says Kevin Widlansky, Sorabel’s chief financial officer. CM stands for contribution margin, which measures revenue on a gross or per-unit basis after deducting variable costs. CM3 refers to the contribution margin after deducting variable costs including marketing expenses.

Falling revenues

The way forward