Grana web site

Online luxury apparel retailer Grana has secured $3.5 million in a seed round of financing.

Grana focuses on luxury fabrications ­– Chinese silk; Mongolian cashmere; Irish linen; Japanese denim, and Peruvian pima cotton — core wardrobe basics. So far the firm has secured an aggregate of $6 million in seed funding. The latest round was led by Golden Gate Ventures, and includes investments from MindWorks Ventures and Bluebell Group, a Hong Kong-based retail distributor of luxury brands across the Asian region. All three also were participants in the initial $2.5 million seed round.

Luke Grana, the company’s founder, was in the U.S. to meet with potential investors as he began securing funding for a Series A round from institutional investors. He’s hoping to raise around $10 million in the Series A round before the end of the second quarter.

Ashley Micklewright, president and chief executive officer of Bluebell, said his firm first heard of Grana at a conference where the founder connected with Bluebell’s head of digital, Marc Ardisson. He said his company invests in businesses that are related to retail. Grana is Bluebell’s first investment that is a pure digital play.

As for why Grana, Micklewright said, “We wanted to get an insight into the digital business model. Since we understood fashion, we figured we only had to focus on the business model. Other than that, we liked Luke. He had a clear plan, a clear vision and his enthusiasm was contagious. It looked like it could be fun.”

Micklewright said Grana’s model is part of the natural evolution of the business, changing over time as circumstances change. He had been thinking about what Bluebell needed to learn to stay relevant and an investment in a digital player provided some of that know-how. “We will need to either become digital ourselves or, as I see it, we just need to adapt our business model and ingrain it into ours. That, or be left behind and slowly fade away,” he explained. While Bluebell has been learning about the pure digital model, it has also helped Grana with some operational and staff training knowledge when the e-tailer opened its first pop-up sites in Hong Kong. Micklewright said the company plans to continue to participate in future funding rounds.

Golden Gate’s managing partner Vinnie Lauria said, “The company is growing at a phenomenal rate, with customers from the U.S. and Australia. The team, there are 30 on staff, has demonstrated that they can from the bottom up build a brand that has passionate followers. This brand has a sense of community, with consumers uploading selfies of themselves wearing the product.”

Lauria said he was impressed with how the company has made its customers its biggest fans and how “there is a stickiness among its user base.” He also said the use of social media has helped with the marketing of the brand, and probably the only way it can get the message to consumers since traditional advertising wouldn’t work.

“Grana can’t just advertise since the price points would suggest cheap, even though the fabric is high quality. In bottom-up marketing, it needs a friend to say ‘I love Grana. It’s a great shirt.’ That’s word-of-mouth advertising for the brand from its fans,” Lauria.

Because Grana has low overhead, prices for the luxury fabrics are on the reasonable side. A cashmere sweater e-tails for $99, while a silk shirt could be $49. The company does not discount its prices.

Grana said, “This new investment allows us to further disrupt the online clothing market and provide consumers with luxury-quality wardrobe essentials without the luxury price point.”

The company began beta testing in March 2014 and the site went live in October of the same year. It currently ships to 12 countries from its home base in Hong Kong, with plans to increase that number to 15 by the end of this year, according to Grana. The site — in English — is the same that is accessed regardless of where the consumer is located geographically around the world.

An Australian, Grana set up the home base in Hong Kong because it has a tax-free port and is close to the firm’s sourcing network. Its cut, wash and sew production is also based nearby in China. While it sells fashion, he considers Grana a logistics firm given its sourcing and production network and ability to scale up on shipping to overseas consumers. A serial entrepreneur, Grana is the founder’s fifth start-up. He sold some of his earlier business ventures and got the idea for the fashion site after visiting his brother in Peru, where he noticed and took a keen interest in pima cotton.

While Hong King is a key market, the U.S. is its second biggest, not a surprise since the sizing of its product is based on U.S. sizing charts. “We have a 42 percent repeat order rate,” Grana said, adding that marketing for the startup has been by word-of-mouth, which translates into a low customer acquisition cost. “Fifty percent who place an order in the next 30 days will order again online,” Grana said.

The site targets primarily the Gen Y and Millennial consumer. “We have a 2.5x turn rate,” Grana said, and very little overhead expenses since it doesn’t operate any traditional, long-term brick-and-mortar sites.

The firm does operate so-called “Fitting Rooms,” which really are short-term pop-up stores structured purely as showrooms since there’s no retail checkout points. “The concept is to get consumers to feel the product, but then they have to order online,” Grana said. So far there have been fitting rooms in Singapore, Hong Kong, Sydney and at Union Street in San Francisco, which opened in December. Attention to the pop-ups are through special events – think Hot Chocolate Sundays, for example – and attendance from prospective customers typically result in an order comprising of three items, Grana said. He plans to use some of the seed funding to open more fitting-room locations in the U.S., as well as add technological upgrades to the shops to reinvent the way “people buy clothes in-store.”

Grana is on the hunt for additional financing so he can expand operations in the U.S., as well as expand product offerings. It currently offers 60 styles in nine fabrications over the course of the year. Basics are core to the site, although Grana has plans to expand to include more colors and new fabrications, such as Japanese flannel.