Nykaa's make-up for beauty retail

Right marketing and product strategy have helped Falguni Nayar build a beauty retail business

When Falguni Nayar left investment banking firm Kotak Mahindra Capital to start Nykaa, a multi-brand beauty retailer, little did she know the business would gross Rs 600 crore in four years. Nykaa earned Rs 225 crore for the year ended March 2017 and is eyeing a break-even at the operating earnings level by September and hopes to end the year with a top line of Rs 750 crore; it is doing Rs 600 crore on a run rate basis.
 
What has it done well? The key differentiator has been its marketing (focus on digital media than on expensive television advertising), product strategy (right ones and exclusive brands), and an inventory-led model that allows it to deliver fresh products. ‘‘The key is to be a retailer than chase customers with discounts,’’ says Nayar.
 
Adding: ‘‘We bought a lot of content on our website and understood the art of retailing, which is to intertwine advice with sales, not just push sales. We have an online magazine and are very active on social media (2.1 million Facebook likes, 225,000 followers on Instagram) to connect and educate customers on new brands and trends. New is a big thing in beauty and drives 30-40 per cent of all sales.”
 
Nykaa follows an inventory-led model. It has big warehouses in Delhi and Mumbai (50,000 sq ft each) and a 15,000-sq one in Bengaluru. Beauty is a long-tail inventory business, requiring it to carry a wide variety of brands and SKUs or stock keeping units (say, 50 shades of a nail enamel). Nykaa sells 650 brands on its website. Many brands are offered exclusively on its website. These include MAC, Kiehl’s, Innisfree, Ciaté London and LA Girl that are available online only at Nykaa in India; brands like The Shave Doctor or Milani Cosmetics are available exclusively at Nykaa in India. It also sells products under the private label, Nykaa, which accounts for eight per cent of its sales. The plan is to grow this to 20 per cent.
 
Shalini Raghavan, chief marketing officer at the consumer products division of L’Oréal India, says the online space holds great potential to educate and inform customers through influencers such as bloggers and social media, where content is very important. “The key is to integrate content into e-commerce, so that the consumer does not miss the ‘touch and feel’ aspect on which the make-up category has been thriving so far.”
 
Nykaa has raised Rs 183 crore in funding since 2014. In end-2016, it raised Rs 21.8 crore from Max Ventures, after raising Rs 82.5 crore in early 2016 from the family offices of Sunil Kant Munjal, Harsh Mariwala and TVS Shriram Growth Fund. In 2015, Nykaa had raised Rs 60 crore from the TVS fund, family offices of Atul Nishar, Harsh Mariwala and others. In 2014, it began with Rs 20 crore from private investors.

Fact box

• Area of business:  Beauty retail
• Investors:  Max Ventures, TVS Shriram Fund, Harsh Mariwala, Atul Nishar, Sunil Kant Munjal, others
• Funding: Rs 184 crore in three rounds
• Founded: 2012, kick-off: 2013
• Revenues: Rs 225 crore (2016-17)
• Target: Rs 750 crore (2017-18)
• Ebitda break-even: September 2017

 

Multi-brand retailer
 
Nayar wanted to be a multi-brand beauty retailer, feeling there was a need for one. Beauty is a long-tail inventory business and the number of SKUs a beauty retailer sells is very wide. In a market like India’s, a nascent one for an industry like beauty, she felt it was hard to fulfil the demand with physical stores. Hence, e-commerce. Though it uses e-commerce, Nykaa sees itself more as a multi-brand retailer.
 
In matured markets like the US, where there’s a proliferation of brands, a multi-brand retailer does better than individual stores. Earlier, brands were sold through counters in department stores. Salespeople of each brand would push their products but consumers didn’t necessarily trust them. “Sephora and Nykaa are brand-agnostic,” says Nayar.
 
This has worked well for Nykaa; globally, beauty products are not selling well at stores like Bloomingdale’s, say industry insiders. So, Macy’s has allowed Sephora in its stores and every Macy’s store has a Sephora.
 
Market structure
 
In India, the market for personal care and home care products is likely to be $18 billion by 2020, according to an industry estimate; 20 per cent of this is expected to be online, says Nayar. This market includes blades, shaving cream, soaps, face wash, personal care, make-up, skin care and hair care   and Nykaa sells all these.
 
In India, Nykaa competes with Amazon, which is focused on personal care and Sephora, the world’s largest beauty retailer, owned by Louis Vuitton. There are few beauty retailers in India — Shoppers Stop sells some amount, there’s Health and Glow, a South India-based chain, and newU, an online beauty retailer from Dabur.  Nykaa also competes with mom-and-pop stores and departmental stores like Amarsons in Mumbai. ‘‘Few beauty retailers have been successful in India, as it is a long-tail business and you need to educate the customer,’’ says Nayar. Product expiry is a big issue. Nykaa works on a 40-day inventory cycle to deliver fresh products.
 
Its key categories are make-up, 50 per cent of sales, skin care (25 per cent) and hair care (15 per cent). It earns margins of 25-40 per cent and also makes money from advertising on its website.
 
Omni-channel
 
Nykaa has five stores in Mumbai, Delhi and Bengaluru. It plans to take that tally to 30 stores in 20 cities by 2020. By then, stores could bring in 10-15 per cent of the business, up from two to three per cent now. Stores carry limited stock but help the company with its omni-channel strategy, as some buyers prefer to buy from stores.

 

Harish Bijoor Founder, Harish Bijoor Consults Inc

Expert take: Biz needs to become buddy-store of choice
 
Nykaa aspires and possibly has become a big beauty destination online. The idea is a simple one. Beauty is about cosmetics and cosmetic brands are many. There is a joy of shopping for cosmetics in the physical marketplace, but as time becomes a critical currency to compete with, online buys will become the norm. Nykaa positions itself to this audience, offering convenience, choice and consultation as well.
 
Beauty and its accoutrements are a huge need today. Women look for reliability as much as variety. Nykaa tackles that well. While the physical marketplace is great for a first time purchase, the online marketplace is a good place to buy when it comes to the repeat buy. Possibly Nykaa needs to have answers tailor-made to attract the first-time impulse buys as well.
 
Nykaa runs the risk of being just one name among many. It has chosen to be a cosmetic vertical as opposed to a beauty horizontal. Chasing this choice with passion will require the ability to morph from a mere online store to an online story of beauty. The beauty buddy idea is a good one. How much of life and energy can one pour into this? That will determine whether it morphs into a buddy-store of choice where women meet, discuss issues, get solutions, advice and guidance as well.
 
Nykaa can position itself as a curated store rather than a supermarket of cosmetics. And this needs to be what the consumer thinks of you, and not what you, Nykaa, think of yourself. Touché.