SUMMARY
GMV of Nykaa’s fashion vertical declined 8.3% QoQ in Q4 FY23, while user visits and average order value also fell
Recognising the slowdown, Nayar said that the company will continue to expand assortments in selective categories of clothing where Nykaa fashion is “lagging behind”
Nykaa Fashion CEO Adwaita Nayar said that the company made huge investments in FY23 for the vertical and expressed confidence that the performance would improve going ahead
nykaa
MD and CEO Falguni Nayar said on Wednesday (May 24) that the beauty ecommerce major’s fashion vertical is not chasing the highest possible growth but the “right growth” that doesn’t dilute what the platform has to offer in terms of “uniqueness”.
The comments from Nayar came during Nykaa’s Q4 FY23 earnings call. Amid the decline in discretionary spending due to high inflation, Nykaa’s fashion vertical has been showing signs of a slowdown. While the gross merchandise value (GMV) of Nykaa Fashion grew 38% year-on-year (YoY) to INR 664.1 Cr in Q4 FY23, it declined 8.3% from the previous quarter’s GMV of INR 724.4 Cr.
All other major metrics, including Average Order Value (AOV), Monthly Average Unique Visitors (MAUV), visits and order conversion on the Nykaa Fashion website, also registered a decline on a quarter-on-quarter (QoQ) basis.
The vertical’s user visits and MAUV dropped to 12.7 Cr and 1.74 Cr, respectively, in the quarter under review from 13.7 Cr visits and an MAUV of 1.94 Cr in Q3 FY23. Meanwhile, AOV (in terms of MRP) also declined to INR 4,162 in Q4 from INR 4,570 in the prior quarter.
Contribution margins of the fashion vertical also declined on a YoY basis in FY23 and remained flat YoY for the quarter under review at 2.6%.
Recognising the growth slowdown in the quarter, Nayar said that the company will continue to expand assortments in selective categories of clothing where Nykaa fashion is “lagging behind”. However, she also said that the company targets customers on the top-end of the consumption pyramid and wants to ensure that its fashion platform remains a differentiated and preferred platform for this consumer segment.
“We won’t be cluttering our platform with a lot of low-price, affordable brands which may give us a quick conversion… it won’t allow the differentiation that we are keeping for the long term,” said Nayar. “So we are not chasing the highest possible growth in fashion but we are choosing the right growth that doesn’t dilute what the platform has to offer in terms of uniqueness.”
Meanwhile, Adwaita Nayar, CEO of Nykaa Fashion, claimed that the company made the highest amount of investments for the vertical in FY23. She called this a “natural cycle” for building any new business and expressed confidence that the performance would improve from here on.
“We are not giving up on growth at all. We are not saying there is going to be some super dramatic slowdown at all. It’s just (that) this year has been a lot more about identifying the pockets where we would like to grow,” she said.
It must be noted that the degrowth was not seen only in Nykaa’s fashion business. While the beauty and personal care (BPC) segment continued to drive the business, its GMV of INR 1,628.9 Cr in Q4 was a sharp decline from INR 1,901.4 Cr in Q3. In this case, the seasonality factor could have played a role given the previous December quarter had a lot of festivals like Diwali and Christmas.
Meanwhile, Nykaa expects its investment in private label business in the fashion vertical to bear fruits and sees it achieving breakeven next year. Falguni Nayar also claimed that the fashion business can achieve breakeven anytime now if not for the marketing costs associated with acquiring new customers.
However, she said that the company would continue to spend on marketing to expand its customer base for the fashion vertical.
Can Nykaa Bring Down Its Expenses?
Nykaa total expenses stood at INR 1,302.8 Cr in Q4 FY23, a jump of 33% YoY but a decline of 10.5% sequentially. Marketing and advertising expenses across BPC, fashion, and other verticals stood at INR 139.3 Cr, with fashion contributing INR 50.7 Cr to the total marketing expenses in the quarter.
Besides marketing and advertising expenses, which had a big share in Nykaa’s total expenses in Q4, Falguni Nayar admitted that “there was some amount of lack of focus on employee and other expenses”.
Nykaa’s employee benefit expenses jumped 40% YoY to INR 127.3 Cr in Q4 FY23 while witnessing a marginal decline sequentially. The startup’s total headcount, including its core employees and retail and sales employees, stood at 3,177 by the end of FY23 as against 2,764 in FY22.
Nykaa said that the rise in its employee benefit expenses was driven by the increase in retail and sales employees as it rolled out new stores. However, Falguni Nayar said that the company has now become cautious on this front and is looking to bring down the cost while also being prudent and cautious about new store rollouts.
Nykaa ended FY23 with 145 BPC physical stores in over 60 cities. The company plans to add a maximum of 50 physical stores in FY24.
Overall, Nykaa’s net profit nosedived about 70% YoY and 73% QoQ to INR 2.3 Cr in Q4 FY23.
