Inc42 UpNext: Nykaa’s Secret Sauce For Building A Brand Synonymous To Beauty In India

To celebrate India’s rising startups, Inc42 is profiling a new soonicorn every Friday in the Inc42 UpNext: Unicorns Of Tomorrow series. For the next few months, we will be speaking to founders and cofounders at these potential unicorns and shining light on their journeys and growth stories. This week, we are featuring the beauty ecommerce startup Nykaa.

Which beauty brand do fashion designer Masaba Gupta, Bollywood actress Katrina Kaif, and supermodel Gigi Hadid (of Victoria’s Secret fame) turn to in India? Forget the big cosmetic brands that are probably shuffling through the mind’s eye — it’s actually Nykaa.

Nykaa needs little introduction in the Indian context. Nearly everyone who has shopped online is familiar with the brand. And it’s become synonymous with beauty shopping in the country. 

Claiming a 75% retention rate today and with over 1000 brand collaborations, the seven-year old startup is not only the premier destination for beauty and wellness products in India, but it’s also managed to enter the ultra-competitive, long-tail retail space. 

When Nykaa launched in 2012, the online beauty space had a couple of players such as Urbantouch and Purplle. Urbantouch was shuttered in March 2013 after being acquired by FashionAndYou. And while Purplle is still around Nykaa has a much higher brand recall in the beauty vertical. 

Speaking to Inc42 in 2017, founder Falguni Nayar said, “The goal was always to start in a sunrise industry, nascent and ready for a market leader. The beauty industry in India has always been fragmented, be it online or offline.”

While it has made its name online, Nykaa is looking to break through into the coveted ecommerce unicorn club with its strategy for the offline market. But how did the company get there and how is it charting a course for the next level? 

For CEO (retail) Anchit Nayar, the strong customer trust and brand recall are Nykaa’s biggest strengths. Anchit, son of Nykaa founder Falguni Nayar, has been leading the company’s omnichannel efforts. 

He told Inc42 that the Nykaa’s inventory-led business model allows it to ensure authenticity of products and competitive pricing. The other factor he said is the company’s ability to create a connect with its customers through relatable social media content. 

“This is different from Kareena Kapoor selling kajal or Aishwarya Rai promoting a shampoo, these are 23-25 years old girls who look and talk like the customer instead of speaking from a pedestal.”

Nykaa stands out from other ecommerce players because of its inventory model. Products are bought from brands and distributors, and then sold directly to the customers. Unlike a marketplace model, where third party sellers list products, Nykaa has a stronger hold on what it sells, which arrests counterfeit products from making it to the platform. 

Like Nayar said, content is also one of Nykaa’s strengths, and by this he was hinting at the digital content on social media and YouTube. Nykaa runs these channels through an in-house team of around 20 girls called the Nykaa Army. Essentially, these are beauty enthusiasts and help add the relatable, girl-next-door vibe which Nykaa’s customers have lapped up — Nykaa has a social media following of over 5 Mn users. 

These factors couple along with the company’s 150-strong customer service team and a delivery network across 70K pincodes in India, have built Nykaa’s brand reputation, Nayar said. And the next step is to replicate this trust in the offline market. 

Nykaa: Living In An Omnichannel World

This month, Nykaa announced the opening of its 55th offline store in Raipur, Chattisgarh. Since the launch of Nykaa’s first offline store in Delhi, the company has expanded its presence to over 20 Indian cities including Bengaluru, Jalandhar, Ludhiana, and Bhubaneswar among others.

“We have taken the call to be an omnichannel retailer because beauty is a category where physical trial is critical. We realised that if we want to sell premium products or even affordable products in categories like blush and foundations, colour matching is very important. So we realised that in order to give our customers a really holistic beauty experience, we had to build a physical retail distribution,” said Nayar.

Nykaa has stores in three formats — Luxe, On Trend and Kiosks. While Nykaa On Trend products are limited to trending and fashionable brands, Nykaa Luxe stores feature more premium and luxury brands such as Estee Lauder, Dior, Huda Beauty, and M.A.C Cosmetics among others. Besides women beauty, Nykaa also has a range of grooming products for men on the Nykaa Man website and app and an online community for beauty enthusiasts Nykaa Network. 

The main difference in the offline retail experience and the ecommerce channel is the products that are stocked. While Nykaa.com can easily list hundreds of thousands of products, the stores get a curated selection of 40-50 brands especially chosen for the location, city and outlet. These also include brands that Nykaa believes customers will want to try before buying.

Given this smaller selection and the fact that Nykaa is primarily an online brand, the split between online and offline orders is skewed towards the former. Ecommerce accounts for 85% of the business, but that doesn’t tell you the whole story. Nayar said when compared on the basis of brands that are available both online and offline, the revenue share is split down the middle at 50%. That’s an encouraging sign for Nykaa as it expands its retail footprint. 

But offline retail is not just about experiencing products — Nayar said the stores help customers discover new brands and also consult the in-store beauty advisors. Another insight that Nykaa drew is that for products that require application training the first time or for brands or SKUs that are new to the market, customers usually make the first purchase offline and later replenish the product via online orders.  

“That’s the power of an omnichannel business. Customers can buy something from our store and then they don’t have to come back to buy it again. We are giving them the convenience and choice to buy from wherever they want,” he added. 

 

The Future Of Nykaa: Competing With Giants

Nayar claimed that none of Nykaa’s competitors currently match this omnichannel experience in the beauty space. But there is definitely competition brewing in the horizon. 

Flipkart-owned Myntra too has been investing towards an omnichannel model and was reported to be planning multi-brand beauty products stores in Bengaluru.

Global ecommerce giant, Amazon had also hinted towards a potential omnichannel play, with its recent acquisition of a 49% stake in Kishore Biyani’s Future Coupons, the promoter entity of India’s second-largest retail chain Future Retail. Further, Mukesh Ambani-led Reliance Jio also announced the pilot launch of its omnichannel and hybrid ecommerce venture. 

In the online space, Nykaa has a new competitor in the form of Grofers-backed Orange Something, which is controlling manufacturing of beauty products and selling directly to consumers. But Nykaa has one key advantage. 

Nayar said that the company has reached the breakeven point and is able to fund its expansion plans through the cash flow generated from the existing business itself.

Nykaa has raised a total of $93.02 Mn in funding from investors such as TVS Capital Funds, TPG Growth, and Lighthouse India among others. That’s a relatively small funding amount for a company that’s on track to become a unicorn.

Grossing INR 1229 Cr in FY19, Nykaa aims to continue investing in the omnichannel business and has plans to open up to 100 stores in the next two to three years. New cities being targeted under these expansions include less popular locations such as Jammu and Bareilly among other Tier 3 and 4 cities. Is that a risk and is Nykaa expanding too quickly?  

“We have 16 Mn visitors on our website, visiting 55 Mn times a month. So there’s not really a risk for us here, because we already know which cities have more density of our customers,” he added. 

Beauty And The Tech

But beyond beauty, Nykaa is stepping into a bigger vertical — fashion. Nayar called Nykaa Fashion a natural progression of the Nykaa brand. Today, it has over 350 Indian and international brands across highstreet, designer labels and accessories. “Fashion is a much bigger market than cosmetics. For every single woman who buys a beauty product online, there are ten who buy fashion products,” he added. 

Fashion, however, is not the major focus for the company. According to Nayar, fashion is definitely a part of the Nykaa’s future plans but the company will do it in a sustainable way and if works great, company will keep building it or otherwise take a call on it.  

“We want to move away from the discounted product selling point of ecommerce platforms and instead bring women very fashionable and stylish clothing at a reasonable price. So it’s not going to be about filter by price, or filter by discounts but ‘filter by style’.”

Responding to moves such as Reliance’s plans to add virtual reality and augmented reality solutions in stores, Nayar said that Nykaa is primarily a tech company and everything it does have to be at the cutting edge of technology. He said customers can expect a few changes to the website and the app in the next couple of months. At the moment, it’s working to find the right partner who can add value to customers through such technology. 

“We are talking to some partners about AR/VR tools. But we are very focussed that it’s all about the customer and not about ourselves. Retailer just use it because they want to say ‘Look, we are using it.’  We have seen a lot of gimmicky AR/VR tools out there which don’t really help the customers, it doesn’t really add value.”

Correction Note | 14.53, November 15, 2019

• Nykaa’s revenue has been corrected to INR 1229 Cr from the earlier INR 1220 Cr, as per the company’s request.
• Some sections of this article have been edited post-publishing to fix typographical errors and improve clarity of language.