Nykaa And The Art Of Retailing: Revolutionising The Online Beauty Industry With 10K Orders A Day

“I consider myself a third-generation ecommerce entrepreneur,” begins Falguni Nayar, founder, Nykaa, an online beauty products marketplace. Falguni had previously served as MD of Kotak Mahindra Bank, working on the IPO deals of client entities such as Adani, UTV, etc. The logic behind the statement is that the first wave of ecommerce startups began with Flipkart, which completes 10 years this year. The second entrepreneurial wave caught fire with businesses in semi-niche verticals – Lenskart, Lendingkart among others, while startups in pure play niche verticals come under the third wave.

The French designer Yves Saint Laurent nailed it when he said, “The most beautiful makeup of a woman is passion. But cosmetics are easier to buy” – especially keeping in mind the ever-present, ever-helpful ecommerce trend of putting everything a consumer needs online and giving it to them with hefty discounts. Online beauty marketplaces, a relatively new and untried trend (unlike the more popular food tech startups or hyperlocal grocery) are a strange breed.

Mumbai-based, multi-brand platform Nykaa, launched in July 2012 by Falguni, is one of the forerunners in the online beauty products breed. It looks to provide a human connect and a trustworthy experience online because beauty etailing works on a couple of assumptions.

For one, beauty is subjective. It does lie in the eye or, eye shadow, of the beholder and wearer.

For another, how does one translate the visual, tactile thrill of walking into a retail outlet, browsing through dozens of lip glosses, trying them on the hand and having a patient salesperson explain the benefits/disadvantages of each of them, while you made up your mind? Beauty, not unlike grocery or foodtech, books or electronics, requires a personal touch.

Coming in an as-yet unexplored vertical, the online and offline beauty products store has managed to raise a total of $15.8 Mn (INR 102 Cr) in funding from investors over three rounds till date.

The gross merchandising volume for the year ending March 2017 touched $43.3 Mn (INR 280 Cr), with an average of 10,000 orders per day across all the platforms (online and offline). The company even claims to achieve EBITDA breakeven by September 17. They are now expanding offline with the opening of four stores across Mumbai, Delhi and Pune.

With ecommerce being a volume game and the majority of players figuring out means to cut down losses and grow it becomes imperative to look for ways to mould the business strategy which could be scalable yet profitable. In doing so, Nykaa has come a long way and has led the way for the creation of an online beauty brand – from genesis to its current O2O model of operations.

Launching At The Right Time: The Nykaa Story

Falguni informs me that at the time of launching Nykaa, there existed only a couple of companies in the online beauty segment which included Urbantouch and Purplle.com (which also launched in 2012). Urbantouch got acquired by a fashion retailer FashionandYou in 2012 and was shut down in March 2013.

“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, with only Sephora providing a true, multi-brand experience.” The Sephora experience is one in which the customer is queen or king and beauty solutions are provided to help the customer overcome their issues – be it picking a daytime fragrance or a party-wear lip gloss. “We wanted to build this Sephora for Indians online.”

2012: The Year Of Learnings And Challenges For Nykaa

While the business formally began in April 2012, the website was launched in December 2012 and the first few months were spent in tweaking the website – understanding and overcoming the challenges of running an online ecommerce business.

“Decoding the tech and optimising our website was the biggest challenge we faced when we first launched. Everything from speed, to a cleaner UI/UX design to clearing cache, was an issue.” When prompted, Falguni explains that since theirs was mainly an image-heavy website, small pain points such as clearing cache to improve loading times played an important part in conversion.

As per Falguni, with a bare minimum of Google marketing done by the team, they were dealing with 10 orders a day. This number went up to 60 orders a day in August 2013.

One would think that it’s totally a new player, the most challenging task for Nykaa would have been to bring big brands on board, but surprisingly, Falguni discloses that it was never a problem for them. Marquee brands such as an HUL, P&G and L’Oreal Paris became part of the platform in the first few months itself.

 “We positioned ourselves as an inventory-like model that was focussed on giving the best possible customer experience instead of an ecommerce marketplace. We control the quality and customise this experience, which led them to trust us.” But she does add that the truly luxury brands don’t like to sit next to daily brands, such as a Dove, Lux etc. next to a Clinique or a M.A.C. “The trick is to convince these brands that the future luxury consumer is today’s ordinary brand user. We just have to educate them and get them early.”

To this end, the company now boasts of two warehouses – one in Delhi of 50,000 sq. ft. and another one in Bengaluru for 15,000 sq. ft.

Nykaa And The Art Of Retailing

Ecommerce is a unit-intensive model and requires massive customer acquisition to offset spending costs. For instance, from only 100 orders a day in October 2013 and an average ticket size of INR 300-400, the company now boasts of 10,000 orders per day and an average ticket size of INR 1300, as per Falguni.

For Falguni this consistently upward growth is credited to ‘The Art of Retailing.’ She adds, “To buy beauty online, one needs advice. What to buy, how to buy it and how to wear it once you buy it. When you walk into a Sephora, they walk you through a range of ideas and solutions – that is what we focussed on.”

They did this through a number of channels and mediums. The Beauty Book –  the first stop for one of Nykaa’s core target audience – the 22-35 age group who wanted advice on how to wear makeup and were tech-savvy on all social media channels.

At first, they focussed on amassing content through blogging and sponsored posts that were basically product reviews, customer advice and more. They also experimented with multi-brand videos and pictures, at first outsourcing the content to produce makeup tutorials, how-to vlogs with anecdotal and experiential value.

The Art of Retailing also encompassed having extremely clear communication with the customers, through transparency, and engaging customers with the right mix of discounts and quality products. On the marketing front, they refined their strategy and at the moment, 75%-80% of their customers are organically acquired. Falguni also discloses that the Nykaa platform receives about 12 Mn unique visitors per month at the moment.

On Private Labels, Branching Into Offline

Ecommerce businesses such as Flipkart and Amazon have taken the next step toward creating their own private labels. Flipkart has even seen the shutdown of a few. Like them, niche players have a decided affinity towards creating their own labels. Purplle, one of the closest competitors of Nykaa has StayQuirky, which it acquired recently, while the team launched the private label ‘Nykaa’ in 2015.

Nykaa’s first private label was a range of 30 nail polishes in pastels, pop and shimmer shades that have now expanded to 200 with an introductory price of INR 149. A few months later, they introduced the rest of the women’s beauty range i.e. bath and beauty products, lipsticks and compact. When asked, Falguni declined to reveal the volume business done by the private label.

For any retail brand, the ultimate destination is to have a physical manifestation of the brand, space where customers can come in, browse and make purchase decisions based on their prior relationship with the brand. Based on this philosophy, 2016 and 2017 for the beauty marketplace were all about manifesting Nykaa in the offline space.

“The idea is to offer a seamless experience – to be part of the beauty of the beauty journey of our customer, wherever they are. Online or offline. The omnichannel experience needs to be tailored for the beauty consumer and that is what the Nykaa store is about,” she says. The price points differ, with MRP remaining the same and no hefty discounts but, that, Falguni reveals is the price of doing business.

There is also the number of customers i.e. 300-400 per day (if one is optimistic) versus the thousands that log in online every day. “Store shoppers are trial customers – it’s all about the touch and feels with them. And the buying experience is very different.” With four stores in India spread across Bengaluru, Delhi, Pune, and Mumbai, the company has ambitious plans to take the Nykaa online experience to 30 stores by 2021 March.

The Marketplace Perspective: Facts And Figures

Nykaa boasts of a total of 40,000 SKUs (stock keeping unit). While makeup counts for about 50% of the sales, skincare makes up 24%-25%, hair care takes about 18% of the share and the rest of the sales revenue is derived from bath products, perfumes, beauty appliances etc.

Falguni makes special mention of men-centric products, such as shaving and grooming essentials contributing 7%. Another interesting nugget is that the herbal category products have a higher cart percentage (~7%) on unit sales while the sale value is lower.

On average, the ticket items begin from a small nail polish remover at INR 50 and go up to hair and beauty appliances which cost anywhere between INR 20K-INR 25K. But, the threshold of purchasing happens between INR 5K-INR7K. Falguni also informs me that, at present, the ecommerce conversion rate (across web and mobile) is 2%-2.5%.

Through constant iterations, small changes such as figuring out the categories (global versus herbal with both appearing in skin/hair) and not cluttering the site with too many SKUs were gradually instated, till the customer had no trouble understanding the website.

Nykaa faces immense competition from players such as Purplle.com, Amazon, Flipkart, as well as the digital platforms of all the brands who are present on the Nykaa platform. In this space, internationally, names such as Vaniday, StyleSeat and peer-to-peer beauty marketplace Dotfully as well as Spanish/Latin American Moira have received funding. Diving deeper into the different verticals, it can also be extrapolated that when it comes to men’s grooming (a separate industry in its own right) startups such as The Man Company, MCaffeine, Elitify, Beardo (in which Marico acquired a 45% stake) are contending for market share with Nykaa.

The above-mentioned numbers breakdown points towards a few things the business model is banking on. “Our simple and easy-to-navigate UI/UX is a large factor. And we keep monitoring user data to improve the customer experience, but it is the added advantage of marrying the data with the ‘art of retailing’ that has really helped us build,” she admits.

Another future plan for the company is to introduce the customers to newer international brands from Israel, Korea and Paris for a truly global beauty experience. “The idea is to showcase the best of what the world has to offer for Indian consumers. I don’t believe in neighbourhood stores like a CVS (chemist chain in the US) or a Health and Glow in India. I believe in destination stores (online and offline) is where a customer will find everything.”

Perhaps, it is this notion of engaging the customer through discoverability and educating them on how to make the right purchase decisions that have allowed Nykaa to retain as near a pole position as is possible in a market that is yet to come to maturity.

In Conclusion

The company has some serious plans to expand their private label as well as take the brand offline, in order to pique the interest of the average Indian beauty consumer. Private labels need to address both a market need as well as come with an experiential guarantee, wherein the users trust not just the website but the brand too. And, then again, with spreading oneself too thin comes the danger of losing out on core message and brand value.

But, as Falguni says, beauty ecommerce is still a sunrise industry, still to attain peak intensity with a $13 Bn potential according to KPMG – both in terms of user behaviour, market consolidation, and investor confidence. This user behaviour is already changing to include digital purchasing as a regular routine, according to this report by ET, where 100 Mn consumers will shop online by 2017 (mostly in the age group of 18 and above), the Nykaa target audience.

For Nykaa and Falguni, who are gunning for an IPO by next year, it would pay to approach the next steps in conquering their chosen vertical i.e. beauty products step by step – just like learning the beauty basics pays for fashion experts.

Correction June 1, 2017: We are having discrepencies in data regarding the current average ticket size. We are awaiting clarification and will update the same.