Have you ever heard of the Lipstick effect? This is what we also faced during the pandemic last year. It means that during recessions, economic downturns, or when consumers have very little cash in hand, they continue and sometimes increase to spend their money on low-budget luxuries. For instance, during covid, people found solace in their personal care leading to the boost of the skincare and beauty industry.
The direct beneficiary of this pandemic-induced demand surge were the beauty and personal care industry companies, and who better than one of India’s leading beauty manufacturers, Nykaa? The company is the largest omnichannel beauty destination in India.
Though it’s not just the industry growth that led to such triumph, its strategic agility also played a major role behind this success, so much so that it managed to raise funds and has turned into a Unicorn! As of June 2021, this online marketplace had over 1.5 million monthly orders and over 15 million registered members.
Nykaa’s Inception Story
It was started in 2012 by Falguni Nayar and is headquartered in Mumbai. She entered the market to remove the irregularities in the beauty industry. Despite high demand, the industry was not up to the mark. Her expertise in Investment banking has made her value the sustainability of the business.
Despite being a capital-intensive industry, she decided to raise and accommodate funds accordingly. The company has pioneered in providing a one place shopping experience for all domestic brands, international brands, luxury & prestige brands, premium brands, niche, and cult brands.
Business Model of Nykaa
Its business model revolves mainly around inventory management as the company purchases the products directly from brands or distributors and then provides them to the customers on its platform.
Thinking about how it is different from marketplace models like that of Amazon or Flipkart?
Well in the latter, products are listed by third-party sellers for the customers to make a purchase, which is not the case of Nykaa. This helps Nykaa to secure its customers from any fraudulent sellers and maintain the authenticity of the platform.
Apart from this, exclusive collaborations with big brands in beauty and fashion, the creation of private labels across categories, and having a physical presence have all helped it stand out in a competitive e-commerce industry where buyers are generally vendor-sceptic and looking for the best deal.
Furthermore, the company’s offline stores are present in 3 formats - On Trend, Luxe, and Kiosks. On Trend & Luxe deals with trending and fashionable brand products. While Kiosk is specifically for featuring premium and luxury brands including Dior, MAC, Huda Beauty, Estee Lauder, and many more prestigious brands.
Further, in order to interact with beauty enthusiasts, the company formed an online platform - Nykaa Network. This helps them connect better with the customers and provide them with a unique experience.
Apart from Amazon and Flipkart, purple.com is a direct competitor of Nykaa. Purple is one of the companies present in the online retailer business in the same segment.
Nykaa’s Marketing Strategy
The main element is to promote brands and products via multiple channels, websites, and blog pages. It pitches the products digitally to reach customers in all regions of the country. To directly reach the right audience, the company also collaborated with Femina to conduct Femina Miss India over the last few years.
Another key to its success is its ability to create relevant, engaging, and relatable content for its audience. The focus is to connect with beauty enthusiasts through their YouTube and Instagram handles. The company's ability to establish itself as a legitimate voice in beauty and, increasingly, fashion talks through social media platforms.
How is Nykaa operating now?
This India-based startup originally began as the sole e-commerce platform. Since then, the company is continuously expanding its operations.
It started with the online operations but then diversified into offline stores as well. Currently, the company has 76 brick-and-mortar stores. Earlier, it was only operating in the women segment. But in 2019, it entered into the men segment by launching Nykaa Men. As of now, the company has 300+ brands in its catalogue under the women, men, and kidswear section.
The shift from online to hybrid mode has had a significant impact on how the brand is currently regarded by its audience, as well as allowing the brand to reach out to a previously untapped demographic. It showcases its efforts to involve all ranges of consumers.
The company was fast enough to take the action of being in the business of offering essential personal care products to a large customer base. Overnight they shifted from hybrid mode to a pure-play online mode. The 70+ offline stores were to do hyperlocal delivery across the country. To meet the increased demand, they also launched a category focusing on hand sanitisers, PPE Kit, thermometers, and other essential hygiene products.
During the pandemic itself, in mid-June, the company was able to again reach its 93 percent business volume.
It is further being stated by the company that they are penetrating into the home necessities and travel care segment as well to broaden their product horizon. Under its fashion label, the company also entered into the intimate wear segment under the brand name Nykaa.
Funding and Financials
Raising INR 166 crores from the Steadview capital, Nykaa got ventured into a unicorn after 8 years of its initiation at a valuation of INR 9100 crores. Apart from this, last October another famous Bollywood star Alia Bhatt also invested a certain amount in the company through a secondary route, just a few days after Katrina Kaif. Apart from this, its investors’ list includes Lighthouse funds, TPG Growth, and others.
It is being said by the company that its valuation has increased by more than 60 times in the last 8 years. Talking about its growth rate, the company’s revenue from operations for FY 2021 was at Rs 2,440.89 crore, which grew 38.10 per cent from FY2020. FY21 was the first profitable year since its inception. Its average order value took a jump of around 35% to INR 1900 in the last year.
The company is planning to expand further in the offline mode through its brick-and-mortar stores. It is planning to open 180+ stores by 2024. This will help the company to boost its sales and revenue. Apart from this, the company is launching an IPO soon, which could take its valuation to 4 billion dollars. It will be the first company in the online beauty marketplace to launch an IPO. Besides, the company is also planning to achieve profitability before going public.
We could say that Nykaa has become the amazon of the beauty industry. This platform has been instrumental in dispelling the misconception that e-commerce and beauty retail does not work well in India. Due to a continuous rise in sales and the profitability of the company, its plan to launch the IPO has been preponed.
Do you think Nykaa has the potential to disrupt the beauty industry? Also, what’s your take on the upcoming Nykaa’s IPO? Tell us in the comments below.