After building their brands through apps, websites, and e-marketplaces, many D2C brands are now opening physical stores to accelerate the next phase of growth. SUGAR Cosmetics, which intends to double its revenue in fiscal 2023, has a similar growth plan and hopes to ramp up its presence across 100,000 retail stores during that period.Vineeta Singh, co-founder and CEO, SUGAR Cosmetics, tells Akanksha Nagar about ways to build profitable brands as D2C funding begins to dry up. Edited excerpts:
Tell us how the firm is going about ramping up its offline presence.
In our most recent Series D round, we raised $50 million primarily to expand distribution. Currently available in over 40,000-45,000 retail outlets, we want to be present in about 100,000 retail stores (mainly in smaller cities) over the next 12 months and plan to open about 250 of our own exclusive stores by the end of FY24. The split of revenue between offline and online is currently 50:50, and we anticipate that during the coming fiscal, 60% of the revenue will come from offline, where there are still plenty of opportunities for greenfield expansion.
We intend to double our revenue this fiscal and reach annualised sales of Rs 1,000 crore in the next 12 months. By FY24, tier-II and III cities will account for roughly 60–65% of our revenue. We are experimenting a lot with cutting-edge technology — for instance, an AR filter that allows one to try out lipstick. The company tracks the consumption of every single consumer and tries to ensure that each consumer’s app experience is based on his/her consumption behaviour. We have a large in-house tech team of about 45 people.
The thing is, there are just too many D2C players in the cosmetics and beauty space today.
What sets you apart from competition?
The company has spent a long time building the brand; while a lot of consumers shop offline, 90% of them discover SUGAR online. We have a community of over 2.4 million followers on Instagram and about 600,000 on YouTube. These two platforms are the main destinations where women go for cosmetic tutorials and fashion inspiration as makeup is still one of those categories for Indian women where they are hesitant and unsure about how to use them. More than advertisements, what works better in this category is either influencer or educational content. Our goal is to equip the consumer with appropriate knowledge and build a relationship that is hard to replicate by other brands.
Women make up 99% of our customer base and we have no intention of entering any category for men. We have about 500 SKUs and we keep launching at least one product every month. While our focus has been colour cosmetics, at present, 10% of our revenue comes from skincare and we aim to take that to 20% this year.
How do you see the overall beauty market evolving this year?
What happened over the last two-three years is that D2C became a very hot sector for venture capitalists and suddenly there was a lot of money because digital consumption was at its peak during Covid and it was easier for brands to scale. A disproportionate amount of money has been invested in the beauty industry, which is beneficial for raising awareness but has led to businesses investing a lot of money in performance marketing. But now the market has gone back to being what it was before Covid, and although internet penetration has increased overall, it’s not as easy to scale brands. Brand building is always about creating your own niche and therefore, brands that did not do that will struggle a bit and there will be acquisitions. I see brands are already facing capital/fundraising challenges and are really figuring out how to build the business profitably.
Would the current supply chain and logistics-related challenges persist?
Over a period of time, we all have to figure out a way to do everything in India to tackle the supply chain challenges, and we must lessen our reliance on China from the standpoint of sourcing our raw materials and packaging materials. As a company, we have moved a significant part of our manufacturing to India but there are still some categories that require highly sophisticated technology, so we still manufacture them in Korea or Italy and are attempting to find ways to relocate those to India. SUGAR has made price hikes on certain SKUs but we are not really increasing our prices too much. There is not much pressure currently to drastically raise prices for companies like ours that operate primarily with a 70% gross margin. Before passing it on to the consumer, we can afford to absorb a large portion of it as our volumes and growth continue to grow.
