A little over a decade ago, Nykaa disrupted the beauty space, creating a specialised platform in a segment where none existed. Investors rewarded the startup, founded by former investment banker Falguni Nayar, helping it list at an 80% premium to its issue price in 2021. It remained the top pick among startups over the next few years as the market remained largely devoid of deep-pocketed players.
But that glow is fading now, with competition catching up fast.
Reliance Retail’s Tira has raised the competitive heat in the last one year within the $19-20 billion beauty and personal care (BPC) market in India, and so have players such as Tata Cliq Palette, Myntra and Shoppers Stop. Bengaluru-based Redseer Strategy Consultants estimates that the BPC market in India will touch $30 billion by 2027, making up about 5% of the global opportunity as Indian consumers aspire to look and feel good with organised beauty products, both national and international.
Online and offline retailers have wasted no time in seizing the opportunity. Myntra, in particular, has been on a tear tying up with more than 50 international brands within the beauty space in the last one year.
Shoppers Stop subsidiary SS Beauty Brands has stepped up its beauty play, onboarding global make-up brand Nars Cosmetics from Shiseido, skin care brand Fre, and make-up lines from Prada, Valentino and Bath & Body Works, an American fragrance brand, among others, over the last few months.
Tata Cliq Palette, which recently opened its first store in Navi Mumbai, has a curation of over 1,000 global and homegrown brands across makeup, skincare, haircare, fragrance, tools, and accessories, industry executives said. And Reliance’s Tira has had a similar number of brand tie-ups (around 800-1,000 brands) across online and offline (it has 12 stores so far in cities such as Mumbai, Pune, Delhi and Bengaluru). And is looking at more store launches in the future.
So, where does that leave Nykaa, the original online-to-offline or omnichannel specialty retailer?
“The differentiating factor with Nykaa has diminished with more competitors stepping into the beauty category doing the same thing,” says Arvind Singhal, chairman of Gurugram-based Technopak Advisors, a retail and management consultancy. “Finding that next disruptor to upend the market may also not be easy for Nykaa as it may require sustained investment in a competitive market,” he says.
At its Investor Day last week, Nayar, Nykaa’s founder and CEO, said the retailer was looking to scale up its fashion, beauty and consumer businesses over the next three years while increasing its presence in foreign markets such as the Gulf region.
“Looking ahead, the beauty business’s ambition is to grow at a compounded annual growth rate (CAGR) of mid-to-late 20s till FY28,” Nayar said. “While Nykaa Fashion aims to grow to 2.5-3x over the next three years, aspiring to become Ebitda positive in the near future,” she added.
Analysts such as Latika Chopra of JP Morgan say achieving this pace of growth will require higher investment. “The pace of new customer acquisitions will have to accelerate and faster offline scale up will be key monitorables,” she said in a report on Nykaa on Thursday.
Financial numbers
Nykaa’s financial numbers have been a mixed bag. It remains a rare startup that is profitable. Yet, investors have had lofty expectations on both the profit and margin fronts over the last few quarters as it struggles to maintain its double-digit pace of growth and ensure costs are in check.
Consider this: The recent fourth-quarter profit (for FY24) of FSN E-Commerce Ventures, the parent company of Nykaa, rose 187.6% year-on-year to nearly Rs 7 crore, but missed analysts’ estimates by a wide margin, which had forecast Rs 13 crore for the period.
Revenue rose 28.1% year-on-year to Rs 1,668 crore in Q4, thanks to a sales uptick in its beauty division, which contributes around 83% to Nykaa’s quarterly topline. The rest comes from the fashion segment (contributing 8%) and eB2B, a wholesale business for retailers called Nykaa SuperStore, bucketed under ‘Others’, contributing 9%.
In Q4, the fashion segment generated only Rs 133 crore in revenue. Nykaa SuperStore generated Rs 146 crore in turnover during the period and shows promise as nearly 200,000 retailers transact on the platform across 1,000 cities, according to global brokerage Jefferies, as Nykaa expands its distribution and reach. But margins are likely to be dilutive in the medium term.