Beauty & Fashion are an inseparable part of modern lifestyle, especially among the youth population and whenever it comes to beauty, wellness, and fashion luxuries, it is impossible to be unheard of Nykaa! Nykaa is the largest beauty retail unicorn start-up that was founded in the year 2012 and has since then revolutionized the beauty and wellness industry making it more accessible and affordable for women inspiring them to celebrate themselves.
Within some time, it has managed not only to redefine the art of e-beauty and personal care for the Indian masses but has also nurtured the growth of a budding ecosystem by bringing an appetite and appreciation for beauty & wellness. Be it any domestic and international brands, premium luxury brands, niche & cult brands, or to create awareness through expert videos in line with the needs and customer preferences, the start-up has managed to do it all.
Currently, this e-commerce giant operates through its e-commerce platform (online website and mobile apps and) around 80 physical stores across the nation with more than 2400 brands and more than 2lakhs of products listed on the platform with more than 5 million monthly active users, Though the start-up achieved its unicorn status in as early as Oct 2020, the ‘Lipstick effect’ of the year 2021, helped it to reaffirm its strong position in the Indian retail market.
What led to the inception of the biggest beauty retail giant in India?
Albert Einstein once famously once said, “There is always an opportunity in the adversity”. Before the inception of the Nykaa, there were several inconsistencies in the Indian beauty & wellness market and with the market being dominated by limited players like Lakme (Hindustan Unilever Ltd.) and Maybelline, etc, while others preferred to import products from countries like Japan, Korea, and France.
Mrs. Falguni Nayar, an IIM Ahmadabad Alumni was enjoying a successful 19-year long career as an investment banker with the Kotak Mahindra Capital Company, a leading investment co.) This also allowed her to meet a lot of passionate entrepreneurs who were passionate about their work, despite being rejected, they were full of energy and did fairly well as a start-up with time. Thus, there was always an utter desire to create something of her own in the backseat of her mind which she did at the age of 49.
Early on in her research, she found that “Though the beauty market was booming in the international market, Indian market was largely unexplored that gave her the initial impetus to start her journey. Before 2012, there was a dearth of accessible and quality brands that could be trusted and purchased confidently by consumers, and the idea of e-commerce beauty stores seemed impossible.
Thus, “Nykaa” was started under the parent company FSN E-Commerce Ventures Ltd. offering quality and affordable luxuries to, especially women that initially started as an online corporation but later on switched to an Omni-channel strategy. It also acquired the fashion brands twenty dresses (a private women’s platform), jewelry brand Pippa belly, and Dot &Key, a skincare brand, and launched an affordable quality women intimate wear “Nykd” with brand ambassadors like Katrina Kaif and Jahnvi Kapoor and other social media influencers.
People Behind Nykaa- Founder & the Team
When it comes to entrepreneurship, Falguni Nayar just proved that “Age is just a number and only your passion towards your dream matters”. Thus, Nykaa came into being under the parent company FSN E-Commerce ventures Ltd, intending to create a business that is not only profitable but also sustainable in the long –term. In its literal meaning, Nykaa is derived from the Sanskrit word “Naayika” which means “the actress in the spot-light”, which broadly means “every woman should be celebrated” and Nykaa intends to be a constant companion of every woman in her journey. Therefore, the tagline says “Your beauty, our passion”!
Falguni Nayar has built her credibility and name through her hard work and has been conferred with various accolades including the FICCI Ladies Organization (FLO) award for the top woman achiever in the banking profession and the Business Today award that made her “name in the list of 25 women in business”. Further, her name is listed on the board of various companies like Aviva Insurance, Dabur India, apart from serving as an Independent Member on the Tata Motors Board. Her passion for work, attention to every aspect of business, and dedication are the qualities that make her a true leader.
Therefore, the start-up was funded initially by Mrs. Falguni Nayar and her husband Mr. Sanjay Nayar, who is a banker and chairman of KKR Capital, daughter Adwaita Nayar and son Anchit Nayar who are involved in different business activities. According to Falguni, “Retail Business is all about detail”, is something she has always sworn by since the beginning. Now, the parent company, FSN E-Commerce Ventures, is the country’s first woman-led unicorn to hit the stock exchange and has even crossed the market cap above Coal India Ltd. and Godrej Ltd and has made her one of the wealthiest self-made billionaire women in India with a net worth around 7.48 billion in total.
Nykaa Business model
Undoubtedly, the Indian Cosmetics market has huge potential to grow at the valuation of $1.3 Billion in FY2020 and is further estimated to grow at a double-digit CAGR of 16.39% through FY2026 to reach $2.89 Billion. Unique Selling Proposition- As the penetration of the online beauty and wellness market was as low as 8% before, there were huge business opportunities for Nykaa to grow. Nykaa is a D2c consumer e-commerce business and has an inventory-based model as its base and ran on bootstrapping in the initial years. The business model primarily included entering tie-ups with various brands and inventory management by which whenever a customer punches an order, it will purchase directly from the concerned brand and deliver it to the customer directly which will maintain the quality and authenticity of the products and will curb fraudulent products, which is unlike in the case of other e-commerce brands like Amazon or Flipkart, and this fact accounts for the unique selling proposition of Nykaa, as a brand.
⦁ Vision & Mission- Nykaa’s vision rests on three elements-curation, information, and personalization. It believes in offering the best to its customers through a variety of affordable choices and helping them to make the right choice for themselves. It especially targets women’s audience and therefore brand color was very carefully selected to reflect a modern girl’s flaws and vibrancy.
⦁ Omni-channel Presence- At the beginning itself, Falguni Nayar knew that the task of making people believe in the luxury of online beauty & fashion would be challenging as it would mean no facility for “trying before buying”. Thus, she planned out and started physical Nykaa stores, having personal Nykaa beauty products, which helped it to gain consumer trust and loyalty and set it apart from its competitors. The physical stores are present in the following formats- On Trend, Luxe, and Kiosks. While the on-trend and Luxe stores deal in trending and fashionable brands and their affordable products, kiosks offer beauty and wellness products from luxury and premium brands such as Estee Lauder, Mac, Huda Beauty, and many more. Such stores are available across many tiers 1 and tier 2 cities and are further in the modes of expansion.
Nykaa founder stated, “We had to consider to be called an omnichannel retailer because physical trials are of utter importance for customers in every beauty category whether it is premium or even in case of affordable luxury such as blushes, foundations, etc. to give an enriching holistic beauty experience to our customers”.
⦁ Communication Networks- Nykaa has entered tie-ups with multiple social media influencers and celebrities. Therefore, to create a network of beauty enthusiasts, to share knowledge and awareness, expert videos, etc. which serves the customers to connect better along coupled with an enviable selection of products, at modest prices, and availability of domestic as well as international brands from 100% natural to professional brands makes it distinct business.
⦁ Changes during the Pandemic- The covid-19 pandemic in the year 2020 really proved to be a game-changer for e-commerce businesses in India, and even brought various challenges for Nykaa due to its inventory-based model that led to a 70% reduction in its sales in April 2020 a s the demand for beauty & fashion products declined, they had to be transferred to warehouses amid pandemic.
But, quickly Nykaa had to turn all its focus from beauty & fashion to the essential items, which the company managed to do successfully leveraging from its hyper-local delivery facilities. It listed essential inventories and ensured their reach to the customers by overcoming all the logistic hurdles and ensured their availability at the physical stores too. Consequently, it managed to cover the losses suffered during the COVD-19 pandemic. Therefore, Nykaa’s commitment to fulfilling the need of essentials including personal care items widened its brand image from being just a “beauty brand” among customers.
Revenue Model
Since the complete business of Nykaa, was based on an inventory management model, there were very few chances of losses from the beginning itself. Since its mega IPO in Oct 2021, Nykaa has crossed the valuation of 13 billion and with the market capitalization above companies like Coal India Limited, Hindalco Ltd, Godrej India Ltd, and Bharat Petroleum.
Again due to its inventory-based model, the start-up was able to run on bootstrapped funds and the business was able to reach its break-even within five years from its inception in the year 2017. Where the costs of acquiring a new customer were around Rs. 1000, it came down to Rs. 200-250, with the total revenue reaching Rs 1,159.32 crores in the year 2019-20 which was around 108% of the previous financial year with a total profit of Rs. of 2.51 crores.
Though, in the beginning, the business was focused on women’s beauty & fashion with a special focus on women’s audience in the age range of 18-35 years. Later on, the business has shifted its focus towards men’s and children’s needs alternatively leading to total revenue of $324.77 million (around Rs 2,440.89 crores) revenues in FY21, which is 38.10% more than its total revenue in FY2020.
Following are the primary sources of revenue generation for Nykaa-
⦁ Sales Revenue-Sale of various beauty, wellness, and fashion products is the primary source of income for the business which is offered through the e-commerce website, mobile app, and physical stores. Apart from the various domestic and international products which are associated with Nykaa, it also offers its products under a similar trade name.
⦁ Marketing & Campaigns- Nykaa runs various banners and advertisement campaigns which helps them to attract audiences and gain new customers apart from the existing ones that help to increase sales.
⦁ Miscellaneous incomes- Other incomes include revenues that come through discounts, commissions from various brands, and other miscellaneous incomes for the unicorn start-up.
Business Marketing Strategy
Youth campaigns along with the robust marketing strategy hold digital marketing at its best. This has always been one of the reasons for the strong position of Nykaa in the beauty & wellness segment of the Indian retail market. Not only it has marked its strong presence, in Tier 1 cities, but has equally appealed in Tier 2 cities and is further expanding in tier 3 and tier 4 cities across the country. The marketing strategy includes the following-
⦁ Social Media Marketing
For the promotion of its e-commerce website platform, there are four social media accounts for the advertisements and promotions of the e-commerce platforms that also provide updates and help the audience with how-to videos and tutorials, and make-up tips. Such promotions and marketing are done through social media influencers having a large number of social media followers who post content regularly. Thus, it not only keeps the existing customers but also attracts new customers through their credibility and popularity.
⦁ You-tube Marketing
Rather than posting direct ads for products and services on the youtube platform, it uses strategies like make-up tutorials, personal care tips, beauty and wellness-related content for targeting customers on youtube. Nykaa also runs Youtube ads and advertising campaigns to seek customer attention towards its products and services. Thus, the Youtube marketing of Nykaa is fuelled with quality content that keeps the audience engaged and relevant ads.
⦁ Content Marketing
The retail business of Nykaa relies heavily on its content marketing strategies as it maintains its blogs under ‘Nykaa beauty book’ on its platform under which various types of beauty and wellness-related blogs and articles are published on its e-commerce platform. Not only this but video content is also regularly created and posted for spreading education and awareness among its consumers.
⦁ Event Marketing
Last but not the least, Nykaa also sponsors various public events, especially for youth programs to pitch to target customers at the right places. Some of the events worth mentioning are the Femina Miss India event, Red Brick Summit, 2019 IIM Ahmedabad, College fests, Mood Indigo, and other similar ones.
Funding & Financials
Falguni Nayar has quoted “The Company ran on bootstrapped funds for the initial five years as she wanted to raise funding only after the business had gained enough momentum”. In Oct 2021, Nykaa launched its IPO and its valuation crossed the $13 billion mark in its debut on the Indian stock exchanges. Though initially, the stocks of Nykaa started trading at a premium of 82% and since then have surged to around 96%.
Till now, the company has raised funding over 13 rounds amounting to a total of around $341.9 million from multiple investors namely Stead view Capital, TVS Capital Funds, TPG growth, etc. and from angel investors like Harsh Mariwala, Sunil Kant Munjal, Dalip Pathak, etc. The latest to join the list of investors include Fidelity Management and Research Company and Alia Bhatt.
Nykaa IPO & Current valuation
Falguni Nayar, the founder & CEO of Nykaa announced that the business witnessed an increase in sales and profitability in the previous year and intends to launch its IPO in the year 2021 for an issue size worth Rs. 53.5 billion. Accordingly, the mega IPO issue was launched on October 28, 2021, through a Red Herring Prospectus, and the price band was fixed between Rs. 1,085-1,125 per share at the market valuation of Rs. 963.8 billion. However, Nykaa had started its preparation for IPO already from Aug 2021 by converting its private limited company into a public limited company and filling it’s Draft Red Herring Prospectus (DRHP). The mega IPO had a stellar debut on the stock exchanges i.e. NSE & BSE, and the issue was 81.78 times oversubscribed at the end of the IPO round on November 1, 2021, and the shares were listed at Rs. 2018 per share. The market valuation of Nykaa has surged to almost $13 billion since then. After the listing, the shares have witnessed a record rising of their share values on the stock market on November 10, 2021, resulting in 96% returns on the investments for the investors. This also led to an increase in the net worth of Falguni Nayar reaching up to $7.8 bn after the IPO as quoted by the Bloomberg Billionaires Index.
Nykaa Growth & Challenges Ahead
Nykaa has been successful in gaining consumer attention and brand loyalty within its nine years of inception. It has established its solid market presence and boasts of around 5 million monthly active users with more than15 a million registered users on its platform that offers more than 2 Lakh products from 500 brands. Not only it has increased the appreciation and appetite for beauty and fashion among its consumers but has also served with beauty-related information and awareness. Its 70+ physical stores have been hugely popular in Tier 1 and Tier 2 cities and it aims to expand its presence in Tier 3 and Tier 4 cities with 180+ stores by FY 2026 to expand its customer reach and get better revenues.
Though, some market analysts argue that Nykaa has many challenges to overcome in the coming years especially due to the presence of a lot of competitors such as Myntra, Ajio, Limeroad, Purplle.com, Flipkart Fashion, etc. which are already established and enjoy great attention. With beauty & wellness being a prime focus Nykaa Fashion has a lesser following and lacks a unique selling proposition for fashion in the market which could be a distraction on the prime focus of the business due to two reasons-Fashion being a dynamic subject needs to be continuously changed and made interesting for gaining customers. Secondly, affordable fashion being a low-margin business could reduce the profitability of the business unlike in the case of the premium beauty & wellness segment.
However, Nykaa has been successful in many ways including changing the perception of the impossibility of “e-beauty retail”.It is enjoying a steady position in the beauty and fashion industry and has bigger plans for improving the quality of its products and services at affordable rates. The e-commerce platform shows plenty of commitments towards expansion by manufacturing its in-house products and acquiring some others along with celebrity endorsements for improving its sales and profitability.
