Nykaa, the Indian pure player to watch in 2022
By Gautam Chowdhury and Imtiaz Batkoo, respectively C.E.O. and Senior Vice President of Bangalore-based consulting firm RXG Business Consulting. They decode for Mind Retail the business model of e-tailer Nykaa and dazzling results. They suggest Nykaa is the iconic player in the Indian retail market today.
Imtiaz Batkoo
For me, the most significant retail story of 2021 is pure-player Nykaa. This company has taken a lead in India’s beauty sector despite drastic changes. This illustrates a strong trend: the breakthrough of “Direct to Consumer” brands, which are growing rapidly in India, mainly driven by quality-conscious and digitally savvy consumers.
By 2025, the size of the beauty and personal care market in India is estimated at US$ 28 billion. Beauty is a complex market, requiring a lot of personalization for skin type, color, sensitivities or climate. This drives the requirement for dozens of products to meet the needs of diverse customers. Ultimately, this makes this market highly fragmented and disorganised. Nykaa’s 58-year-old founder, Falguni Nayar, spotted a huge gap in the Indian beauty market.
Strategy
Nykaa’s play was to use capital efficiency in the Indian e-commerce market by focusing on a niche vertical, and dominating it with a superior customer experience, omnichannel presence and responsive brand marketing. With e-commerce still in its infancy in India, Nykaa first raised funds in 2014 and then opened its first physical store. It then invested heavily in marketing to improve the customer experience. Customers can create their own cosmetics, subscribe to beauty contests, adding beauty tutorials and tips. This scheme, also used by Walmart or Amazon, allows the consumer to identify with the beauty industry.
Nykaa believes in a proprietary e-commerce strategy (inventory model). In addition to its own brand, it buys directly from suppliers and stores the products in its warehouses. This allows it to increase margins by 30% to 50%. Nykaa’s average shopping basket is about €15. In addition to reducing operational costs by 20%, Nykaa has an acquisition cost of about €3 per new customer, with an average retention rate of over 50%.
Inspiration
His story shares a touching tale of overcoming fears to reinvent ourselves. It reminds us of Colonel Sanders of KFC : “To achieve your goals, make a plan and move forward”. Today, after six years in business, Nykaa is the first Indian unicorn led by a woman to go public. Its C.E.O., Falguni Nayar, is part of the nine-zero club with a 54% stake in the company. This makes her the 17th richest person in India. Nykaa launched its smash Initial Public Offering on October 28th and November 10th, 2021. It recorded a premium of nearly 80% and ended the day 96.15% above its cost of issuance at €25.97, which corresponds to a market capitalization of €12.3 billion. Nykaa is the 55th indexed company in the Rupies 1 trillion-plus club, ahead of players like Godrej Consumer and Britannia.
