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Business News/ Companies / Start-ups/  Nykaa: Selling beauty online
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Nykaa: Selling beauty online

How a finance specialist-turned-entrepreneur made consumers buy make-up and personal care products without physically trying them on first

Nykaa founder Falguni Nayar with her team. Photo: Abhijit Bhatlekar/MintPremium
Nykaa founder Falguni Nayar with her team. Photo: Abhijit Bhatlekar/Mint

Mumbai: From three large warehouses located in Mumbai, Delhi and Bengaluru, more than 15,000 online orders fly out every day, delivering gloss, fragrance and aspirations to homes across the country.

In just five years, has come from nowhere to become synonymous with online cosmetics and personal care products in India, while also making it to global market studies. It’s the destination for women from cities and small towns hunting for their favourite brands of deodorants, lipsticks and make-up kits, and those keen to try out new international products. The brand has now stepped into offline sales as well, setting up five luxury cosmetics stores.

Nykaa is former investment banker Falguni Nayar’s answer to Sephora, the international luxury cosmetics store chain owned by LVMH (Moët Hennessy Louis Vuitton). The Nykaa founder wants her online store to host both regular cosmetics and luxury brands, a tough task in an industry where top brands prefer to be among those of their own kind. 

Ask why she is building luxury cosmetics stores to complement her popular portal, Nayar pauses for a moment before saying, “We wanted to be like Sephora. I say we are like Sephora, but Sephora never sells popular, cheaper brands such as Neutrogena, or Nivea, but we don’t want to give up on that; we want to sell that, because in India those things are important." 

Nykaa set out to get Indian consumers used to the idea of buying make-up and personal care products online without physically trying them on first. The plan was to next introduce them to luxury brands they know and trust enough to buy online. And finally, it wanted to become the single door for new high-end and luxury brands to come to India, and access a large market through a retailer where customers have reposed their trust. 

My whole starting point was that you have to give consumers what they want- Falguni Nayar

The systematic approach seems to have worked. In 2016-17, Nykaa clocked sales of Rs214 crore and its gross merchandise value—the total value of goods sold on the website—rose 3.6 times year-on-year to Rs275 crore. The company is operationally profitable, says Nayar. 


Nayar spent nearly two decades at Kotak Mahindra Capital Co., moving from setting up its international operations to heading the institutional equities business, finally ending up as managing director of Kotak’s investment banking business. She advised major deals including Hutchison’s sale to Vodafone Plc and the joint venture between Bharti Enterprises Ltd and Wal-Mart Stores Inc. She continues to serve on the boards of several firms including Tata Motors Ltd, Dabur India Ltd and ACC Ltd. 

Beauty struck in 2012.

“My whole starting point was that you have to give consumers what they want," says the finance specialist-turned-entrepreneur. “That’s the starting point for beauty (products). There is brand proliferation all over the world and the customer is using a lot of brands. We want to be a good retailer, we want to be a multi-brand retailer, we want to be the best beauty destination."

With Sephora as benchmark, Nayar set up Nykaa, becoming India’s first exclusive online cosmetics seller. The aim: become the country’s one-stop shop for all cosmetics and personal care brands. 

Unlike Sephora which has the luxury of specializing only in top brands, in a country where penetration of beauty and personal care products is low—even more so online—and consumers have just started raising discretionary spends, Nayar has to combine luxury brands with lower-priced ones that are better known, in demand and easier to spend on online. 

Falguni Nayar set up Nykaa, becoming India’s first exclusive online cosmetics seller. Photo: Abhijit Bhatlekar/Mint
View Full Image
Falguni Nayar set up Nykaa, becoming India’s first exclusive online cosmetics seller. Photo: Abhijit Bhatlekar/Mint

“I was a believer that you should be an aspirational store," says Nayar. “So we work very hard to convince luxury brands that they should be on our website. They want to be next to other luxury brands. Because I knew India, I told them that tomorrow’s luxury consumer is probably buying Dove today. So, to make an exception in a market like India, they must sit next to popular brands like Maybelline and Lakme, and others." 

And she could convince them, which is why today Nykaa hosts a large number of foreign luxury brands including MAC lipsticks, OPI nail paints and Bobbi Brown make-up. Luxury sales now account for about 15% of its business, a segment Nykaa does not offer on discount, “because luxury brands don’t like to discount", says Nayar.  

With its first-mover advantage, Nykaa has also been able to avert an old debate in e-commerce: horizontal versus vertical marketplaces. Some experts contend that verticals which sell only one type of goods —say Myntra for fashion and UrbanLadder for furniture—are eventually subsumed by horizontals like Flipkart and Amazon that have more money and clout to simply add that business on their platforms. But Nykaa has become synonymous with buying make-up and now, slowly, other personal care items online. A July report Emergence of Online Beauty Specialists in India by global consumer market data firm Euromonitor devoted a special section to Nykaa and its role in shaping online sales of cosmetics in India. 

This, in a market where Amazon and Flipkart are engaged in a fierce, expensive battle to dominate e-commerce in India. 

“We are very sure that we have been able to build a very unique website," says Nayar. “A brand has got created, a destination brand, a product brand. And that is what is unique to our business model compared to other e-commerce websites where I don’t think they succeeded in creating a brand destination." 

Nykaa has a popular blog called Beauty Book which offers a range of make-up tips

An evolving market

Euromonitor estimates India’s Internet retailing market grew at a CAGR (compound annual growth rate) of 67% in value from 2011 to 2016. But this was mostly driven by larger categories including apparel, footwear, consumer electronics and eyewear; beauty and personal care was still less than 1% of this market in 2016, it said. 

“One of the key reasons why this channel was still relatively niche was the lack of reliable online retailers specialising in beauty and personal care products," said the report. “However, this was in the process of undergoing gradual change, with the growth of the company" 

And that’s reflected in the fact that two million customers have bought products from Nykaa so far. 

Mehak Sagar Shahani, founder of beauty blog Peachesandblush and wedding planning website WedMeGood, says Nykaa has become a window for a large number of non-metro women to buy international luxury beauty products. 

“A lot of things that are not available outside are on Nykaa, like NYX (Los Angeles-based cosmetics firm NYX Cosmetics)," says Shahani. “Even Sephora may not have the whole stock. A lot of Nykaa’s sales must be coming from tier II and tier III towns because if a girl is in a tier II town and wants Bobbi Brown, where will she get it from?" 

Nykaa has become a window for a large number of non-metro women to buy international luxury beauty products- Mehak Sagar Shahani, founder of WedMeGood

In fact, Nayar confirms that some of Nykaa’s most loyal customers—profiled from repeat purchases—are from smaller cities in Bihar and Jharkhand. 

Beauty bloggers like Shahani are the ones who introduce women in smaller cities and towns to expensive international brands. The most popular form of this is a now-ubiquitous “contouring" video on YouTube where several bloggers run tutorials on the latest trends in make-up techniques—shaping the lines and structure of your face to a more flattering effect with a variety of make-up products including foundation, face colour, pallettes and cream sticks. 

“The first thing someone asks a blogger is what lipstick are you wearing, what is this contouring makeup you’ve used? And then they can decide, okay, my skin tone is close to theirs and so I will buy these products. Without online reviewers, it will be very hard to run a business like this," says Shahani. “Beauty bloggers will also introduce people to brands, like in a video if I see someone use MAC or Bobbi Brown, I’ll buy it."  

In fact, in keeping with the importance of the beauty blogger community, Nykaa also has a popular blog called Beauty Book which offers a range of tips—from how to keep cool in the summer to eyeliner tutorials to product recommendations for skincare. It also runs Nykaa TV, a YouTube channel with make-up tutorials by famous “vloggers" (video bloggers) who run everything from bridal make-up classes to tutorials on the basics of applying metallic eyeshadows. Nykaa says it reaches more than 2.5 million people through its YouTube channel, Instagram feed and Facebook page. 


Running a vertical online retail business is hard. 

“It is tough to remain vertical; more of these horizontal players (Flipkart, Amazon) are adding health and beauty also," says Rajat Wahi, partner at Deloitte India who heads the consumer, retail and agri-practice. “Pure play segments find it tough and more and more we see that people gravitate to one portal and buy everything from there. If you can offer high-end tech, very good visuals, very good delivery and brands, then it can be possible. With premium brands you can maybe survive. But for mass consumers, I’m not sure." 

Nykaa has survived not just with its focus on luxury, but also some investment-heavy business decisions it made early on. 

One of these is to remain an inventory-led business, meaning sells only what it stocks in its own warehouses. That means no third-party sellers.

“We believe beauty is a long-tail inventory business, in the sense that there are many products of ours which may not sell," says Nayar. “We are inventory-led; so we don’t show out of stock. We show zero if it is out of stock because otherwise we can’t fulfil an order. We do more than 10,000-15,000 orders a day so we don’t want to have to deal with (having to tell the customer), ‘Oh, five products are available, two are not available, hold this order’. All this happens due to technology." 

Nykaa stocks more than a million products at its three warehouses every month—one 50,000 sq. ft warehouse in Mumbai, another 50,000 sq. ft one in Delhi and a 15,000 sq. ft warehouse in Bengaluru. The company recently upgraded two of its warehouses at a cost of Rs60 lakh each, says Nayar.

Nykaa is now operationally profitable and has managed to bring down its cost of customer acquisition significantly.Photo: Abhijit Bhatlekar/Mint
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Nykaa is now operationally profitable and has managed to bring down its cost of customer acquisition significantly.Photo: Abhijit Bhatlekar/Mint

The technology team’s biggest job is inventory management, in order to ensure that sudden fluctuations in demand are not allowed to affect the company’s buying cycles. Nayar explains: “We can’t manage our business without reports, so we get a lot of daily reports, like early snapshots on how many orders we get every hour. If we have excess inventory, then we will stop buying. We won’t allow our brand managers to buy that any more. Say if they take 100 pieces—and we typically work on one-month inventory cycles—they’re assuming that 100 pieces will sell in one month. But they’re not even selling one piece a week, which means they’re at a run-rate of just four pieces a month. So, we will wait to correct that inventory first." 

This also means moving to buy quickly when a product starts selling more, for instance, popular brands of kajal and eyeliners, beauty essentials in India. “What we decide to drop, we do monthly. Everyday, vis-à-vis our expected sell-through rate (the number of units of a product sold in a time period) we monitor our actual sell-through rate. And we keep making adjustments every week. But every week, adjustments are done for our top sellers. And the clean-up (of the inventory) is done every month or every two-three months," she explains. 

Going offline and private labels 

Inevitably, large online retailers who have created formidable brand names have chosen to open physical stores. While the latest among them is Bengaluru-based furniture retailer UrbanLadder, Nayar started setting up Nykaa Luxe stores in Mumbai, Delhi and Bengaluru to sell offline the luxury brands she has convinced to come to India. 

The company now has five Nykaa Luxe stores in coveted shopping areas (Khan Market, Delhi) and malls (VR Mall, Bengaluru and Infiniti Mall, Mumbai). 

“So the stores are an important part of our omnichannel strategy," says Nayar. “It’s just that we have been growing at a fierce pace, we grew 1,000 times one year and a 150 times another year, and then another 150 times…so there’s been a lot of work on e-commerce itself. So our stores have gone slower than expected. Like this year, we wanted to be at seven stores, we are only at five. But we don’t want to go to the wrong location." 

These cater to Nykaa’s luxury customers, people who will try out a luxury brand once in person and then buy it online repeatedly. Only the very expensive, including Davidoff fragrances and Estee Lauder lipsticks priced at Rs2,500 each are available here. 

“Retail is all about omnichannel," says Pankaj Renjhen, managing director of retail services at real estate firm Jones Lang LaSalle India. “One of the brands in a mall we had spoken to in Europe had gone online (with their own e-commerce website exclusively for their brand). We asked them why they were also staying in the mall. They said wherever we shut down (physical) stores, our (online) sales also fell by 30%." 

Renjhen believes being present offline, especially for inventory-led retailers who have their own brand name, is important to support online sales. It also becomes a gateway to try out brands and convince people to buy beauty products, including expensive luxury ones, online. 

Nayar is now working on another store format even as she has set a target of 30 Nykaa Luxe stores, the most she says a market like India can absorb. She declined to share more details. “Physical retail can, if successful, become as much as 25% (of total sales) in the next five years," she says, adding its contribution is minimal right now. 

Nykaa’s biggest investors include the family office of Marico founder Harsh Mariwala, TVS Capital Funds and Sunil Munjal, joint managing director of Hero MotoCorp

While stores are being set up and luxury brands persuaded to sell on Nykaa, the company is expanding its private label offerings to plug the gaps in the Indian beauty market where brands are not yet available. For instance, Nykaa’s own “bath and body" range of lotions and shower gels operates in the same segment as American brands Victoria’s Secret and Bath & Body Works, which aren’t in India yet. The company largely sells colour cosmetics under its name, including lipsticks and eye pencils. This is also Nykaa’s largest selling category across brands, with 50% of revenue coming in from this segment as per Euromonitor. Private labels make up 4-5% of Nykaa’s sales, said the report. 


Nykaa’s biggest investors include the family office of Marico Ltd founder Harsh Mariwala, TVS Capital Funds (Pvt.) Ltd, and Sunil Munjal, joint managing director of two-wheeler maker Hero MotoCorp Ltd. The company’s last fundraising was in September 2016 worth approximately Rs102 crore in two tranches, says Nayar. 

“To be able to legally, legitimately do the inventory model, we stayed away from foreign money and we raised only domestic funding," she Nayar. As per India’s rules, foreign direct investment is not allowed in inventory-led e-commerce businesses. This has been a hotly debated issue around funding rounds of companies like Amazon and Flipkart that have raised funds from foreign funds and also operate partially on their own inventory. 

Nykaa is now operationally profitable and has managed to bring down its cost of customer acquisition significantly. “It has slowly and steadily come down to sub-Rs200 levels," says Nayar. “The industry is somewhere between Rs650-2,000. That is a major achievement at a time when Amazon and Flipkart are still engaged in a discounting battle to win over customer loyalty."

Meanwhile, Nykaa’s customers are already demonstrating that elusive loyalty with average ticket sizes of Rs1,200-1,500. “Most customers put 3.5-4 items in a cart," says Nayar. “And that has stayed constant for the last three years.It tells us that we are achieving an experiential website where people want to learn and try new things. So they’re not coming for just that one or two products, they’re adding more to the cart." Besides, she says, 75-80% of the 10 million visitors on the website and the app are “non-paid" meaning they were not routed to Nykaa with a paid advertisement. 

Earlier this year, there was news on startup blogs Yourstory and Inc42 in February about Nykaa’s supposed plans to go public the next year. Nayar says there is no truth to that. 

“That was misquoted," she says. “What I was trying to say was that I am not building this company to sell. I am building it to have a life of its own. I have also taken other people’s money, so I have to give them exits, right? So the logical thing to do would be to do an initial public offering (IPO) at the right time." 

In fact, the IPO specialist has a clear timeline in mind for when a business should consider going public. For Nykaa, she says, it’s not going to be immediately. 

“I have done more IPOs than anyone else," says Nayar. “I was in investment banking and my specialty was IPOs. So, I believe that companies should have a net profit of at least Rs100 crore before they do an IPO, with a Rs200 crore gross profit. So, right now, we’re not making money. Once you start making money, you start paying taxes also, so you have to make double the money."

Start-ups are the embryos of tomorrow’s business ecosystem. They give us hope for the future while laying the foundation for growth. In the 1990s, India had the likes of Bharti Airtel, Axis Bank and, of course, Infosys for inspiration. In an earlier era, there was Reliance and Nirma, which set the gold standard for entrepreneurship. Now, as we stand bang in the centre of a new digital revolution, Mint seeks to find the potential superstars of the future. Our objective was simple: to identify the constituents of a Mint40 stock index in 2030. The choice of companies will be obvious in some cases, debatable in others, but there can be no arguing that these firms represent the zeitgeist of this new age of Indian business. Over the next few months, Mint will profile these 40 companies, across industries and segments.

To read about the start-ups covered so far, click here.

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Updated: 27 Sep 2017, 02:27 AM IST
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