Nykaa Now fuels growth in top cities as beauty giant bets on quick deliveries

Bengaluru: Nykaa Now, the beauty and personal care retailer’s quick-delivery arm, is gaining traction among customers and helping expand its market share in the top seven cities, chief executive officer of Nykaa's beauty e-commerce Anchit Nayar told analysts during the September-quarter earnings call on Friday.

Nayar said that the company’s focus on rapid deliveries is aimed at improving customer experience and strengthening its position in the beauty segment.

The traction for Nykaa Now comes from products across all price ranges, including luxury items, helping customers get the best luxury products delivered between 30 minutes and 2 hours. “Nykaa Now has enabled Nykaa to grab a bigger share of the pie in personal care, which has largely been fragmented among horizontal players like us and quick commerce players,” Nayar said.

“We are seeing customer penetration of certain products like shampoos, conditioners and body wash increasing on our platform and growing very healthily, which means that people are now looking at Nykaa not only as a beauty destination, but also as a personal care destination,” he added.

Offline expansion plans

The Mumbai-based company is looking to double down on its offline expansion plans in the coming quarters, as the brick-and-mortar format helped Nykaa act as efficient hubs to fulfil faster deliveries.

Nykaa closed the September quarter with a total of 265 physical stores across 90 cities, adding 19 stores and 8 new cities during the period. The total occupied retail space of its stores touched 275,000 sq. ft. in the quarter, up nearly 37% from a year ago. Nykaa Now is also powered by a total of 53 rapid stores.

“One thing we did not foresee in the early days was that we have the ability to sell luxury products by enabling our retail stores to become hyperlocal delivery hubs and do it in a cost-effective manner. So why should we not allow customers to also get access to the best luxury products with quick delivery speeds?” he said.

Nykaa's operating income rose 25% year-on-year to ₹2,345 crore in the September quarter. Its net profit jumped to ₹32.98 crore from ₹12.97 crore a year ago. The firm’s total gross merchandise value (GMV) grew 30% y-o-y to ₹4,744 crore during the three months through September. GMV is the total value of all goods sold during a period, excluding discounts and other deductions.

Premiumization—a growing trend among consumer-facing companies that is increasingly leading to higher average order values—is now emerging central to Nykaa’s growth strategy in the beauty segment. Premium brands now account for two-thirds of Nykaa’s gross merchandise value in the stores.

Revenue from Nykaa’s beauty business—its biggest growth driver—grew 25% year-on-year to ₹2,131 crore in the September quarter. Profit from the segment rose to ₹95 crore from ₹76 crore in the year-ago period.

However, increased investments in its premiumization strategy resulted in higher marketing costs at 17.5% of net sales value (NSV), a jump from 13.7% in the same quarter last year. “We believe that India has some of the lowest penetration of beauty consumption in the world, and investment needs to be made to continue to drive that. So, we have invested behind customer acquisition and that reflects in the marketing and SND (sales and development) expenses as a percent of NSV.”

NSV refers to the total value of all products sold after discounts but before returns, offering a measure of the platform’s sales performance.

Fashion strategy shift

Slower growth and broader macroeconomic pressures like cautious consumer spending on fashion led Nykaa to reorient its strategy in its multi-brand retail format, reducing focus on fashion as a category in the overall GMV mix, over the past few months. The firm has been shutting down some of its large-format physical stores and cutting reliance on third-party distributors.

The efforts have helped the segment touch ₹200 crore in operating revenue during the quarter, up marginally from ₹166 crore in the year-ago period. Net loss, however, narrowed to ₹12 crore from ₹32 crore last year. Fashion now accounts for 61% of Nykaa’s house of brands, down from 69% in the year-ago period.

GMV for the segment rose 37% to ₹1,180 crore.

“What I think is that there’s been a concerted strategy to actually shut down some of the non-Nykaa channels in fashion. So we’ve been shutting down a lot of the GT-MT (general trade-modern trade) large-format stores and third-party distribution. We feel it’s better and higher quality business to focus on Nykaa as a channel and fashion in particular,” Adwaita Nayar, chief executive officer of Nykaa Fashion, said.