How dark stores are lighting up the online beauty business

Nykaa owns over 27 brands across skincare, cosmetics, and fashion,  including Nykaa Cosmetics, Nykd by Nykaa, and Pipa Bella. Purplle runs brands like Carmesi, Good Vibes, NY Bae, and Faces Canada. (Image: Pixabay)
Nykaa owns over 27 brands across skincare, cosmetics, and fashion, including Nykaa Cosmetics, Nykd by Nykaa, and Pipa Bella. Purplle runs brands like Carmesi, Good Vibes, NY Bae, and Faces Canada. (Image: Pixabay)

Summary

  • With dark stores, Nykaa and Purplle aim to counter competition from quick commerce platforms like Swiggy Instamart, Blinkit and Zepto, while streamlining their supply chains to reduce reliance on these marketplaces

New Delhi: In the cut-throat world of e-commerce, speed is the new battleground, and companies are betting on dark stores to deliver your favourite products faster than ever.

Several firms are piloting dense networks of micro-warehouses, or dark stores, to fulfill orders within hours and improve margins. This signals a strategic shift for e-commerce players who currently offer delivery timelines of one day or more.

Beauty marketplaces Nykaa and Purplle are at the forefront of this trend, looking to experiment with dark stores in major cities like Mumbai and Bengaluru to enhance customer satisfaction and also stay competitive against quick commerce platforms like Swiggy Instamart, Blinkit, and Zepto, according to two people aware of the development.

More here | Flipkart has FOMO? Zepto and Blinkit are changing the e-commerce giant

While the strategy is still being worked out, both firms are looking to run pilots by either operating their own facilities or cross-utilizing existing spaces available with logistics players such as Delhivery and Shadowfax, these people added.

“The companies are actively looking at the economics of running dark stores for fast-moving products in high-demand areas. The strategy is likely to shape up in the next three to six months," one of the person cited above said, adding that the move is likely to benefit their own brands as well.

Nykaa and Purplle declined to comment on queries sent by Mint.

Nykaa owns over 27 brands across skincare, cosmetics, and fashion, including Nykaa Cosmetics, Nykd by Nykaa, and Pipa Bella. Purplle, which recently raised ₹1,000 crore from Abu Dhabi Investment Authority and other investors, runs brands like Carmesi, Good Vibes, NY Bae, and Faces Canada.

“These companies are platforms themselves that are competing with other platforms like Zepto and Blinkit. Since some portion of their demand is being taken away by quick commerce platforms, they want to retain customers by offering faster deliveries," this person said.

While these companies may not offer 15-minute deliveries, they will focus on delivering within a few hours. The companies are also working to upgrade their websites to reflect shorter delivery timelines, this person added.

Nykaa already manages next-day delivery of select products in a limited number of pin codes in some metro cities by partnering with logistics companies. It's now aiming for same-day deliveries.

Several direct-to-consumer brands are also evaluating their ability to fulfill quick deliveries by collaborating with third-party logistics players to stock fast-moving products in shared warehouse facilities, the person quoted above noted.

While these brands will continue being listed on quick commerce platforms like Swiggy Instamart, Blinkit, and Zepto, they will work simultaneously on shortening delivery timelines on orders made through their website.

Website sales, which often contribute a small percentage of overall sales for most consumer brands, are likely to become an important sales channel if brands manage to offer quicker deliveries.

Quick-commerce surge

Quick commerce has grown tremendously over the last few months, with consumers enjoying the convenience of receiving orders at their doorstep within minutes.

Read this | The rise of quick commerce has left us with a bagful of questions

According to Redseer, the gross merchandise value (GMV) of the sector surged 77% year-on-year to $2.8 billion in FY23, driven by consistent growth in new users and order surges during event days like the Cricket World Cup and the final match of the IPL.

Zepto recently secured a pre-IPO funding of $665 million at a valuation of $3.6 billion, marking this year’s biggest fundraise so far. Zomato expects its quick commerce vertical Blinkit (formerly Grofers) to become larger than the core food-delivery business over the next year.

Tough economics of dark stores

Dark stores are the lifeblood of quick commerce. Typically 2,500-3,000 sq ft in size, dark stores have the right capacity to stock limited fast-moving products across categories like grocery, personal care, and stationery.

However, the cost of setting up a dark store can be high, making per-store profitability crucial in the long haul. A bunch of fixed costs are involved in running a dark store including rent, electricity, and employee expenses.

Moreover, deliveries can be quick only if numerous dark stores are present in a smaller radius, which further adds to the cost.

For context, it took three years for quick commerce firm Zepto to figure out operational efficiency. Its co-founder and chief executive Aadit Palicha told Mint last month that most of its 350 dark stores are now profitable and that the time taken for each store to achieve the milestone has come down to six months from two years.

“Sizeable order volume is important to recover the infrastructure cost. While Nykaa and Purplle have the ability to make it happen, it may take longer than expected," said Satish Meena, advisor at Datum Intelligence.

Maintaining Margins

While the move aims to counter competition with quick commerce platforms, streamlining the supply chain is also an effort towards cutting reliance on these marketplaces.

Quick commerce platforms charge commissions ranging from 15-30% on each order, varying based on the category. Beauty and personal care, pet care, and electronics generally fall in the highest commission bracket.

According to Datum Intelligence’s Meena, brands can make considerable savings if they manage to implement faster deliveries. However, immediate success is doubtful as dark stores are a cost-heavy proposition.

“Nykaa and Purplle may be better off focusing on high-demand areas to make the most out of the infrastructure investment since they are marketplaces and have a big assortment of products," Meena said.

Also read | Watch out, AI and GenAI are transforming e-commerce from the ground up

As of March 2024, Nykaa has about 44 warehouses and 187 retail stores across 68 cities. While the firm is consistently expanding its offline presence, these stores could also be used to service faster online orders, according to Meena.

Dark stores are increasingly becoming crucial in the world of e-commerce, but high costs and logistical challenges mean success will require careful execution.

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