Nykaa’s next growth frontier: Global brands and more physical stores

Online beauty and personal care giant Nykaa is doing many things at once—growing its premium global brands' offering, taking its own brands to international shores, and adding more physical stores in Tier II and beyond cities—to make the most of the festive season and post-pandemic rise in consumer spending. 

“Makeup as a category had a tough COVID-19. This is going to be the first festive season and wedding season that we’re going into where there is no pandemic,” Nykaa CEO Anchit Nayar tells YourStory. The company ran its Grand Festive sale from September 22- October 2. 

India’s beauty and personal care market shrank by over 11% in 2022 year-on-year due to reduced spending during the first COVID-19 wave. “This is now projected to grow at a CAGR (compound annual growth rate) of 12% to reach Rs 1,98,100 crore in 2025,” according to Nykaa’s latest annual report. 

The company hopes that its international brands business housed under its Global Store and its plans for physical stores will help it build momentum in the Beauty and Personal Care (BPC) segment.

The BPC segment accounted for nearly 89.6% and 93.6% of Nykaa’s total revenues for FY 2021-22 and FY 2020-21, respectively. The average order value (AOV) for the BPC business in Q1FY23 stood at Rs 1,780.

Nykaa is also taking “measured steps” to take some of its owned brands to international markets like the US, Middle East and Mauritius. The company has about 10 in-house brands including Nykaa Naturals, Nykaa Cosmetics and Kay Beauty. Some of these brands like Nykaa Cosmetics are listed on the horizontal ecommerce platform Noon.com in UAE. Owned brands contribute 11.2% to Nykaa’s BPC Gross Merchandise Value.

Bringing more international brands to India 

Nykaa launched its Global Store, which is a part of its imports division, in FY22, to help consumers access select beauty and personal care products of several prominent foreign brands.

The vertical includes cosmetics company Huda Beauty, UK-based cosmetics brand Charlotte Tilbury, Priyanka Chopra Jonas’ haircare brand Anomaly and Canadian beauty brand Murad. A subset of the Global Store is the company’s Cross Border Store, which has an additional 85 brands. The Cross Border Store is a retail platform where global brands can directly sell to consumers via the Nykaa app. 

“We source brands that are currently not in India and service them as a local partner to do business in the country. We are working with about 30 brands in that model as of now. There is more brand proliferation that is yet to happen,” Nykaa CEO Anchit Nayar tells YourStory.  

“According to estimates, global brands make up approximately 15-20% of beauty and personal care revenue for Nykaa at present,” says Karan Taurani, Senior Vice President, Elara Capital. 

With international brands, Nykaa expects to grab the attention of premium consumers. 

“With exclusivity arrangements in place, It is definitely a win-win for Nykaa in the near term. Not only does the basket value increase but it’s also a good strategy to mine the premium customer and drive order value,” added Karan. 

Targeting Tier II and beyond cities

Nykaa is looking to have a total of 300 physical stores in the ‘near term’ to integrate both online and offline shopping offerings. 

“Physical retail is a key growth pillar for us. It has rebounded nicely in the last 9-12 months,” Anchit says. The company has a network of about 120 physical stores spread across 50 cities in India. 

About 60% of sales in the BPC segment comes from Tier II and  Tier III cities. Nykaa is further trying to drive this penetration by opening new stores in smaller towns and cities. In Q1FY23, the company opened stores in cities like Pune, Coimbatore, Delhi, Ranchi, Ahmedabad, and Kolkata. This month, it opened two stores in Siliguri.

“Our brands, FMCG or D2C, all have an equal opportunity to succeed on our platform. We have been ethical and genuine about being a multi-brand retailer. Not artificially trying to solve for a number or strategy (for Nykaa’s private labels),” says Anchit. 

During the last festive season, the company reported a Gross Merchandise Value or GMV growth of 26% QoQ in Q3FY22 with EBITDA margin also improving by 300 bps. 

This year could see a sharp rebound in high-margin categories such as ethnic wear and cosmetics as festive and weddings seasons bounce back from the pandemic-led restrictions, according to a report by investment banking firm JM Financial.