Nykaa: A former investment banker’s online startup is giving a premium shade to Indian beauty care

Indian beauty shopper wants more than kajal now.
Indian beauty shopper wants more than kajal now.
Image: Reuters/Nacho Doce
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India’s beauty market is having a moment.

Young, urban, and beauty-conscious shoppers are spending anywhere between Rs150 and upwards of Rs3,000 on lip colours, BB creams, face masks, concealers, and eye-shadows. That puts beauty e-commerce firm Nykaa in a sweet spot.

Founded in 2012 by former investment banker Falguni Nayar, an alumnus of the Indian Institute of Management Ahmedabad, Nykaa helps shoppers access brands like Huda Beauty, MAC, Maybelline, and Nyx in a market where specialised beauty stores are few. Backed by Max-Ventures, TVS Capital Funds, and other private investors, Nykaa clocked a turnover of Rs214 crore ($33 million) in FY17, setting India’s $6.5 billion cosmetics market abuzz.

Though still nascent—it receives about 15,000 orders a day—Nykaa is charging forth in a space dominated by large foreign as well as domestic companies such as Amazon and Purplle, as well as offline retailers like Sephora.

Offering 400 brands and over 35,000 products online, the company now plans to launch more offline stores to let customers try out new products before buying.

I-banker to entrepreneur

Nayar, 54, who spent close to two decades as an investment banker with Kotak Mahindra Capital, started Nykaa to satiate her native Gujarati entrepreneurial bug. She had identified beauty as a “sunrise” industry.

It helped that, barring some like Dabur’s NewU and Health & Glow, companies with deep pockets had so far ignored Indian beauty retail, dominated by mom-and-pop stores. Specialised formats such as that of Sephora, which recently announced plans to sell online, have been slow to develop.

Besides, beauty retailing in India is a long-tail inventory business wherein typically top-selling products are stocked while the others are often unavailable. This is particularly so because, in India, shops are small with limited display areas, Nayar explained to Quartz during an interview on the sidelines of a store launch in Delhi.

As an e-commerce portal, Nykaa has the bandwidth to provide entire arrays of products. With four warehouses, “we are able to provide a complete beauty experience to customers,” Nayar said.

A typical Nykaa shopper, as Nayar describes her, is aged between 18 and 35 years. She is either a beauty enthusiast who has “at least 20 items in her bag” or a newbie who is driven by the price and “needs a lot of education.” On her part, Nayar is convinced that her firm is helping Indians trade up. ”I think the consumer was always willing to buy more premium products and what I call performance products. She was fed up of the Rs40 and Rs80 products…Kajal and baby lips are not the top-selling products for Nykaa.” The website also stocks skincare products for men.

Products that top the charts are concealers or big eye-shadow pallets, which are more sophisticated and high priced, Nayar said. So how did the Indian beauty products consumer arrive at this stage?

Selling beauty online

As much as 75% of India’s cosmetics market is unorganised, says consulting firm RedSeer.

But urban women, armed with smartphones, are socialising and using social media apps like never before. They are constantly reading blogs and logging onto Instagram for the latest trends in beauty care. ”Consumers…are willing to spend and own multiple beauty products,” a 2016 report on beauty and personal care by Euromonitor noted. “This trend is especially strong within colour cosmetics.”

Yet, running a beauty website in a nascent market hasn’t exactly been easy for Nayar. “You have to always be ahead of the curve…what is new is very important,” she said.

So she has focussed on the “art of retailing” which, according to her, is often overlooked in India. Online retailing, according to her, all about the right assortment and latest launches, followed by the right education (for consumers) and finally the price.

Nykaa, thus, relies heavily on beauty tutorials with top make-up artists and bloggers. Its Facebook page shows just how vital information is to consumers: Rows of videos explaining everything from using the right brush to straightening hair to applying eye-makeup correctly help engage users.

Online and offline

Nykaa is now working on signing up new foreign brands as shoppers demand the latest trends from around the globe.

Nayar has sought to tie up with popular Korean skincare brands Dear Packer and The Face Shop over the past few months. Face-packs loaded with rose, honey, and charcoal extracts—all a Korean specialties—are flying off the shelves, she said. Nykaa is also bolstering sales from its private labels in categories such as lip-colors and nail-paints.

Then there is Huda Beauty, the beauty line sold by popular Iraqi-American beauty blogger Huda Kattan, which will soon be available on Nykaa. “It’s taken us two to three years to get here as they (tie-ups) need multiple clearances,” Nayar explained.

The firm also plans to open up to 120-150 offline stores in five years, which “we think is the future,” Nayar said. These include “Nykaa on Trend” stores that will stock bestsellers and new launches, besides the Nykaa Luxe stores which will sell more premium brands like Clinique.

“We have a huge emphasis on experience and style in these stores where beauty advisors are a big part…everything can and should be tried,” Adwaita, head of the company’s retail business and Nayar’s daughter, said. All this implies high costs, especially if the store locations are high-end.

Beauty market

As Nykaa spreads its wings, others retailers, too, are preparing to tap onto the online beauty market. In 2015, Dabur’s NewU announced its Rs100 crore online and offline expansion plan. Last year, Bengaluru-based Health & Glow hired a business head for e-commerce.

“Online horizontal retailers that basically sell everything are looking at expanding to categories beyond mobile phones and fashion,” Shubham Anand at RedSeer said. Since beauty is closely related to fashion, “we see more efforts from large online retailers such as Amazon and Flipkart in categories such as beauty that complement fashion,” he added.

Currently, Amazon commands the highest volume of sales in the category while Nykaa generates the highest value per order at approximately Rs1,500. While 50% of Nykaa’s orders are under Rs1,000, a sizeable 20% are of over Rs5,000. Once consumers “start finding value in verticals, they will move to specialised online stores like Nykaa from the likes of Amazon and Flipkart,” Anand said.