As India’s largest beauty e-tailer IPOs, its main strength could become its big weakness

Master social media.
Master social media.
Image: Facebook/Nykaa
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Nykaa, India’s largest beauty e-tailer, is in the middle of what experts predict will be a blockbuster IPO. The company’s social media strategy has had a major role to play in its success—and that may be its problem, too.

The 5,350 crore rupee ($715 million) IPO, open from Oct. 28 to Nov. 2, comes bearing mostly good news. Joining the league of Zomato, it’s yet another proof that India’s young startups are maturing and providing lucrative exits for investors.

The e-commerce platform dedicated to beauty, skincare, and apparel, is thriving in the era of trillion-dollar-everything-seller Amazon. Besides, its success is a vote of confidence for female entrepreneurs.

In building this business, more than 95% of Nykaa’s sales happen via its site and app; only 5% through brick-and-mortar outlets. And driving this success has been a gamut of social media users. India’s biggest beauty e-tailer, which has 12.6 million followers across its own channels, has an army of over 1,300 influencers promoting its products.

And that is also where the company needs to fortify itself against trouble.

Turning social media into an asset

Many Indian e-commerce brands, from fashion sites Myntra and Ajio to skincare brand Mamaearth, follow marketing models similar to Nykaa’s. But the Mumbai-based firm was a trailblazer.

It was “one of the first online retail platforms in India to drive widespread product and influencer-led education through creative and entertaining content across the video and written formats,” Motilal Oswal wrote in an Oct. 26 analyst note. “Nykaa has developed a loyal community of bloggers and content creators who, in most cases, receive commissions on the sales they drive on the platform.”

It has a large affiliate programme, where people can sign up to get unique shareable links, and earn a commission when their followers buy on Nykaa via their link. Many of them post these links with content like make-up tutorials, providing not just entertainment but skill-sharing to drive consumption of Nykaa’s products.

These creators have helped the company reach 300-350 million average monthly active users on platforms like Facebook, YouTube and Instagram.

Besides beauty and fashion bloggers, Bollywood actors Jahnvi Kapoor (13.4 million followers) and Alaya F (1.1 million), too, campaigned for it on Instagram. “Endorsement by well-known influencers further build-up the trust in the platform,” Arihant Capital wrote in an Oct. 25 note.

The same platforms have, however, been difficult at times.

The downside of Nykaa’s social media currency

In July 2020, Instagram account @dietsabya—an Indian hat-tip to @dietprada—began posting about Nykaa’s alleged toxic work culture. It spoke about C-suite executives cracking rape jokes and instances of food shaming, body shaming, and beauty shaming at the company. Women also complained of sexual harassment and mentioned, among other things, a trend of disturbing party games at the firm.

Separately, a series of threads on Reddit and Twitter accused Nykaa of selling expired products and fakes.

The company, however, professed zero tolerance for body shaming, racism, or any offensive comments. Beyond that, though, there wasn’t much done to clear its name.

Now, as the nine-year-old startup has gone public, such negative social media discourse will play out before a larger audience. The company will be answerable to shareholders and customers.

The immediate item on the housekeeping agenda is, of course, to improve the work environment and tackle counterfeits, if any. Then there is the area of public relations—key to long-term success.

Nykaa must learn to put out social media fires

Much like a bad earnings report, a lapse in governance, or broader economic, or political instability, a bruising tweet or Instagram story can hit financial performance. Social media is a trove of “emotional data” that can influence markets. A post, irrespective of being factual or not, can affect share prices.

Think of how Facebook shares fell after one of its worst outages and whistleblower allegations. Or how Reddit users deliberately came together to game the GameStop stock. Or how General Motors’ stock plummetted after it faced public outrage over vehicle recalls. The list is long.

“Considerably impacting the randomness of the markets, social media makes the cause and effect relationship between news and market movements that much more direct and immediate,” according to Adinah Brown of trading platform provider Leverate.

To safeguard itself, Nykaa will need various checks and balances—from a robust social media policy in place and upping cybersecurity to crafting a crisis communication plan.