Katrina Kaif, instead of going for Amazon India or Flipkart, chose to forge an exclusive partnership with the seven-year-old beauty e-commerce site to launch her Kay Beauty’s lipsticks, kajal, and more.
Upon closer look, Nykaa looks like the obvious choice for beauty aficionados. The online retailer sells over 1,000 brands and serves over 30 million visitors per month, of which 60% are loyal repeat customers. It also runs 50 physical stores.
“I felt the beauty industry was too small in India compared to the US or Korea or Japan, and I felt it was because there were certain barriers in terms of being a long-term inventory business which can’t do well straight in retail,” Nykaa’s founder and CEO Falguni Nayar, an investment banker-turned-entrepreneur, told Quartz at Kay Beauty’s launch on Oct. 22. “With the advent of e-commerce, I felt that created a space for beauty to be really serviced well in India.”
The company has raised over $100 million since its inception in 2012. After its most recent funding round in April this year, its valuation surpassed $700 million, putting it firmly in the “soonicorn” club—soon-to-be unicorns, or private startups valued at over $1 billion. After the funding, Nayar had told Quartz that profitability was on the cards this year.
At the launch of Kay Beauty in Mumbai, Nayar discussed Nykaa’s journey thus far, including whether profitability plans are still on track. Edited excerpts:
How has India’s online beauty industry changed since Nykaa broke into the scene in 2012?
Initially, when we entered the market, retailers with 80 stores would not even do Rs80-100 crore of business (a year). While personal care is big in India, premium beauty, which includes makeup and skincare products, had very limited demand. As a result, when Nykaa jumped in, we realised that beauty needs education. We saw consumers wanted to consume content and then they were more sure about consuming beauty (products). With the advent of Nykaa, the premium category grew something like 8-10X, and so did our turnover.
With what metrics do you measure success? Do you think it’s important for Nykaa to become a unicorn?
“If you have the right financial metrics, the valuation follows.” I always wanted to build a long-term sustainable business. That doesn’t mean you’re profitable from year one. You have to invest, but with a clear vision and path to profitability. We’ve been very capital efficient. We already are EBITDA (earnings before interest, tax, depreciation, amortization) positive and we’ll be profit positive very soon. Valuation was never important to me but the financial metrics are important, and if you have the right financial metrics, the valuation follows.
The startup industry is largely male-dominated in India. What is it like being a woman founder?
I think, most of the time the barriers are in women’s minds. The minute they decide to do something, they will realise there are really no barriers outside. Women do not even dare to dream because they feel they’ll wind up unsettling their lives. Our message is that they must dare to dream.
You just launched Kaif’s line. Actor Janhavi Kapoor creates content on Instagram for you. How important are celebrities in pushing Nykaa?
The celebrity reach is amazing but brand endorsements, in the traditional sense, don’t work anymore. What works is authenticity. Our brand will be represented by what we call everyday girl-next-door, or Nykaa army, and it could be our employees to small influencers to big bloggers, and celebrities. We feel that there should not be any do’s or dont’s. It should be a brand embraced by all.
The buzz is that your latest fundraising round will be used to boost your retail efforts. Please elaborate.
In physical retail, we have maybe 40-80 brands but for these brands which are sold offline, sometimes retail stores account for 40-50% of their total sales. On e-commerce, we have over a thousand brands and we reach (customers) all across the country. With stores, we cannot be in every city. India’s a big country. But we feel both have a place of their own and we believe in omnichannel. You do right for the channel.
We run 50 stores. We’re going to take it to 180 stores. We have a lot of stores in Bombay, Delhi, and Bengaluru. We are also going into smaller towns like Bareilly, Indore, Bhopal, Ahmedabad, Baroda, and Surat so definitely, we do believe we’ll continue to go to a reasonable number of tier 2 and tier 3 cities.
What is your typical user-demographic like and has it changed over the years?
From the beginning, 90% of our buyers were below the age of 35. There were older beauty consumers, but they were not on the internet. Now, the older customers are also coming online.
Demand in smaller cities is growing. Earlier, metro and tier 1 cities, were where 60% of demand came from. Now about 50% comes from tier 2 and tier 3. The northeast is a strong market for us.
Predominantly, 85% of customers were women, but now we have Nykaa Man to tap into men’s interest in grooming and beauty. We also got into fashion.
How are the newer experiments like Nykaa Man and Nykaa Fashion doing?
Everything is a long journey. Today, we are where we are in beauty after years of hard work. In fashion, it’s only the first year, so after another three years, fashion will be as big as beauty was last year.
Similarly, with men, they have to go through a lot of education. Certain aspects of beauty are not so relevant to them, like makeup, but there are other aspects like skincare, haircare, and grooming, which are equally important.
Since you’re largely a third-party retailer, how do you choose which brands to carry on your platform?
“We are a retailer first, we will support every brand.” A lot of our consumers are very savvy, and so are our employees. They ask us to get us these brands. We don’t choose a brand and push it, saying this brand is giving us better margins. We believe in the brand and the efficacy of their products. We are a retailer first, we will support every brand. We don’t play favourites. E-commerce is an open book and my partners will know if I do.
What has been your greatest strength?
Being inventory-led worked for us most. In beauty, there are lots of fake products. Even now, I hear that, on Amazon, Huda’s brand sells at 30-40% discount. Huda doesn’t believe in even 5% discount, so I know that can’t be genuine. We are an exclusive partner with Huda. Our consumers understand that more than us, and say Nykaa has genuine products. They trust us. A symbol of trust is usually this big banyan tree, a very old organisation. I wondered how a young company like ours would earn consumer trust but it happened in two-three years because we did everything right.
And your greatest challenge?
I think our challenges are behind us. I entered a tech-led area and I didn’t have a co-founder from the tech field, so we struggled with our early capacity building. Our first chief technology officer quit. Then our second CTO quit. But we’ve figured it out. Today, I can say we are a tech company in the beauty industry.