FSN E-Commerce Ventures: Nykaa’s Business Model and Financials Explained; Overview of Beauty & Personal care industry

Beauty products by Nykaa, an Indian beauty products retailer, are seen for sale in a store at a mall in New Delhi
Nykaa Beauty Products. MeelBijendra/Kanishka

Nykaa is one of India’s leading beauty and fashion omnichannel players with a total of 154 retail stores across 60 cities in India and a customer base of 24 million by the end of March 31, 2023. India’s FSN E-Commerce Ventures Limited is the parent of Nykaa, a cosmetics-to-fashion retailer that sells beauty, wellness, and fashion products across online and offline stores. The company has crossed CCB of 24 million by the end of FY23.

Nykaa’s Product Portfolio

Nykaa’s products are divided into 6 categories:

  1. Skin
  2. Makeup
  3. Fragrance
  4. Hair
  5. Bath & Body
  6. Mom & Baby, Health & Wellness, and Naturals

Nykaa has a range of brands in the field of beauty and fashion across luxury, prestige, and value categories including:-Huda Beauty, Clinique, DIOR, Nykaa Cosmetics, Guerlain, Estee Lauder, PIXI, M·A·C, Sulwhasoo, Jo Malone London, L’Occitane, Hermès, Kama Ayurveda, Forest Essentials, Sol de Janeiro, Lancôme, Tangle Teezer, Charlotte Tilbury, Nautica, The Ordinary, Givenchy, Nykaa Naturals, Dermalogica, Faces Canada, Bed Head by TIGI, Dot & Key, Essence, Innisfree, Makeup Revolution, Herbal Essences, David Beckham Fragrances, Mamaearth, Oziva, Jaguar, Kay Beauty, Wella Professionals, GUESS, Earth Rhythm, mCaffeine, St.Botanica, Lakmé, Plum Goodness, Lotus Herbals, Beverly Hills Polo Club, Pears, TRESemmé, Power Gummies, Hamam, Revolution Pro, Lux, Gillette, Dove, Himalayan Organics, Colgate.

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In April 2012, FSN E-Commerce Ventures Pvt Ltd was incorporated and in the same year Nykaa partnered with Hindustan Unilever Limited (HUL) and L’Oreal. Hindustan Unilever Limited (HUL) is India’s largest fast-growing consumer goods company engaged in food, beverages, cleaning agents, personal care products, water purifiers, and other fast-moving consumer goods (FMCG).

L’Oréal is a French personal care company engaged in hair color, skincare, sun protection, make-up, perfumes, and hair care products. Nykaa partnered with L’Oréal in the year 2012 and launched several brand products including:- YSL & Armani in 2014; Kiehl’s in 2015 (Kiehl’s is an American-based cosmetics brand retailer that specializes in skin, hair, and body care products that was acquired by the L’Oréal Group in the year 2000); Nyx Cosmetics in 2016 (NYX was acquired by L’Oréal in 2014 and NYX Cosmetics offers products including lipstick, lip gloss, and mineral foundation as a part of L’Oréal); L’Oréal Professional and Matrix in 2021; Lancôme in 2023.

In 2016, Nykaa entered into a partnership with Clinique, a subsidiary of Estée Lauder Companies, a manufacturer of skincare, cosmetics, toiletries, and fragrances that typically offer a unique experience with luxury offerings. The first luxury group to partner with Nykaa in 2016 was M·A·C (Make-up Art Cosmetics), which has been named one of the top three global makeup brands and its most popular products are Studio Fix Fluid and Ruby Woo Lipstick. M·A·C is a Canadian cosmetics manufacturer that was acquired by Estée Lauder Companies in 1994, with a 51% controlling stake.

Nykaa also launched several other brand products with Estée Lauder Companies including:- Aveda and Smashbox in 2018; ELCA brand – Nyka on Trend doors in 2019; Too Faced, Jo Malone London in 2020; Tom Ford in 2021; The Ordinary, Beauty & You, Nykaa X Aveda Salons (EBO) in 2022.

In 2018, Nykaa entered into an agreement to launch “Kay Beauty” with Katrina Kaif, a British-Indian actress and model who works in Hindi language films and one of the highest-paid actresses in India. The next year in 2019, the Western wear brand “20 Dresses” was acquired for Nykaa Fashion.

Nykaa launched “Huda Beauty” and “Nykaa Fashion” as a curated and managed marketplace in 2018, followed by “Nykaa Man” in 2019 dedicated to men’s grooming, and followed by “Superstore by Nykaa” in 2021 as a new addition to the Indian retailer ecosystem Direct-to-Retail distribution business.

In the year 2022, Nykaa partnered with ELCA Cosmetics Pvt Ltd, a subsidiary of Estee Lauder Companies, to launch premium salons in India with a special focus on offering luxury professional hair care services to launch ‘Nykaa x Aveda salons’.

Nykaa launched an Ayurveda brand “Nyveda” in the year 2023 exclusively with a range of hair and skin oils infused with potent roots and ingredients with proven benefits of nourishment and care. In the same year, the company expanded its fulfillment centers to 15 cities in India.

Nykaa has also launched several other brands in recent years, including Priyanka Chopra’s haircare brand Anomaly in 2022, Acne Squad (HUL), Ordinary, Sol de Janiero, Nudestix in 2021, and Charlotte Tilbury in 2020. Nykaa opened its first physical store in the year 2014 and in the year 2022 the company achieved a milestone by launching its 100th retail store.

At the end of 31st March 2023, Nykaa had over 6200 branded products across BPC Physical Stores and Fashion Physical Stores from which the company has processed 42 million orders. The company has more than 3400 brand-partners out of the total product line which includes International, Domestic, D2C brands, FMCG, Imports, Global, etc.

Nykaa is currently spending $80 per customer on beauty and $130 per customer on fashion with a TTM base of 10 million. On the other hand, there are currently only 18 million high-income and 115 million upper-middle-income households.

By the end of 31st March 2023, Nykaa has warehouses in 15 different locations in India:- 3 in East, 5 in West, 4 in North and 3 in South of India. The company’s management claims that on an average, 91% of Beauty and Personal Care (BPC) orders are delivered within five days to over 27,800 pincodes in India through warehouses spread across various locations. On the other hand, Nykaa has a 16% market share in the premium online fashion market at the end of FY23.

Nykaa Fashion

As on 31 March 2023, Nykaa Fashion has 13 in-house brands offering a wide range of products such as:

CategoriesNykaa’s in-house brand
Women Indian WearLikha, Nyri, Gajra Gang by Nykaa
Women Western WearTwenty Dresses, RSVP, MIXT
Men’s Innerwear & AthleisureGLOOT
Women Lingerie and AthleisureNykd by Nykaa, Kica
HomeTwig & Twine
Jewellery & AccessoriesPipa Bella, Azai, IYKYK
Source: Nykaa

Nykd: ‘Nykd by Nykaa’ has 4 Exclusive Brand Outlets (EBO) stores with an average size of 650 square feet and over 900 general merchandise outlets across various locations in India. Nykaa Fashion’s business operates in 3 ways:

  1. Marketplace
  2. Business-to-Business-to-Consumer
  3. Inventory Led

Marketplace: Most third-party brands operate through a marketplace model, so most of Nykaa Fashion’s business is driven by marketplaces:- Vendors list their products on the ‘Nykaa Fashion’ website ➡ Buyers find products on the platform and place an order to buy as per their requirement ➡ Vendor ships products directly to customers as per the order.

Business-to-Business-to-Consumer: The brand collaborates with Nykaa Fashion ➡ Nykaa Fashion provides products and services to its customers through its platform. The B2B2C model enables the customer to see the consolidated price of each product and also avoids the need to do KYC (Know Your Customer) on different platforms for buying global/import brands.

Inventory Led: In the inventory-led model the inventory of goods is owned by the e-commerce entity in its own warehouses and sold directly to the consumers. Nyaka Fashion buys products from Brands/Manufacturers ➡ Nykaa Fashion stores the purchased products in its owned warehouses ➡ Buyers find products on Nykaa Fashion’s platform and place purchase orders as per their requirements ➡ Nykaa Fashion ships its warehouse-stocked products directly to customers as per orders.

The company’s management says that 40% of Nykaa Fashion’s gross merchandise value (GMV) in the financial year ending March 2022 is driven by existing customers and the average customer spends INR 9,000 annually while the top quartile customers spend INR 25,000 annually.

Nykaa Fashion has 4 Multi Brand Outlets (MBOs) with an average size of 2,938 sq. ft. while other brands like 20Dresses, RSVP, Likha, and Gajra Gang by Nykaa Fashion have 118 third-party Multi Brand Outlets with an average size of 100 sq. ft. across India.

Beauty & Personal Care Market Size Estimated To Reach $30 Billion By 2026

According to Redseer and Euromonitor HSBC, the total beauty and personal care (BPC) market was $19 billion in 2022, which is expected to reach $30 billion by 2026 at a CAGR of 8-10%. Out of the total $19 billion, online beauty and personal care (BPC) market accounted for $3.2 billion in 2022 which is projected to reach $8.1 billion by 2026 at a CAGR of 27-29%.

The premium segment’s share is expected to increase from 45% in 2021 to 55% in 2026 as consumer preference and demand are shifting from personal care to beauty. Skin care is expected to grow at a CAGR of 20.2%, cosmetics at a CAGR of 16.3%, fragrances at a CAGR of 15.4%, and baby care at a CAGR of 15.2% by 2035, according to RedSeer and Euromonitor HSBC.

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India’s fashion market size expected to reach $147 billion by 2027

According to RedSeer and Euromonitor HSBC, India’s fashion market size is expected to reach $147 billion by 2027, comprising $47 billion unorganized offline, $51 billion organized offline, and $49 billion online. India’s fashion market size stood at $77 billion in 2022, including $34 billion in unorganized offline, $28 billion in organized offline, and $15 billion in online.

On the other hand, a growing problem for fashion e-commerce retailers are various factors such as size issues, fabric quality or designs that differ from what is shown online. Amidst all this, many e-commerce companies are adopting sophisticated technology to reduce cash on delivery (COD) orders and encourage online payments; partnering with brands to create a standard size guide so shoppers can be more confident in their purchases; and improving the information on the PLP (Product Listing Pages) with the type of fabric, quality, source of origin and other details.

Growth in Discretionary Spends in India

India’s per capita GDP in the year 2020 was US $ 2000, which increased to US $ 2500 in 2022. Economists estimate that by 2030 India’s per capita GDP is estimated to be US$ 5500. On the other hand, Beauty and Personal Care (BPC) in India is US $ 15 per person in the year 2022, which is estimated to be US $ 50 by 2030.

According to Credit Suisse, e-commerce accounts for 19% of overall retail spending in India, compared to 45% in China and 30% in the United States. The value share of e-commerce in India is 9-10% of Beauty and Personal Care (BPC), 14% of Apparel, and 27% of Consumer Electronics.

The share of e-commerce in India’s retail spending can be divided into 3 segments: low-income, middle-income, and high-income. E-commerce accounts for 19% of total retail spending in India, of which 37% comes from high-income, 5-10% from middle-income, and less than 2% from low-income households.

Currently, in India the annual consumption in Tier 1 cities is US$ 2400 which is 54% of discretionary spending whereas in Tier 2-3 cities the annual consumption is only US$ 1200 which is 36% of discretionary spending and the remaining 10% is from Tier 4 cities. Economists estimate that the share of discretionary spending is expected to grow at a CAGR of 25% by 2030.

India is at the lower end of per capita GDP and per capita consumption of countries such as Japan, the USA, the United Kingdom, Germany, South Korea, France, Italy, Brazil, Thailand, Malaysia, Russia, China, Indonesia, and Vietnam.

According to Credit Suisse, the share of e-commerce transactions by age group is Gen Z at 31%, GenZ – Millennial at 37%, Millennial at 24%, Gen X at 8%, and Baby Boomer at less than 1%. The age group includes Gen Z 18-24 years, GenZ – Millennial 25-34 years, Millennial 35-44 years, Gen X 45-54 years, and Baby Boomer 55-64 years.

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Per Capita Fashion Spending in India Estimated to be USD 160 by 2030

Per capita fashion spending in India in 2022 is US$ 54, which is estimated by economists to be US$ 160 per capita by 2030. On the other hand, India is at the bottom of fashion consumption and per capita consumption is the lowest among countries such as the US, Denmark, Germany, Canada, UAE, Australia, Sweden, Portugal, Qatar, Kuwait, Spain, Greece, Poland, Oman, Russia, China, Turkey, Argentina, Mexico, Brazil, Colombia, Egypt, and Bangladesh.

50% of households expected to have high purchasing power by 2030

According to the data of the World Economic Forum / Bain Analysis, there were a total of 339 million households in 2022, out of which 18 million households had an income of more than Rs 32 lakh. The same 115 million households had an income of Rs 8-32 lakhs, 114 million households had an income of Rs 3-8 lakhs, and 92 million households had less than Rs 3 lakhs.

Economists estimate that by 2030 there will be a total of 386 million households, out of which 29 million households will have an income of more than Rs 32 lakh. Similarly, 168 million families will have an income of Rs 8-32 lakh, 132 million families will have an income of Rs 3-8 lakh, and 57 million families will have an income of less than Rs 3 lakh.

Nykaa’s Financials

Nykaa recorded a total gross merchandise value (GMV) of INR 97,433 million in FY23, of which 68.4% came from the Beauty and Personal Care (BPC) segment, 26.4% from the fashion segment, and 5.2% from the rest segment. The total addressable market of $100 billion, to reach over $180 billion by 2027. The company’s existing buyer GMV contribution increased from 66% in FY20 to 78% in FY23, as per the Annual Report.

Nykaa’s order-to-visit conversion increased from 3.0% in FY20 to 3.7% in FY23, while on the other hand, annual unique transaction customers grew from 24% to 10 million in FY23. The company had a total of 7 in-house-brand in FY20 which increased to 12 in FY23 and currently has a total of 1,600 SKUs (stock keeping units) at the end of March 31, 2023.

Nykaa has a total of 154 stores in FY23 as compared to only 67 stores in FY20. The total area of Nykaa stores is 1.4 lakh sq ft and the Gross Merchandise Value (GMV) per sq ft of the stores is Rs 3,271. Apart from this, up to 40% of the business of the company’s premium brands comes from brick-and-mortar stores.

In FY23, Nykaa’s in-house-brand ‘Nykaa Cosmetics’ contributed INR 2,500 million while ‘Kay Beauty’ and ‘Dot & Key’ contributed INR 1,300 million each to the annual gross merchandise value (GMV) of the company.

Nykaa processed 16.9 million orders in FY20 which grew to 34.8 million orders in FY23 at a 27% CAGR in 3 years. The company’s Average Order Value (AOV) at Maximum Retail Price (MRP) was INR 1,449 in FY20 which increased to INR 1,857 in FY23 at a CAGR of 9% over 3 years.

Nykaa Fashion: On the other hand, Nykaa Fashion processed 2 lakh orders in FY20 which grew at 188% CAGR in 3 years to 4.8 million orders in FY23. Nykaa Fashion’s Average Order Value (AOV) at Maximum Retail Price (MRP) increased from INR 3,474 in FY20 to INR 4,507 in FY23. Nykaa Fashion’s annual unique transaction customers grew from 1 Lakh in FY20 to 2.5 Million in FY23, a growth of 192% CAGR in 3 years.

Nykaa Fashion had a total of 415 brand-partnerships in FY20 which grew to 2,850 in FY23 and currently has a total of 7.1 Million SKUs (Stock Keeping Units) at the end of March 31, 2023 as against just 50K in 2020.

Meanwhile, the company’s Fashion Gross Merchandise Value (GMV) in FY23 was INR 25,696 million as against INR 17,516 million and INR 6,530 million in FY22 and FY21 respectively. Nykaa’s assortment continued to work towards an asset-light model without compromising on availability, resulting in revenue from operations of INR 4,347 million in FY23 as against INR 352 million in FY20.

Nykaa posted a gross profit of INR 22,781 million in FY23 as against INR 7,581 million in FY20. The company reported an EBITDA of INR 2,560 million for the financial year ended March 31, 2023 as against INR 838 million for the financial year ended March 31, 2020.

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