Nykaa Expects Strong Growth as India Spends More on Brands Like Dior, Shiseido

India's top beauty retailer FSN E-Commerce Ventures Ltd., which operates Nykaa, expects rising affluence to fuel its fast-paced growth in a nascent market as global brands from Dior to Shiseido and Tom Ford lure buyers even in the smaller cities. 

“There is so much growth yet to come,” Anchit Nayar, chief executive officer of beauty e-commerce business at Nykaa told Bloomberg News after the firm launched a flagship luxury store in Mumbai housing a slew of premium labels. 

The company, which makes around 90% of its money from selling cosmetic products, has seen annual revenues jump nearly fourfold to 64 billion rupees ($739 million) post-pandemic.

“Over the past eight quarters, we have not seen any signs of slowdown,” Nayar said. That contrasts with the weak consumption hurting most pockets of the Indian economy. 

India's 100 million affluent buyers are splurging on items from jewelry to top-end apartments and pricey skincare, even as its middle-class cuts back on spending. 

Nayar is particularly bullish on demand in smaller cities where he sees “massive opportunity.” His optimism stems from India's consumption of beauty and personal care products being among the lowest globally. 

Indians spend about $15 on beauty purchases, while China‘s per capita spending on this is $38, and the US is $383, according to a Redseer Strategy Consultants 2023 report.

“When we started this business, the most bought item was Kajal. Today, they use concealer, they use compact, they use blush, they use foundation,” Nayar said.

Customers browse products at a Nykaa Luxe store in Mumbai. (Dhiraj Singh/Bloomberg)

To cater to this changing lifestyle, the firm is aggressively expanding its offline presence as well, doubling store-count to 210 in the last two years. It aims to reach about 400 stores over the next three years.

As Asia's top beauty markets including Japan and Korea near saturation, India's buyers provide immense potential for international firms looking to expand their businesses.

Nine out of 10 beauty brands in the country are international names, with many more set to enter the market, consulting firm Kearney said in a September report.

Competition is upping its game too. Tira, owned by Reliance's retail arm, plans to expand to 100 stores in the next four to five years and Sephora, also owned by Reliance, wants to double its count to over 50 stories in the next three to four years.

Earlier this month, Nykaa said it expects net revenues from the beauty business to grow “higher than mid-twenties”. Shares jumped 5.2% following the announcement.

But challenges abound. The company has missed Bloomberg compilation of analysts' estimates for 11 quarters straight. Shares are down about 60% from their all-time high in December 2021 even as 15 out of 25 analysts tracking it recommend buying the stock, data compiled by Bloomberg show.

The fashion business, which contributed 8% to its business in the financial year ended March 2024, is going through a lean patch. The company launched an instant beauty delivery business Nykaa Now last year to rival rapid delivery platforms muscling into its turf.

“We created awareness that you need to use concealer and you need to use a foundation and you need to use a primer. That's gonna fuel growth for us,” says Nayar.