Beauty Brands On Nykaa Slash Prices To Attract Budget-Conscious Shoppers

Makeup-to-skincare retailer Nykaa has seen more brands opting for larger self-funded discounts on its platform, in an effort to attract shoppers mindful of inflation. With consumer demand subdued, brands on its platform are focusing on discounts instead of advertising to boost sales."Because of a muted demand environment, they [companies] have chosen to accelerate brand-funded discounts," said Anchit Nayar, chief executive officer of Nykaa E-Retail, during a post-earnings call.This shift has reduced advertising budgets, with funds redirected to discounts in fiscal 2024. "It's fungible for them whether they spend on discounts or advertising," Nayar explained. "It's difficult for them to do both."However, Nayar expects this trend to be short-lived. "Brands don’t like it at all and they are eager to stop it. But they need to see a revival in demand first.".The cosmetics-to-fashion retailer reported over a fourfold jump in quarterly net profit as consumers were drawn to the heavy discounts it offered.The beauty and personal care segment, which makes up the largest portion of Nykaa's revenue, saw a 30% year-on-year increase in gross merchandise value or gross sales during the January–March period—the highest growth in the past six quarters. For the entire year, the segment grew 25%, crossing the $1 billion mark in terms of GMV.Nykaa’s portfolio also includes 13 beauty brands, which collectively grew 39% year-on-year to Rs 1,094.5 crore in GMV in the last financial year, contributing 13% to total BPC sales. One of its in-house brands, Nykaa Cosmetics, achieved an annual GMV run rate of over Rs 300 crore.The company’s bets on acquisitions were also paying off. Dot & Key, acquired by Nykaa in 2021, reached an annual GMV run rate of Rs 700 crore in March..Nykaa's gross profit, which grew 23%, lagged behind operating profit due to lower marketing revenue and weak macros driving higher discounting.The gross margin shrank by 166 basis points to 42.6%, attributed to increased marketing spends and discounts, especially in the beauty segment.The growth run rate for digital companies like Nykaa during fiscal 2024 had been slightly soft, amid a resurgence in physical retail, which the company views as a temporary trend not indicative of future growth.When Nykaa entered the market in 2012, the per capita beauty consumption was $6. Today, that number has more than doubled to $15.Falguni Nayar, the founder and CEO of Nykaa, is confident that the retailer has a clear path to achieving "multi-year growth" as beauty consumption in India is still very low and she sees minimal competition in the market..For Beauty Brands, Small Is Beautiful.Nykaa will continue to open new stores at a steady pace in the current fiscal."We believe there's an opportunity for about 350 to 400 stores in the country," according to Anchit. "We're not even halfway there yet, so you will see a similar pace, if not a slightly accelerated pace of store additions, in the next several years." Currently, Nykaa operates 187 stores in 68 cities, spread across 1.7 lakh square feet. Of these, 106 are in non-metros.The company is also exploring newer, more scalable formats as it seeks to capitalise on the demand coming from tier 2 cities and beyond."Our existing format is very specialty and relatively premium, as a result of which it's important to be in premium destination," he said. Nykaa, however, is currently evaluating the possibility of opening a more accessible, "drugstore-like" format for its beauty products, Anchit said..Nykaa is also assessing the potential of quick commerce as a channel for specific brands, with a limited assortment of basic stock-keeping units."Quick commerce caters more to existing demand rather than creating new demand," Nayar said. "We are currently evaluating the potential of using quick commerce for some of our brands.".Nykaa Has Huge Lead, Edge; To Actively Defend Its Turf: Founder Falguni Nayar

Beauty Brands On Nykaa Slash Prices To Attract Budget-Conscious Shoppers

Brands shift focus from advertising to discounts amid slowing demand and changing consumer behaviour.

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