Why is online champion Nykaa trebling its stores to 300?

Nykaa is valued at ₹1 lakh crore because investors are excited by its online sales of ₹2,450 crores. What explains this new push for offline revenue?

When boys first learn to shave, the most common advice men dole out to them is to “not shave against the grain”. Doing so increases the chances of getting ingrown hair, skin irritation, and razor burn — It is a risky act.

If you look at businesses, most have refrained from going against the grain. They, for the longest time, sold their wares in brick-and-mortar stores and then seeing the rise of e-commerce and change in consumer preferences began to sell their wares online. From Nike and Adidas to Unilever and Reckitt to Lay’s and Coca-Cola, you can buy literally anything online. Even Netflix used to sell and rent DVDs in its infancy before growing up into a video streaming and production giant.

Then came the rebels.

Some companies born of the internet in the 21st century decided to come out of the matrix and enter the real world. They decided to go against the grain. Recently, Tata-owned online grocer Bigbasket opened its first offline store ‘Fresho’ at Basaveshwar Nagar in Bengaluru where customers can buy fresh fruits, vegetables, and daily essentials at competitive prices. Although, Lenskart seems to be the first to rebel.

A few days ago, Falguni Nayar, founder of beauty and fashion e-commerce major Nykaa, told Reuters the company plans to treble its brick-and-mortar store count to over 300 across 100 cities from the present count of 84 in 40 cities.

Founded in 2012, Nykaa sells cosmetics, fashion, and wellness products for women and men largely online. In November this year (2021), it enjoyed a glowing debut on the stock markets and saw its valuation reach USD 14 billion.

It is one of the leaders of India’s burgeoning beauty and personal care market and butts heads with the likes of Purpplle, MyGlamm, WOW Skin Science, Mamaearth, among others. As per financial services firm Avendus, the estimated 2025 market size of the beauty and personal care segment in India is USD 28B.

For a company that blossomed from its e-commerce roots and used it to push through a blockbuster debut at the stock market, the move to double down on its offline presence was intriguing, to say the least. When every company did its best to push customers online, was Nykaa going against the grain?

“While the trend is online, it does not mean offline is dead,” asserts Sanjeev Agarwal, founder at SkinInTheGame Growth Partners (former CEO of Rangriti of BIBA, MD of Skechers South Aisa, and joint CEO of Future Value Retail).

He tells us the premise for Nykaa’s push towards more brick-and-mortar stores could be an attempt to reach customers “who want good brands and could be in any small city”. This is unlike big cities where customers have plenty of choices and not just a Nykaa.

Agarwal feels Nykaa will have to spend a lot of money to advertise its offline presence and that “cosmetics isn't very high margin and the rentals in prime spots in large malls are expensive so if you want to expand, the economics of it will be a challenge.”

There was one aspect of Nykaa’s offline push both of us could agree on: a lot of customers from non-metro areas will have access to global cosmetics and beauty giants. Nayar had told Reuters the physical stores would target Indian consumers wanting to buy touch-and-feel products.

Potential customers can visit a store, test the wares, and then buy the ones they like from the company’s website where some or other discount will sweeten their transaction(s).

"A lot of women I know are trying offline while buying online (for better offers). Makes sense to create comfortable spaces for these trials," says Prakriti Sethia, director and co-founder of Directing IT systems responding to our post on LinkedIn about Nykaa's offline move.

She adds that they (Nykaa) know the purchasing habits of their customers who still rely heavily on free testers available in the stores. “I have always come out of stores wiping streaks of at least half a dozen lipsticks at the back of my hand before I made a purchase. Same with foundations and other make-up.”

Keeping only the benefit of touch-and-feel the stores offer, Nykaa’s move feels like a smooth dab of marketing genius. “Think of it (the move) as a marketing budget where you will get your name known… This will only add to the top line,” remarks Mahesh Murthy, a venture capitalist and head of Pinstorm, a digital marketing firm.

He gives us the example of the electronics company BPL (British Physics Laboratory) that figured out the cost of putting up a billboard in Bombay was more expensive than the cost of opening a store below the said billboard. “When Billboards are going for ₹1 to ₹1.5 lakh a month, you can open a store for that much and pay staff salaries.”

"It's cheaper to open a store in an urban area and have zero sales than have a billboard open in the same area of the same size," he feels. The company has not revealed which are the 100 cities where it plans to triple its store count.

For Jay Morzaria, group creative manager at Schabang, a holistic marketing solutions agency, “it is more of a smart business decision rather than a marketing decision.”

He had commented on our post and said with beauty products, the touch and feel factor plays a very important role in decision making owing to reasons like trust, allergies, and suitability (both physical and financial).

And because Nykaa, being an Indian company, can afford to have an inventory model, it “can map online data about a certain location, assess demand for certain products and stock the physical stores accordingly thereby making deliveries more efficient… a Tier 2 consumer will psychologically have more reasons to buy from Nykaa than from any other vendor now.”

However, if there was one point that caught our (afaqs!) eye was Murthy’s statement about how a good chunk of India is still unaware about makeup and could do with lessons on how to use products. Many cosmetics and wellness brands turned to influencers during the lockdown(s) because DIY make-up and wellness had hit the roof during those 12-15 months.

A comment from Diksha Vidyarthi, an account manager at Torque Communications, on our post was on similar lines. She’d said she relied on YouTube swatches, product images and a lot of other research while purchasing online. “If I get the same product in a store, chances are, I’ll spend less time researching it and I will make a purchase decision faster.”

While the jury is out on the move, we will keep you updated on which cities Nykaa will target with its stores and whether this against the grain move was a smooth one or not.

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