Can Nykaa Keep Its Market Crown In This Beauty Battle?

When Dubai-based makeup artist Huda Kattan’s brand Huda Beauty first came to India in January 2018, it inked an exclusive partnership with the largest online beauty platform in the country at the time — Nykaa. Cut to 2024, and Nykaa isn’t the only one selling the brand anymore. Reliance Retail’s Tira and Flipkart-backed Myntra also launched the brand on their platforms in January this year. 

When Falguni Nayar launched Nykaa in 2012, it had a clear right to win in the beauty space. It got the brands on its online platform that consumers wanted but couldn’t get access to, especially in tier-2 and tier-3 cities. Over time, the potential for beauty and personal care (BPC) products became clear. A report by HSBC Global Research states that between 2006 - 2022, the BPC sector in India has expanded 4x to reach $19 billion.

India’s underpenetrated beauty market has allowed Nykaa to grow manifold on the back of its first-mover advantage, efforts towards consumer education, exclusive brand partnerships and innovations, but now the competition is heating up. The Q1FY25 results of Nykaa’s parent company, FSN E-Commerce Ventures Ltd. show a 23% increase in its BPC revenue year-on-year, while the consolidated profit after tax reached Rs 13.6 crores, registering a 150% y-o-y growth.

A recent report by Redseer Strategy Consultants and Peak XV Partners (pdf) estimated BPC to become a staggering $660 billion market with a market capitalization ranging from $2.2 trillion to $2.7 trillion by 2027.

Other retailers have taken note and now the BPC retail space has numerous new entrants from big conglomerates like Reliance Retail’s Tira, Tata CLiQ Palette, and Shoppers Stops’ SS Beauty while e-commerce marketplaces like Myntra, Flipkart and Amazon have also ramped up their beauty offerings.

“Everybody has a play but everybody has a very piecemeal play. For example, Myntra will do very well in some categories but not all categories, Tata CLiQ palette has a very geo-specific approach, Purplle is very tier 2 and 3, Tira is trying to be premium, Nykaa even today is actually a little bit of everything,” Nidhi Laddha, formerly a senior manager, category marketing and strategy at Nykaa and now head of marketing for LoveChild by Masaba, told The Core.

As the beauty space heats up, traditional differentiators like exclusivity and competitive pricing are getting democratised. While Nykaa has the advantage of being the first mover in many areas and commands a 25-30% market share in the online BPC market, new players have some tricks up their sleeves which might cause unease if not threaten Nykaa’s position.

Just The Two Of Us

Nykaa currently boasts the largest portfolio of brands in beauty and personal care in India with over 3,400 brands. It has a host of exclusive brand partnerships like e.l.f., Charlotte Tilbury, Fenty Beauty and Sol De Janerio.

While Tira has a modest 800-1,000 brands in its portfolio, it is also building many exclusive brand partnerships, the latest being Italy’s Kiko Milano, homegrown skincare brand by Deepika Padukone 82°E, Korean skincare brands like Skin 1004, Allies of Skin etc. Meanwhile, SS Beauty has partnered with Japanese company Shiseido Asia Pacific to launch the global makeup brand Nars Cosmetics in India.

Inking an exclusive partnership is a common practice for brands as it helps them get a marketing advantage and the local expertise of retailers. “Eventually, I may be proven wrong, but it(exclusivity deals) will not be more than a couple of years at the max,” Madhumita Mohanty, who closely watches the beauty industry and was formerly working with Health & Glow, a beauty & wellness retail chain, told The Core.

Mohanty argues that even if retailers like Nykaa are the biggest in the category, the overall BPC market is much bigger. “If you look at this $20 billion BPC market, online is maybe $1-2 billion. And probably 30-40% of that is Nykaa,” she said.

“Brands used to come in initially exclusively with Nykaa or with Tira, and you will see a little bit of that over the next year or so, but they also realise that they are missing out on a very large aspect of business across the other platforms,” Radhika Ghai, co-founder of Kindlife, an e-commerce company focusing on Korean and cruelty-free beauty and personal care products, told The Core.

Kindbox is a business-to-business arm within Kindlife that distributes international brands in the country by partnering with other distribution channels, primarily quick commerce and other horizontal players. Ghai said that in the future, brands might launch their new lines on a single platform but they would like to be present across platforms as well. Kindbox has started signing exclusivity deals as short as two months with platforms already.

Counting On Discounting

Competitive pricing with deep discounts is another factor that helped Nykaa gain the market share that it did, in addition to the exclusive availability. Now retailers looking to enter and scale their beauty business are also using discounts to gain customers.

“In the beginning, in the first five years, they were into heavy discounting. Gradually, they moved away from the discount game and focused more on the value proposition. But I think now with increasing competition, definitely, I do see more discounts,” Mohanty said.

In Q1FY25, while Nykaa Beauty’s GMV grew by 28%, the net revenue rose by 23% due to discounting, the company said, adding that they expect the discounts to moderate.

“I think we won't see any further discounting. The worst is over as far as discounting is concerned,” Karan Taurani, senior vice president and research analyst at Elara Capital told The Core.

Show Me The Tech

For the next leg of growth, retailers are using tech innovations and personalisation to help customers discover new products. AI-powered chatbots, virtual try-ons as well as in-store “skin analyzers” are becoming the norm.

Consider Tata CLiQ Palette for example. “Personalisation lies at the core of this vision, not only online but offline as well,” Gopal Asthana, chief executive officer at Tata Cliq said at the launch of its offline store in Navi Mumbai.

Their “beauty ID technology” collects information about skin type, concerns and preferences and then provides recommendations based on this data. Kindlife also has an AI-driven bot called “kiki.ai” on its app and website which helps consumers make purchase decisions based on questionnaires. “On the app, we see about 10-15% of our customers using it already but we have also not been very aggressive about it as yet,” Ghai of Kindlife said.

Nykaa is also making moves in this space. “We have now something called cohort-based discovery live, whereby customers who showed a propensity to buy luxury products, get shown a higher share of luxury brands on their home feed,” Anchit Nayar, CEO of Nykaa Beauty said in the investors meet for Q1FY25.

He added that data on users’ category affinity, based on products that they have searched for in the past are being utilised to curate collections like “explore your favourite brands”.

Myntra Beauty’s skin analyser tool has helped the brand get a 20% to 30% higher conversion rate for consumers who interact with these tools, Nandita Sinha, CEO of Myntra had told Livemint in an interview.

Premium Brands

Reliance has traditionally been a big disruptor in various consumer categories, like its telecom company Jio, where it gained a big market share with cut-throat pricing. However, in beauty, its platform Tira is more premium-focused.

This may have to do with the fact that the premium segment of the BPC industry is growing at a much faster rate. “The growth of the masstige and premium segments is even more pronounced in India, where they are growing two times as fast as the mass market segment,” the Redseer report said.

Nykaa too is betting big on its premium and prestige brands’ portfolio which accounts for a third of its overall GMV, and more than 65% of the GMV from retail stores.

However, Mohanty argues that the mass segment in India has a larger opportunity as India’s per capita spending on beauty, in spite of its growth in recent years, will make penetration for luxury and premium brands harder in the future. “You cannot win the game if you ignore mass. The big ticket sizes might come from premium brands but the mass is where the volumes lie,” Mohanty says.

Offline Strategies

Traditionally, beauty buying was a touch-and-feel experience and after an e-commerce boom propelled by the COVID-19 pandemic, people are moving back to offline stores to make their beauty purchases. Hence, retailers are also expanding their store counts hoping to cash in before their competitors.

Purplle, a multi-brand beauty retailer founded in 2012, has recently received fresh investments of Rs 1,000 crores from Abu Dhabi Investment Authority (ADIA) and other marquee investors. The retailer aims to utilise this money primarily for offline expansion. It currently has just two offline stores and wants to scale it to 5-10 stores in the coming months.

Mohanty says that investments in physical store footprint will be crucial for any retailer going forward. “With all this glamorization of online, people tend to forget that online is a minuscule part of the total retail, irrespective of the sector,” she said.

While most retailers have already dabbled in some form of offline presence, it is a capital-intensive move, which puts conglomerate-led platforms with ample money in the bank at an advantage.

“If Nykaa has to look at more stores, physical stores is a tougher game than, say, the online space. Now that it's a listed company, it will also have to keep an eye on the profits,” Mohanty added.

Nykaa currently has 200 stores in the country, of which 100 were added in just the last two years. However, the offline arm contributes 8% of the company’s omnichannel GMV. Nykaa says this because the number of brands in offline stores are much less at 80-100 whereas online they have over 3,600 brands.

For Nykaa, which built its brand online and opened its first physical store only after two years of operation and reached a store count of 100 only in 2022, physical might remain a small part of its overall business, Laddha says. The purpose behind its offline presence might not be less sales-oriented and more of a brand-building exercise.

“Now it is about building recall and awareness and presence so the numbers may not show but they (physical stores) will still do the job. For them (Nykaa) offline will not just be about the stores they have, it is about what they are curating in the beauty world,” Laddha said.

In contrast, Tira seems to have an offline-first bent. Within a year of operation, they have opened 11 stores. Being a Reliance-backed brand, money won’t be a big issue either. Additionally, the conglomerates enjoy a pre-existing retail footprint much larger than digital-first retailers like Nykaa or Purplle. This would make offline distribution via kiosks and popups much easier for them.

Regardless of the moves being made by competitors, Nykaa’s market share is unlikely to be disrupted in a big way, Taurani says. “The challenge is for them to move beyond the 25-30% (market share). With quick commerce, vertical players, horizontal-based super apps doing BPC, I don’t see Nykaa gaining more market share. I think in a realistic scenario, they can only maintain market share,” he said.

Editor's Note: The number of brands under Nykaa's beauty and personal care portfolio was wrongly mentioned as 6,700 which is the consolidated number of brands in the company's portfolio. The error has been corrected.