Beauty and lifestyle retailer Nykaaexpects online sales to recover faster compared to its physical stores amid the Covid-19 crisis which has severely affected the offline retailers.
Nykaa’s founder and CEO, Falguni Nayar, spoke to ET’s Biswarup Gooptu & Samidha Sharma, in an exclusive chat, about how the company gained from being an omni-channel player, its plans for store expansion, and its IPO roadmap… Edited Excerpts..
How have you dealt with the Covid-19 led lockdown and the impact it had on the business..
We have been operational right from phase-1 of the lockdown because we sell essentials on our website. The government defines essentials to include shampoos skincare, like moisturisers, and we have a lot of personal care, skincare and haircare products, which are considered everyday essentials. We converted our website to sell these products and through that process, we began phase-1, where we recorded some turnover, which was 10%-15% of our business as usual.
We now have 70 stores in 30 cities across the country. We basically pivoted our website to also do hyperlocal deliveries for essential products, but only from our stores. By the end of phase-3, we actually did a ‘Nykaa-turns-Eight’ celebration, and nudged customers to buy essentials and a few non-essentials as well and by phase-4, we added more zip codes.
How has the recovery been for online and offline since the lifting of the strict lockdown over the past one month?
For e-commerce, we came out at about 20% of the business as usual in April, and about 65% of the business as usual in May and for June, we should record upwards of 85%..We are hoping that the same momentum continues and hope to get the full business back by July.
For the physical retail part of our business, we had to shut our stores in March itself. But by phase-3 of the lockdown, we could open our high-street stores in certain states, such as Bangalore, where we have now been doing 80% of the business as usual, since reopening.
We have been happy with our progress so far but the physical retail business is about a couple of months behind e-commerce. We ended May at 20% of business compared to February while in June, we think it will be at 50% and by July, we hope to be at 70%-75% of the business as usual. To be honest, it is hard to predict physical retail as different cities and different geographies behave very differently.
Read: Nykaa sees online sales getting back in shape by end of the month
While you have a robust e-commerce play, in the last two years you also pushed physical stores- a part of the business which has struggled far more due to stores shuttering?
We have been an omni-channel retailer, and are reaping the benefits of the investments that made to push this strategy. Over the last two years of our retail momentum, 85%-90% of our customers were registered in our database. We have been able to cater to them through hyperlocal, and in some cases by taking orders over the phone as well.
Where do things stand with Nykaa’s physical or offline retail business, given that you had ambitious expansion plans?
We had plans to set up about 40 new stores this year. In February, 90% of our stores were Ebitda-positive and we were feeling so good about it. Our offline retail turnover was stretching to be almost 10-15% of our overall sales, and we were hoping it was going to be 20% by next year. The company was profitable for the year ended March 2020, and we believe that we will be back to business as usual, and profitable by July or August.
Covid-19 has forced companies to adopt new business models. You’re doing hyperlocal deliveries from your stores.. tell us about that..
Hyperlocal has worked at a time like this because of the challenges surrounding the supply chain and procurement of inventory. We could do so much, because we were sitting on large amounts of inventory, since we are an inventory-led retailer. Our stores became our mini-warehouses.
Hyperlocal is more efficient on inventory and supply chain costs. We saw our supply chain costs coming down. But it is not, one versus the other. It is all an integrated business.
How has Covid-19 impacted your overall strategy?
We won’t change our strategy. During the early days (of the lockdown), we were getting asked why we weren’t selling vegetable baskets on our website? But we stood clear of that. We did what made sense to us – Masks, PPE kits, and sanitisers. We have a very good understanding of what our business is, and what we are good at. And we are not good at delivering open veg baskets to local areas in a metro.
The kind of businesses a BigBasket or a Grofers are building is very different from Nykaa, and we are not chasing that.
Your business is dependent on consumption, which has been hit due to the macro conditions in the economy, how will the slowdown hurt Nykaa?
I’m not seeing this on the ground. That makes us think that maybe India is different.
Global brands will want to come into India now, because India and China are the last frontiers of consumption and growth, compared to the rest of the world. We are seeing in beauty, international brands have been calling us throughout the lockdown period, and stating that they want to list as early as possible – Maybe by September, October or November.
Even in fashion, while a lot of brands are going slow on new launches, customers are looking to buy something new rather than buying for the sake of buying.
So you expect the beauty category to get impacted?
It depends on what you bring to the consumer. Today, people are saving on other traditional expenses like holidays and commuting.
We aren’t seeing any adversity in any markets..
In fact, we registered an uptick in Tier-2 and Tier-3 demand vis-a-vis Tier-1, because bigger cities are reeling under Covid-19 more where there is demand suppression because people are still scared.
During the lockdown, we became 100% prepaid, and we also knew that there were capacity constraints in our warehouses. We were, therefore, allowing orders only above Rs 1,500, and that helped make a huge improvement in our Average Order Value (AOV), which has now gone up by 30% -40%, both, in our physical as well as e-commerce businesses.
We are not chasing the marginal customer and are happy about where we are and can further grow the market.
Vocal-for-Local is the new mantra. Has Nykaa made any efforts to adopt the same in its operations?
In the e-commerce digital world, a lot of domestic brands are able to become very popular, very quickly. Within a year or two, they can become very big brands and start showing up amongst the top-20-30 in Nykaa. Today, an India-owned and managed brand is able to do very well, and not from just the supply chain perspective. They could be manufactured in India, or could be imported from abroad. But Vocal-for-Local is a good initiative and we are supporting those brands on our platform.
Nykaa has raised almost Rs 170 crore in the last two months. What is the company’s capital runway post the closure of the round?
We were raising this money more for bank covenants and not for cash burn. Our cash burn tends to be very small. We wanted to raise for our capex needs which is only Rs 20 crore-Rs 30 crore.
All of that money is sitting in our bank, and we need not have raised it. We don’t have any primary need to raise more capital in the calendar year 2020, unless the government institutes another countrywide lockdown for an extended period of time.
Given the current landscape, have your plans for a public listing changed?
It was always on the plan but after two years. But if you go by the financial year, we will be below our projected numbers compared to the pre-Covid-19 projections.
Things will get back on track, but the 3-4 months we have lost, will be difficult to regain. But our business will grow. We are already trending to get back to the pre-lockdown of sales activity and spending.
Leave a Reply