After halving profits, Nykaa aims to double down on omnichannel and new verticals

After announcing a fall in quarterly net profit on May 27, Nykaa is looking to strengthen its omnichannel presence, focus on new business verticals including Nykaa SuperStore and NykaaMan along with its fashion vertical and tie-ups with domestics and international brands.

Commenting on the omnichannel business, Nykaa founder and CEO Falguni Nayar said that it currently has 105 stores across 49 cities and the GMV from the physical stores is 7.5 percent for the March quarter: “The plan is to grow this slightly more and we will be looking to launch 300 stores in 100 cities and expand that further.” Nykaa also plans to launch fashion stores.

FSN E-Commerce Ventures, the parent of Nykaa, reported that its consolidated net profit fell to Rs 8.56 crore ($1.10 million) from Rs 16.88 crore a year ago. The company has been reporting declines in profits in all three quarters since it went public, owing to its efforts to double down on marketing the brand as it emerges from the pandemic.

Nayar cited rising inflation, Covid and reduction in discretionary spends as challenges for the business. She added that while there will be more cuts in discretionary spends in the current quarter, Nykaa’s customer cohort has a higher disposable income and the impact will not be quite strong.

The company said that its key growth strategies will be customer acquisition and retention, tie-ups with domestic and international brands, addressing larger addressable market, scaling new-age consumer brands and connecting with consumers.

The company’s GMV grew 71 percent year on year to Rs 6,933.2 crore in FY2022 and rose 45 percent to Rs 1,797.9 crore in the March quarter. Fashion GMV contributes 25 percent to overall GMV.

Also revenue from operations grew 55 percent year on year. EBITDA margin declined to 4.3 percent in FY2022 from 6.4 percent a year ago.

The cosmetics-to-fashion platform blamed EBITDA fall on launch of new businesses, increased marketing costs, and expansion of fulfilment capacity.

“We saw an increase in fulfilment cost especially with the impact of Covid. So we opened more warehouses to reduce the air and shipment cost. This cut down our fulfilment cost to 9.7 percent in the March quarter under review which is very similar to pre-Covid levels,” said Nayar. Nykaa now has 23 warehouses in 11 cities, she said.

Nykaa's total costs jumped 34 percent to Rs 935 crore, including a 48 percent swell in fulfilment costs, while marketing  and advertising expenses surged 66 percent.

On marketing costs, Nayar said, “We acquired 4.4 million customers despite a very slight increase in marketing costs. GMV from new customers is over 27 percent. In fashion, we acquired more than a million customers last year and that has taken up our marketing cost to 27.4 percent. Fashion is still at an early stage so in a year or two we should see a better returning customer ratio so we can better control the costs of marketing.”

Nykaa’s monthly active users in fashion for FY2022 are 15.3 million while average order value is Rs 3,420. On the beauty side, number of orders grew 58 percent to 27 million in FY2022. Monthly active users for the same period are 20.8 million while average order value has dropped by five percent to Rs 1,864.

Nykaa's other major expense has been investments. The company acquired 51 percent stake in Dot & Key for Rs 96.9 crore. Other investments include Earth Rhythm and Nudge.