Beauty and makeup brands have been touted as the next big thing in online retail but Manish Taneja has been toying with this thesis since 2012. His beauty startup Purplle raised close to $40 million in 2019 from Goldman Sachs and Belgian investor Verlinvest, compared to the $10 million the Mumbai-based company raised in the earlier seven years.
Many see Purplle as another Nykaa, the bigger online beauty retailer in the country, but with a focus on Tier 2 and 3 markets. Purplle, however, is more than that. The biggest differentiator is the multiple brands that it owns. In a phone interview to Moneycontrol’s M Sriram, Taneja talks about plans to have a Rs 3,000-crore business, the temptation to launch new categories, how his mates at IIT- Delhi inspired him and bouncing back from the Covid-19 pandemic. Edited excerpts:
How is revenue broken up between your brands and third- party brands?
Forty percent of the revenue comes from our own brands and 60 percent from third-party brands. When we launch a new brand and it scales, we will take it outside of Purplle because Purplle should not become the constraining factor from a distribution standpoint. Brands deserve their own distribution. That being said, 97 percent of our revenue is on our own platform, while the rest is Flipkart and Amazon.
A multi-brand strategy is different from say that of Nykaa. Why do you want many brands of your own?
It is a constant conundrum. I think Nykaa is positioned as a retail brand to say in every category I can have a cheaper product, including soaps and face washes. While we do have Purplle cosmetics as one of the brands on our platform, we believe in building individual brands which stand for their own target groups. We don't think one brand should have both toilet cleaner as well as face wash and lipsticks. Finally, the consumer decides who they shop with but this is our thesis.
So how many brands do you want to have in the next couple of years?
Right now, we have seven very sharply defined brands and I think we’ll stay there for the time being. We have seeded them over the last 12 months, so the idea is to scale them up now. One of our makeup brands, NY Bae, is priced at Rs 150-200 a product and we also have a bunch of brands in the experimental stage. We use hundreds of data points from around the world to see what brand we should launch. That is how we launched the rose-hip serum when no one in India knew what that is, in fact most people still don’t know. People ask us if it is related to roses. No, it is a fruit grown in South Africa, good for anti-aging.
We have a high bar on quality. Once a brand starts hitting 4.2-4.3 stars rating on an average, we start marketing it because now we know our product market fit is high. Once it hits a Rs 20-25 crore revenue run rate, we start taking (it) outside Purplle.
What is your revenue now?
We are at a Rs 500 crore revenue run rate, or $100 million GMV (gross merchandise value, which doesn’t factor in discounts).
How has the bounce back from the pandemic been?
We had our best-ever month in February. By March 15-16, we were seeing weakening conversion rates and then of course, hell broke loose. Then we were doing all employee townhalls every week or two weeks. I was also meeting my board every two weeks (virtually) but I think we predicted things really well. For example, when we launched hand sanitisers in March, we knew there would be a price cap on it. Though a lot of companies sold expensive sanitisers, we launched it at 50 paise per ml.
We also knew there would be pressure on supply chains, so we launched it in sachets. They cost less to package and if people already have bottles at home, they can just refill them.
On May 18 when India started opening up, we started seeing conversion rates go up dramatically. On an average, we take 2.5 days to deliver. In April that became nine days. We also agreed that the supply chain will become our differentiator. At that point, it didn’t matter how beautiful your website was. If you have the goods and can deliver it, you matter. So by July-end, we were back to our February numbers.
How was the demand for newer and Covid-specific products?
Ninety-nine percent demand was still for our core products. If a new brand launches sanitisers not everyone is going to buy. There is always a Lifebuoy and Dettol which stands for safety. So as a cosmetics brand, you should not launch sanitiser because that’s not your expertise. You can take advantage of a short-term trend but not for long and brands should not be built with a short-term mindset. October was our best-ever month and put us on a Rs 500-crore revenue run rate.
If you split up your revenue in terms of Tier 1, 2, 3… how does that play out?
Metros are about 25 percent of our revenue, including the top six cities. Outside of metros is about 75 percent. So the smaller cities and towns are important. North is our biggest market and that is true for all companies in this space; per capita people consume more. It is also closely related to the length of the wedding. Punjab and Delhi have reasonably long weddings. Even during Covid if a wedding is seven days long, then more makeup is bought. East is our second-largest market. West Bengal and North East are very important. We have a fulfilment centre in Kolkata. We are opening one in Guwahati as we speak. West and South are smaller for us.
What is your offline store strategy? Are you looking at tie ups? How do you see that market?
We do not have an opinion as of now. We have a very high velocity of experimentation, whatever works, we scale that up. For the moment it does not figure in our near-term strategy. Right now we are doubling the content and scaling up digital marketing and other means of marketing but we are not doing offline in the next six to nine months for sure.
How do you look at the marketplace business versus your own brands?
I think in the next 12-15 months, they will become fundamentally two different entities with different people running them. For the time, I would say, till last year, I was running it, so it was all combined. But I think in the near future, I would say perhaps in 12-15 months from now, they will be run differently, where Purplle will be treated at an arm's length distance, just like any other marketplace will be treated. So one business is a platform marketplace business and the other business is a fundamental brand creation business.
There are many advantages that our own brands have vis-a-vis others. The first thing is the platform is your own, so use it to your advantage. Any new feature that gets rolled out on the platform, you know, you are told upfront, you can be the first consumers of any data feature. Data access is pretty strong. Sampling is very easily available. I think it's a great way to get the first set of customers. So, you know, a lot of things are subsidised for our own brands, which I would say external brands don't have luxury of. It's a very unique position that we have--we have access to consumer data, we are the first port of call and then these brands can basically piggyback on Purplle’s performance and Purplle’s data, technology, customer service, marketing, etc.
Another benefit is that the fixed costs a small brand would usually have, we can make it variable. For example, if you would have been a small brand, you would hire people to do supply chain, people to do services, brand-building agencies, and so on. For our brands it is variable, so you know Good Vibes will pay so much for it but a smaller brand like NY Bae will only pay a small part of it. The cost of brand creation is subsidised.
Because of the pandemic, health and wellness have become crucial for all beauty firms. How important is the health segment?
Right now we're very focused on beauty. One thing I've learned the really hard way is not to be distracted easily because beauty is a Rs 60,000-70,000-crore business in India. Even if you remove the really mass price points, it is still a 40,000-crore business. And premium price points are the ones that are growing much faster than the mass price points. My job is to make a Rs-3000 crore business in that
There will be a time when we start looking at adjacent categories, but I don't think the time is right now. This is the time for focus and execution.
Why do you say you learnt it the hard way?
Well, we did. We made a bunch of errors. In 2014, we expanded into the salon business. We were aggregators of salons. You could book appointments through us. It was a very naive thesis--we basically said if these consumers were our customers, they also needed services. And so we could have them book services and make a commission out of it. But the supply chain of that business is very different. You have to go to salons at every PIN code and ask them to list their menu. It was not at all synergistic to our consumers. So it didn’t work out and is not linked to our current business at all.
Every once in a while people try new things which are completely different. I would say do everything but do it from a beauty standpoint, I'm okay... You want to try offline, kiosks, store, be my guest but make sure that you do it well. Learn from your experiment. And then after that, if it doesn't work out, it's fine. But don't try random things, which you won't be able to follow through. We don't want to get into fashion, we don't want to get into health and wellness. I think we don't have a winning formula there. So it will take time to get there.
Is it also a challenge to stay focused on unit economics and not burn?
I think if you want to build a 20 percent EBITDA (Earnings Before Interest Taxes Depreciation and Amortisation that indicates operating profitability) company, you should not think of I mean, I'm very, very different from the school of thought that believes burning is good.
Do you have 20 percent EBITDA?
Not yet but it is -2 percent, so we don’t burn much either. So yes, like you suggest, we can burn but we should stay very focused. Last year, our burn was minus 2 percent. This year also it will be similar.
As we scale, our marketing becomes more efficient. So our marketing cost also comes down as a percentage of revenue. I think we can become EBITDA positive the day we want, I mean it's a matter of just going a little bit slow and switching on some, some warehouses and marketing costs. And that's it. I mean, we can become EBITDA positive today, it's a question of how we want to operate. But historically, we've been EBITDA positive, and even today we run on extremely high financial discipline
I also don't think it is unit economics that prevents us from entering a new category. I just think that if you have to build a good brand in one single category, it will take you a little bit more time. There will be a time when our growth slows down to say 25 percent per annum. That's when we look at additional levers of growth but as long as our business is growing at 85-100 percent year on year, I don't think we need to look outside of our category.
Consumer brands also strive for customer loyalty. Is a loyalty programme a big part of your strategy?
We do have one called Purplle Elite. You pay Rs 299-499 a year upfront for benefits like free shipping, priority customer service, freebies in every other order. And we are launching more services.
How are the economics of a loyalty programme?
As of now, it contributes to 20 percent of our revenue. So it's pretty significant. We want to make it larger but we don't want to discount. Right now an Elite consumer gives us 11-12 transactions a year, while a regular one gives five. Elite also runs at an EBIT of 8-10 percent, so it is pretty profitable. I think we need to just strengthen our loyalty programme. So a lot of effort will go there but it already has close to one lakh paying subscribers.
Why did you start Purplle? You had an interesting career in investment banking and private equity.
This is my second startup. Between Fidelity (Growth Partners India) and Avendus for a few months, I ran a small startup with a friend called mynextcompany.com. We wanted to build a database of how is it to work at companies with different leaders? Something like glassdoor.com. It didn’t work out very well. And so I went to Fidelity and then you know entrepreneurship is an innate part of me and I wanted to try again. If not now, then when? There’s also this thing about minimising your regret and trying it out.
I was also seeing all my friends do so well in entrepreneurship. If you look at it, you know, Binny Bansal (Flipkart co-founder) is my hostel mate from IIT-Delhi but a batch senior. Pankaj Chaddah (Zomato co-founder) was a batch junior. These guys were not struggling. They were doing incredibly well in 2010. So it felt worth the risk.
As for why the beauty category, it was from a very private equity mindset, a very commercial call. It is a large category, dominated by giants, has high gross margins-- perhaps the highest any industry can have--so all the elements needed for a large business to be built.
What is your biggest challenge?
I think every 500 crore is a new challenge. I don't think there is one big challenge. I think the challenge could be how do you grow from 500 crores run rate to 3,000 crore, how do you launch more products with lesser complexity, how do you recruit people and keep them motivated and as founders leave space for more people to come.
Any exit plans? An IPO, strategic sale?
Not really, we don't think of exits. We luckily have exceptionally good investors. Goldman (Sachs) can give an exit to every investor on our cap table. So you don't really need to plan for any IPO. Verlinvest has a 20-year horizon, unlike any other investor, which is why it's a privileged position that we are in. I did ask Verlinvest three-four months ago, what do they think of us five years from now. And they said, “As long as you’re growing 25-40 percent year-on-year, keep growing. We don’t want to sell.” We are really close with our investors, we treat them as semi- founders. Rahul (Dash, co-founder) or me talk to our investors every day. So, no IPO plan.