Reliance Retail has been building its e-commerce play brick by brick. The launch of its fashion portal Ajio in 2016 marked its first step into India’s rapidly expanding e-commerce segment, a move it followed with its e-grocery venture JioMart in 2019. This was followed by a raft of acquisitions across segments. According to a report by The Economic Times, which surfaced last week, now, the company has set its sights next on the online cosmetics and personal care products segment, which has brands such as Nykaa and Purplle as well as marketplaces like Amazon and Flipkart.
The overall beauty and personal care market in India, including physical stores and online channels, is valued at $14-15 billion and is likely to grow at a compound annual growth rate (CAGR) of 8 percent over the next five years, according to Euromonitor. A Jefferies report pegs the value of the online segment at 5-6 percent of the overall market, which would translate to $800 million in revenue. Nykaa, with revenue of $250 million in FY2020, accounts for more than 30 percent of the online market, says the Jefferies report. The company reportedly has 15 million registered users, 5 million monthly active users (MAUs) and fulfils over 1.5 million orders per month. This makes the vertical marketplace the largest beauty and personal care retailer in India.
Nykaa is set to launch its initial public offering later this year. The company filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India last month. The company’s IPO will comprise a fresh offering of shares worth Rs 525 crore and a sale of 43.1 million shares by existing shareholders.
Will the entry of Reliance Retail shake IPO-bound Nykaa’s hegemony in the segment?
The Reliance playbook
Reliance Retail, according to the Economic Times report, plans to launch an online marketplace for beauty and personal care products and also an offline chain of stores. The company plans to sell international brands as well as its own private labels on the platform.
Reliance Brands also has a partnership with several international brands such as Japan-based Muji, Armani, Burberry, Canali, Diesel, and Hugo Boss, which is going to come in handy for the company’s retail unit as it eyes the online cosmetics segment.
Nykaa, too, has a similar model and of late has launched offline stores. It currently operates 82 stores across more than 30 cities in the country. The company has a host of private labels such as Nykaa Cosmetics, Nykaa Naturals and has also tied up with celebrities such as Katrina Kaif and Masaba Gupta to launch exclusive beauty brands. It has also brought several Korean makeup brands to the country.
Experts say that although Nykaa has built a strong brand identity and carved out a niche for itself in the online beauty market, Reliance Retail’s entry is set to disrupt the segment.
“Reliance Retail’s foray into this market needs to be taken seriously, given their wider understanding of the retail ecosystem, financial muscle and also partnerships,” said Abneesh Roy, executive vice president, Edelweiss Securities. “Reliance also will quickly learn from the incumbents and hence they need to be focussed on efficiency and offering consumers a better experience to maintain their edge,” he added.
According to Roy, although the market is small at the moment, it is set to expand and will have enough space for three-four large players. Hindustan Unilever, said Roy, besides the current companies and Reliance Retail, could also emerge as a major entity in the segment given brands such as Glow & Lovely, Lakme, TRESemme and Pond's.
Consolidation on the cards
Industry watchers say that Reliance Retail could also be on the lookout for more acquisitions.
“Several direct-to-consumer brands have cropped up in the online beauty segment of late and it is likely that Reliance Retail might acquire a few brands in the segment going ahead,” said independent e-commerce analyst Satish Meena.
The company’s ambition to rule the online beauty segment, however, has its set of challenges. Reliance is known for its discounting strategy, which might not work in this segment, indicated Meena. “Companies such as Nykaa have built their presence through acing customer experience and Reliance, too, needs to focus on this,” he added.
Reliance Retail’s entry also has the potential to expand the entire ecosystem.
“Two things will happen. Firstly, the market will expand, with the entry of new players, and secondly, it will also grow considerably given the money which will be poured in with Reliance Retail’s foray,” said Harminder Sahni, founder and managing director of the retail consultancy Wazir Advisors.Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.