Nykaa estimates premium segment to be bigger than mass by 2026 in BPC

Mumbai-based Nykaa expects the premium segment in BPC to outweigh the mass categorty by 2026

The mass segment in the beauty and personal care (BPC) category will grow at a slower pace and account for a smaller share of the entire industry, as premiumisation takes centre stage, Nykaa estimated in its annual investor day presentation on June 16.

As of 2021, the mass segment was responsible for 55 percent of the entire BPC industry while the premium segment accounted for the remaining 45 percent, but by 2026, that share will reverse. Growing at a compound annual growth rate (CAGR) of 16 percent, the premium category will enjoy 55 percent of the market share and the mass segment, growing at a CAGR of only 7 percent, will be a smaller chunk at 45 percent on the back of growing income levels.

The reversal can be attributed to more online shoppers. Of the total base of 700 million shoppers, 230 million were from online platforms and 60-70 million were BPC shoppers. Nykaa said it already had 18 million customers from the total universe of 60-70 million BPC shoppers.

Interestingly, the average BPC per capita spend in India was at $15 but for Nykaa it was 5X higher at $80, the presentation showed.

For Nykaa, BPC was the bigger category. BPC’s gross merchandise value (GMV) increased 33 percent from Rs 5,009 crore in FY22 to Rs 6,649 crore in FY23.

On the other hand, the rate of GMV growth for Nykaa Fashion dropped sharply to 47 percent in FY23 after years of steller show, the presentation showed. Nykaa Fashion’s GMV grew 47 percent year-on-year (YoY) to Rs 2,569.6 crore in FY23 from Rs 1,751.6 crore in FY22, which was a 168 percent growth YoY from Rs 653 crore in FY21.

During the company’s quarterly update, Founder and CEO, Falguni Nayar said the Fashion category looks like it was lagging behind because it chases the high-end customers.

“...we are also extremely conscious to continue having this differentiated premium positioning in the market. And we don't want to be cluttering a platform with a lot of low-price affordable brands, which may give us quick conversion, but we do believe that it won't allow the differentiation that we are keeping for the long term,” Nayar had said during the company’s Q4FY23 results.

“So, we are not chasing the highest possible growth in fashion, but we are chasing the right growth that doesn't dilute what the platform has to offer in terms of uniqueness…” she added.

That showed in the monthly average unique users for the fashion category, after remaining flat for about five quarters at 16 million, saw a jump to 19 million in Q3FY23, but settled at 17 million in the last quarter of the previous fiscal.

The average order value (AOV) for the fashion category stood at Rs 4,266 in Q4FY23, which was about 18 percent higher YoY. Even on a sequential basis, the AOV was higher than Rs 3,959 in Q3FY23.

Nykaa also highlighted that it has been working to generate revenue from its innerwear product line Nykd, which is showing signs of promise. In just two years of operation, the product has reached annual revenue of Rs 85 crore and is EBITDA positive.

The company said Nykd is among the Top 3 in India in the bras category in less than 18 months on Amazon. It has achieved a 100 percent YoY growth in FY23 at 50 percent lower marketing spending.

For the brand, UP, Uttrakhand, Delhi-NCR, Haryana, Gujarat, Punjab and Karnataka are existing regions, while Maharashtra, Tamil Nadu, Telangana, Andhra Pradesh, West Bengal, the Northeast and Kerala are the emerging markets.

“In established markets, the repeats are more than 30 percent. Store count grew from 350 in FY22 to 1,000 in FY23 and is projected to cross 2,000 in FY24. Strong trade team across markets with a focus on presence in top pareto stores,” Nykaa said. It has set up four exclusive stores and more are coming up.

The company’s share price ended the day’s trading session at Rs 144.8, jumping 5 percent on Friday.