To better its profitability profile and improve customer behaviour, Nykaa Fashion has resorted to charging an additional fee on all orders, the unit’s CEO Adwaita Nayar told analysts on August 11.
With the additional fee, Nykaa Fashion has now joined a growing list of e-commerce players who are now charging customers an additional fee and creating a new revenue stream. In June, Moneycontrol had reported that Myntra was charging customers a ‘convenience fee’ of Rs 10 as it looked to curb returns and put itself on a profitable path.
Myntra’s decision was shortly after Swiggy had begun charging a ‘platform fee’ of Rs 2 on all orders from April. More recently, even Zomato began treading the same path as rival Swiggy, and rolled out a ‘platform fee of Rs 2 per order, Moneycontrol reported earlier. While these charges seem nominal they amount to a large corpus for companies like Myntra and Zomato which deliver anywhere between 5 lakh and 20 lakh orders each day.
Nykaa Fashion has, however, taken a slightly more expensive route. The Nykaa Fashion app shows a ‘convenience fee’ component of Rs 29. The fee is even higher in low-value orders. To be sure, the additional charges are only on the Nykaa Fashion app for now and have not been introduced on the main app yet. It was not immediately known if and when Nykaa would roll out a similar fee on its core app.
“Nykaa charges a nominal Rs 29 'Convenience Fee' on all orders. This fee ensures a strong fulfillment network for timely delivery of your items," a pop up on the app read. For orders below Rs 500, a convenience fee of Rs 99 (Rs 29 plus a shipping fee of Rs 70) applies to cover logistics.
The additional charge will bring in some profits for the division, as per the company.
“We're doing a lot on cart charges. Even Zomato and other companies are starting to levy a lot of charges at the cart level, whether it's around shipping or returns or whatever. So, we do feel that there is a margin opportunity in putting some level of charges on the cart level to drive better customer behaviour. That will also drive some amount of profitability,” Adwaita Nayar said on August 11.
The cart charge is just one of the levers Nykaa Fashion was tapping for profitability. The company was also focusing more on womens’ Indian wear over men’s footwear to drive efficiency. At the same time, it was taking measures to curb its return rates.
The additional fee has been passed on to customers at a time when Nayar admitted that Nykaa Fashion was not performing as per internal expectations. She said that the problem was because Nykaa wants to build its business profitably and not lose money. The company had no growth concerns.
“We’re not at all giving up on the growth targets that we believe this business can achieve in the year. Yes, Q1 was a bit odd but Q1 was a bit of de-growth or flat for a lot of the fashion folks. We still took market share but yes it wasn’t up to our overall expectation from a growth point of view,” Nayar said.
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Nykaa Fashion’s gross merchandise value (GMV) grew just 12 percent on a YoY basis to reach Rs 653.7 crore. On August 11, FSN E-Commerce Ventures, which operates Nykaa, saw its profits fall by about 27 percent on a year-on-year (YoY) basis from Rs 4.6 crore in Q1FY23 to Rs 3.3 crore in Q1FY24, dragged by a slowdown in discretionary spends during the quarter.
At the company level, FSN E-Commerce Ventures had reported a net profit of Rs 5.4 crore in Q1FY24, which was about 8 percent higher than Rs 5 crore in Q1FY23.
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