NYKAA CASE STUDY
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| Indian retailer |
Now the question is how did Nykaa do all this? To understand this let us see some strategies implemented by Nykaa in their business. The first strategy is the Opex loop. Well, what is this? Opex means Operating Expenditure and loop means making it rotate. Understand this in the Beauty business, Fashion retail business margin is quite high but profitability is not high. What does this mean? Margin means how much you are earning per sale. How much is your margin? So in beauty products, the margin is high but the profitability is low because of high operating expenditure. This means if you are running a shop then you have to bear many expenses such as expenses of your employees, electricity, racks & shelves expenses, interior maintenance expenses rent and so many expenses are there. And Nykaa has reduced all these expenses by entering into the e-commerce platform. Nykaa has formed its own loop. What is that new loop? High Margin, High Profits, Low Opex. This is a big difference between a shop and an e-commerce store. The operating expenditure of a shop is very high and when you shift to e-commerce then your operating expenditure is comparative very low. And that is why when Nykaa started off they started with e-commerce. They did not have any physical stores initially. Nykaa did an amazing thing with e-commerce which is called Data Leverage. When they shifted to e-commerce then they had customer data. And with this data they leveraged. Well, how did they do it? When you have the customer data then you know their buying behavior quite comfortably. You are aware of the products that the customer wants to buy and the product that he does not want to buy, which product he is more interested in and which product is in his cart, which product he shares with his friend, all these details are available when you shift to e-commerce when you become digital and Nykaa used all this data. With this the COCA - Cost of Customer Acquisition for Nykaa reduced from Rs. 1000 to Rs. 200. Earlier Nykaa used to acquire a single customer for Rs. 1000 whereas today it is just Rs. 200. Why is it so? Because Nykaa has captured a huge space in the e-commerce business. This space is known as Digital Real Estate and with this Nykaa has so much of data today that they know everything about the customers. And they have taken advantage of this in many ways which I will tell you about later. Their next strategy is the PM approach, we are not talking about Modiji, see P means Problem, what is the problem in the market? They first identified the high demand which is increasing day by day but the problem in the market is duplicacy which is very high in beauty products that people are fed up with it. And it is also a big risk factor. Why? Because see, you apply beauty products on your face and on your body, so what happens is when you apply and if any content is faulty then it can damage your skin permanently. So the long-term customer value is very important here. Once the faulty product is delivered then the customer will leave forever. To take care of all these things they, first of all, collaborated with brands like Mak, Lakme, etc. They told these brands that we will sell their products on our platform. Now they also had to maintain the quality that no poor-quality product is delivered. To maintain that they followed Inventory Model. They asked brands to send the stock, we will store it in our inventory and that will be delivered. What happens due to this is quality is controlled. Because now Nykaa knows that the products they have is directly from brands and not from a third-party seller. So Nykaa has an assurance that no poor-quality product is delivered to their customers. And even if it does then the brand is responsible for it and not Nykaa. Now the second factor on which they focused in Marketing, M for Marketing. They saw that it is very important to bring customers but to retain them is even more important. So they used a 360-degree approach. First of all, they did content marketing. For content marketing, they wrote blogs and then they shifted to influencer marketing. They collaborated with many influencers on YouTube. They also had their own YouTube channel where they provide beauty tips to people and also inform them about how to use new products. So that they can maintain long-term relationships with customers and also people who don't know how the products are they learn to use the products. Apart from this, they have done good marketing on their social media handles. They also have given sponsorship to many celebrities. Apart from that, they provide discounts. If you visit the Nykaa website then you will come to know that they annually run thousands of discount offers. And daily you will get some offer or the other on Nykaa. The next strategy is Netted fishing. Understand this, if you are fishing with a fishing rod then you can catch 5-10 fish at the most but if you fish with a fishing net then how many fishes can you catch? Many of them and the same is done by Nykaa. Nykaa has understood that if I run only an e-commerce store then I will not grow big, I will have to do so many other things. Today Nykaa runs its e-commerce store and they also have more than 70 offline stores but are these their nets? no! Then what are there actual nets? Their first net is Nykaa Luxe. Nykaa Luxe deals in high-end brands. There is an expensive brand called Huda beauty they don't have an outlet in India. So all their products are available at Nykaa Luxe. Through Nykaa Luxe they acquire premium customers who prefer expensive brands. Their second net is Nykaa Ontrend where you will find all the trending products in beauty and fashion. This means the trending customers those who say that they want trending products, not the outdated ones, show something new, those customers are acquired from there. Their third net is Nykaa fashion. They knew that beauty alone won't work, the fashion industry also has huge scope and we can expand here as well. So they started Nykaa Fashion. All those women who are interested in fashion can come to Nykaa fashion and can buy clothing Their fourth net is Nykaa Naked. On Nykaa naked all the women buy lingerie. Brother, we are done with external fashion but internal fashion is also necessary. Along with this, they didn't just focus on women. Their fifth net is Nykaa Man where all the men grooming products are available. Now along with this, they had identified one thing in the fashion and beauty industry which was that people now need chemical-free products. So they opened Nykaa naturals. Nykaa Naturals is their sixth net. With their sixth net, they were able to capture all those customers who like to use chemical-free products, and who need beauty products but not chemicals. With this netted fishing technique Nykaa has acquired different varieties of customers. And you can do all these things in your business. You will just have to search for the right nets. Their next strategy is Omni Channel. Now how does this work? Omni channel means you surround customers from all sides so that he does not escape from you and you can in a way easily acquire them. To do this they, first of all, made a strong presence on the online platforms & then online. But they faced the problem that they could not integrate these two platforms together. So they invested in an ERP system to integrate them. With ERP they were able to do real-time management. They knew what was the cost of inventory, what is the expense of salaries, how much is the cost of raw materials and they were able to track the performance of offline stores. Which store needs to be closed and where to open a new one? How is the behavior of the customers? How many are repeat customers and how many are leaving? What are the different things in business? All these things they were able to track with ERP. And thus they were easily able to execute the Omni Channel. And this Omni Channel was used by them to make the start-up profitable. Well, how? Because with the use of Omni Channel they knew which products do customers needs and at what price. Which customer like to buy offline? Which products are sold more in offline and online mode? And then they started their Nykaa range which is a very high profit generating. Why? and How? See for their own range they didn't have to operate on commission. The margin is their net profit after deducting all the expenses. Apart from this, their own range can be sold at low prices easily and in bulk quantity. How? Because they have data. The same thing is done by Amazon, which operated for many years in India and they observed which are hot selling products & then all those products were produced by Amazon itself which we know as Amazon basics. A similar thing was done by Nykaa they used the data and launched their own products to generate profit. Their next strategy is Tight Speed and Tight Actions. Actions should be tight and speed should be fast. How? See most startups fail because they scale up very rapidly in the initial phase. Nothing wrong with scaling up but you have to consider sustainability at the same time. Many startups don't do this and Nykaa did this first. They focused on their e-commerce business initially to make it sustainable. As soon as it became sustainable, they knew that we have data as well as customers after which they started expansion. Firstly, they built the base of e-commerce then they leveraged the data that was available to them, and used that data to launch their new products. Then they did horizontal expansion. The six nets that I have told you, about are all part of horizontal expansion. Nykaa Luxe, Nykaa Ontrend, Nykaa Fashion, Nykaa Naked kept on opening them. They built the base before doing this which is very much necessary. Now let us understand the speed of action, it is very important because the start-up space is very competitive. If you take the time to act then your competitors will beat you. Falguni Nayar was an investment banker earlier so she had experience with how start-ups work? which are the important factors? So she did it carefully, whenever she had an opportunity, she took action with speed but maintained sustainability. No such actions harm sustainability. What happens because of that is the fundamentals of your business are weakened. And if it happens then Nykaa would never have made profits. They carefully considered all these factors. When Covid-19 was there the Nykaa business was affected badly. All their offline stores were shut down. Then they decided to start Hyper Local Delivery. They said whatever online business we are doing, we will connect it with retail outlets. What will happen because of that? Those people who need products, they will get them with home delivery from the nearby Nykaa retail outlet. The product will be delivered fast and the retail stores will have their business as well. And Nykaa will face no problems either.
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Credit: Aditya Saini
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