Nykaa to continue offline expansion; beauty among top 3 categories in malls, says Falguni Nayar

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Nykaa to continue offline expansion; beauty among top 3 categories in malls, says Falguni Nayar

Even though an overwhelming majority of Nykaa’s sales comes from e-commerce, the beauty retailer sees long-term growth opportunities in offline retail and malls.

Nykaa reported a 71 per cent slump in its consolidated net profits to Rs 8.5 crore in Q3 FY23 even though its operating revenues were up more than 33 per cent to Rs 1,462 crore.

E-commerce major Nykaa aims to ramp up its omni-channel presence further. Despite incurring higher expenses on account of new store openings, which hit the company’s bottomline in the December quarter (Q3 FY23), Nykaa plans to add 50 more offline stores this year.

In 2022, its new store openings stood at 45, taking Nykaa’s total store count to 141. “That momentum will continue,” the Nykaa leadership announced in its post-earnings call late on Monday.

Speaking to select media, Falguni Nayar, Executive Chairperson, MD, and CEO, Nykaa, shared, “We will roll out 50 stores over the next four quarters. Even though physical retail accounts for less than 10 per cent of our revenue, there’s opportunity for growth in general trade and modern trade. The demand for beauty is very strong. It is one of the top three categories (along with footwear and sports goods) in malls all over India.”

Nykaa reported a 71 per cent slump in its consolidated net profits to Rs 8.5 crore in Q3 FY23 even though its operating revenues were up more than 33 per cent to Rs 1,462 crore. Higher expenses incurred in retail expansion as well as addition of fulfillment centres ate into the company’s net profits during the quarter.

At the end of Q3 FY23, Nykaa’s retail footprint spanned across 1.4 lakh square feet in 56 cities. The company also operates 40 fulfillment centres in 18 cities, spread across 1.3 million square feet. “Our fulfillment centres have grown massively in 2022. Now we are going into state capitals and opening more regional warehouses. This means we are closer to customers and delivery times will be shorter,” Nayar said.

She added, “We’ve treated 2022 as a year of investment. 50 per cent of our lease costs is towards retail stores, 25 per cent is towards warehouses, and the remaining 25 per cent is for our office space. But these are investments for the future. We believe in this strategy.”

Nayar is of the view that tech startups that are sacrificing long-term growth at the altar of short-term profitability may be doing it wrong. “We would be wrong to give up on long-term growth. Managers who give up on long-term growth for short-term profitability would do more harm to the company,” the former investment banker explained.

She further said, “We are building our business from the long-term perspective and are continuing to stay in a positive zone. We are not going into loss-making territory.”

Nykaa shared that its business momentum in January and February have been strong as well. With declining inflationary pressures and consumers’ rising discretionary spends, the company is on a trajectory to acquire over 7 million new customers — in beauty and fashion — in FY23.

Fashion currently accounts for 30 per cent of Nykaa’s GMV and 14 per cent of its net sales. “It is a significant business now,” Nayar added.

Nykaa shares opened 5.39 per cent down at Rs 149.10 on BSE on Tuesday.