- Nykaa beat the e-commerce behemoths like Flipkart & Amazon to emerge as a leader in the online purchase of beauty & fashion products.
- Today the company sells a wide range of beauty products and is expanding to new areas like Designer women’s clothing.
Nykaa, the online store company led by Falguni Nayar, has become a company worth roughly 10 billion dollars in less than a decade. Nykaa beat the e-commerce behemoths like Flipkart & Amazon with billions of dollars in their pocket to emerge as a leader in the online purchase of beauty & fashion products.
So, how did an Indian startup defeat the e-commerce behemoths? Well, the biggest enabler in this was the government’s policy to not allow FDI in the inventory model but only in the marketplace model.
In March 2016, the Modi government allowed 100 per cent FDI in online stores that follow the marketplace model, which essentially meant that no FDI is permitted in firms following the inventory model. The marketplace model means that an e-commerce entity on a digital and electronic network will need to bring in an information technology platform to act as a facilitator (for a fee) between the buyer and the seller, but unlike the companies that follow the inventory model, these companies cannot sell their own products.
However, Amazon created companies like Cloudtail to sell products at deep discounts. As of today, “some 33 Amazon sellers accounted for about a third of the value of all goods sold on the company’s website” and Amazon has direct or indirect interests in all these companies.
Nykaa, being an Indian company, utilized the benefits of this policy and established an inventory led model which helped the company to become profitable. Moreover, unlike Amazon & Flipkart, it can also open physical stores being an Indian company and this substantially increased brand awareness and trust among the customers.
However, this was not enough to win the market. The company took many more innovative steps to solve the problems faced by customers of beauty products. One major issue of online shoppers of these products was that they used to get substandard and sometimes even expired products in online shopping. The expiry date of these products used to be erased by online sellers and consumers were cheated multiple times.
These issues made the consumers realize that Amazon and Flipkart are definitely not good alternatives to offline shopping as far as beauty products are concerned. And this left a huge untapped market for Nykaa capitalizing on which it became a 10-billion-dollar company.
Today the company sells a wide range of beauty products and is expanding to new areas like Designer women’s clothing. It is among the few companies in the startup space where the companies burn billions of dollars on customer acquisition. In FY 21, Nykaa posted revenue of 2,440 crore rupees and a profit of 61 crore rupees and this led to a bumper valuation of the company during the stock market listing. Although the share prices of the company have declined substantially since listing, it is still performing better than peers like Zomato or Paytm.