Nykaa would rather be premium than be fourth

Two by Two

This episode examines Nykaa Fashion's eight-year evolution and recent strategic pivot from a discount-driven, private-label-heavy model to a focused premium positioning. After

Key takeaways

• Nykaa Fashion turned profitable for the first time after eight years, with GMV growing 30% last year to cross ₹4,900 crore and an EBITDA margin of 0.1%.
• Myntra internally tracks Nykaa Fashion under a dropdown labeled 'others,' grouping it with Shoppers Stop, LimeRoad, and Club Factory, highlighting its perceived fourth-place market position.

Main topics

• Nykaa Fashion's strategic pivot to premium positioning
• The economics of private labels versus marquee brand partnerships

Notable quotes

you open a dropdown called others and scroll past Shoppers Stop, LimeRoad and Club Factory. That is where India's biggest fashion platform files Nykaa's fashion business.

Conclusion

Nykaa Fashion has chosen a high-margin, low-volume path by betting on premium branding and exclusive

Transcript preview

Speaker 2 (0:00) you Speaker 2 (0:02) So let me just begin by asking the question. Your story actually begins with what you write, the Myntra spreadsheet. Can you tell us a little bit about this Myntra spreadsheet? Like, how did you find it? And what is the spreadsheet that's happening and going on inside Myntra? Speaker 1 (0:19) Right. So I have been blessed with this one great source for years. Your sources Speaker 2 (0:25) are fantastic, Dua. Let me just say that. But continue, go on. Speaker 1 (0:29) Genuinely. Also, it's very, let me paint a picture. Most calls I have with this one source are after 10, 11 p.m. when he's had a very hectic day and he'll tell me everything. And he's the one who always shows me, like, why should I just tell you? Let me open this sheet and show you exactly how it is. So when I decided to look at Nika fashion closely, and when I saw the numbers that their quarter results showed that they have become profitable, finally, I thought I should go back to the source who has been in the Flipkart ecosystem for a long time at Myntra. and try to understand from a competitor's perspective, basically, if just this changing of numbers change anything for them of how they view Nike fashion as a business, and who better than this particular source. And the first thing he said is nothing has changed. they look at beauty, I mean, Nika beauty particularly, and they still look at Nika beauty. And he was like, let me share a snapshot of how our screen actually looks in this business meetings where we discuss our competitors. So you have a geo, you have me show, you even have Amazon fashion, which I consider even with the market share that they have a much lower. beauty sorry uh fashion vertical than any other competitor but they track amazon fashion much more closely than nike fashion and he had to take me to a drop down of others where nike fashion's numbers were basically clubbed with um shopper stop then you had lime road club factory names i have not heard in years and you have even Speaker 2 (2:04) i haven't heard of the videos exactly Speaker 1 (2:06) and you have nike fashion's numbers tagged there and you just see Basically, this gives you a clear view of where Myntra, the biggest competitor, the biggest fashion e-commerce platform in India, views Nykaa Fashion's business, where it is. And when I saw where it was clubbed, I was like, yeah, I don't think there's a better picture to go into a competitor's brain and see where they look at Nykaa Fashion. This was the clearest picture I could get. Speaker 2 (2:33) That voice you just heard is my colleague Noha. And if you're a subscriber of The Ken, you've probably read Noha's stories because she covers e-commerce. This is her 2x2 debut. And incidentally, today's story that we're going to tell in 2x2 is actually a story that she had reported over the last few weeks. Now, the reason I wanted to tell this story is because in the past quarter, Naika Fashion did something it had never done in eight years of existence. It made money. Arguably, yes, a tiny amount of money with an EBITDA margin of 0.1%. This was around minus 6.2 % around a year ago. And its GMV, which is its gross merchandise value, grew about 30 % last year and crossed 4,900 crores. And it also grew 54 % in the past quarter. In early August, NICA's share price touched its highest level since January 2022. With fashion, widely read as the reason. Now, I wanted to do this episode because the story of Nika and fashion is fascinating. When Nika started and it just started to do fashion, it started off by doing this really ultra premium luxury fashion, which it tried for a little bit. It tried to invest in some of these brands and then it sort of like pulled back from all of it. And then it went into doing private labels, which is something that all fashion e-commerce companies do. And just now, recently, Nykaa seems to have realized that the actual way how it can make money on fashion and how it can become successful in fashion is by becoming a premium destination. So in some ways, it's going back to where it began, but with a lot of changes. And so the question that I really wanted to ask today was, can you be the best premium e-commerce platform in India? as opposed to being the third or fourth largest mass fashion platform. My name is Praveen Gopalkrishnan and this is 2Night. Speaker 2 (5:12) Now, apart from Noha, my other guest in this episode is Alok Dubey. Alok has spent over 30 years building and running brands in India. At Arvind Fashions, he launched US Polo Association. He ran premium brands at Reliance, led April Group India and Ace Turtle. And these days, Alok is an independent consultant across lifestyle and fashion. Alok had started his career at the Times of India and then spent like 13 years in watches at Titan. But... The brand that he calls the highlight of his career is an interesting one. Speaker 3 (5:47) When I joined Arvind to head the departments to the key accounts business, because I was familiar with that part of business. I was trained in key account management in some way. But later on, I went on to navigate several roles within Arvind. I worked there for 18 years and perhaps launched the biggest. success story of the last decade in India, which is US Polar Association. And also turned around the loss-making flying machine business, which is a old brand from my college days. It used to be a mega brand and I went to work on it and make it relevant for my son's generation. You know, that was incredible. So I think I feel that the turnaround of flying machine in my time was the highlight of my career. Although many of the other things were bigger than that, but to be the 12th entrant and to come back and then become, you know, amongst the top four, quite a good runway. Speaker 2 (6:50) So the reason I wanted Alok in this episode was because he seems to be one of the very few people who can answer this question for me, which is what exactly is a premium brand in India? especially in fashion. It seems like it's a word that's like thrown around a lot. So when you think about brands like say Flying Machine or US Polo, etc. So these are all brands, but are they premium? And is premium really connected to price? Or is it something else? So I wanted to really understand this. So I asked him, can you just explain this to me? And well, we had a fun conversation about that. Would you call them premium brands, Alok? Speaker 3 (7:30) They are, you know, mastige brands, I would say, not premium, not, not, not bridge to luxury, but they're, they're like, yeah, I'm, I'm international, but I am approachable. You know, that kind of an outlook and which is what Indians love. You know, you peg your pricing to 25, 30 % below a Tommy Hilfiger, but give the same quality and surprise them, you know? So that is where I think the product market price fit. what we call as value for money. And that works in India. So which is, yeah. Speaker 2 (8:07) You used a word, you said mass teach. Can I assume it's like a combination of mass and prestige? Is that how it works? Absolutely. Absolutely. Speaker 3 (8:15) So you see, brands are about, you know, an outward, direct self-esteem in a way, symbolic. And US Polo is a brand that carries a very strong symbol of a double husband. It represents, you know, that sense of Polo. It is rooted in Polo. It's basically, it's like in the US and Canada and Mexico, it's a player's body. It's like BCCI, you know, for India. But they monetized it well. They've basically, the purpose of starting US Polo as a brand was to monetize because Polo field is like three times the size of a football field. So you need land. to play polo, then you need horses and each chakkar, if you understand the game, has one set of horses and in a game, full game, four, five sets of horses. So if there are eight players who are playing, you need at least 20, 25 horses minimum, you know, to, it's Speaker 2 (9:08) an Speaker 3 (9:08) expensive game and that's why it remained with the royalty. Speaker 2 (9:11) Therefore, Speaker 3 (9:11) it created that, that elite, elite play and we just watch, you know, that kind of a state. if you can get a piece of that action into a variable, into something which gives you a certain kind of social mobility, then I think the consumers love the authenticity as well as the value proposition that is coming along with it. Got it. And I think that I'm just going to read out some of the brands that you've basically like Speaker 2 (9:40) managed in multiple capacities in India. And just tell me if any of these like, you know, if I'm correct on some of these. This is, of course, US Polo, Flying Machine. You also launched La Martina. You revived Gas at Reliance Brands. CEO of Apparel Group India, which is Beverly Hills Polo Club, R &B. Then, of course, Ace Turtle. Tell us a bit about Ace Turtle. What is Ace Turtle's business model? Speaker 3 (10:04) Ace Turtle's business model is twofold. One is it is basically a digital native. It was born digital. It was meant to basically aid, you know, brands which were navigating from the physical world into the digital world. Many of the brands, apparel brands in India and of course, not only apparel, other lifestyle, fashion, accessory brands. Everybody knew how to sell physically, you know, open a store, open a shopping shop. do some kind of a distribution, sell wholesale. Everybody knew that part. But when it came to digital, they didn't know what one-on-one marketing is, how to slice, what's the funnel, nothing. So they came in a very good position about 13, 14 years back to work on enabling the success of brands in the digital space. And that was their main business model. Speaker 2 (10:57) Could you give us some examples? Speaker 3 (11:00) They worked for various companies like Fossil. They were doing Fossil Group completely. They were doing Luxottica. Multiple such brands, Nike. Nike, they're still doing, I think, to some extent. I think now it is changing hands, but they're still doing it, I Speaker 2 (11:17) think. We'll talk about Speaker 3 (11:18) that. Speaker 2 (11:18) Yes. Speaker 3 (11:19) Yes. And the second part of the model, which is what happened post-COVID was... that they decided to re-pivot the business model and become a licensee also. So they took license of four or five brands. So it's like another company which operates license like Narvendra Madura. And they got license for Lee and Wrangler, which was available then. And they took license for Toyserrus and Dockers later. And now G-Star. So five brands. I think three of them, they're still running to close down. Speaker 3 (11:56) due to operational hassles or import restrictions or whatever. The toys business overall has suffered because of PSI regulations. Speaker 2 (12:06) Yes, we will talk about Nike because Nike is very important to the story of Nike fashion. But before that, I really had to ask Alok the question that I wanted to ask. Speaker 3 (12:17) So Alok, the reason Speaker 2 (12:19) why I got you on this episode and this is an episode about Nike and what Nike is doing with fashion is because... I feel like at the heart of whatever Naika is doing lies this thing called, whatever you call it, premiumization, premium fashion. This is the heart of what's going on with Naika. So I thought that in order to, and this is actually quite frankly, at least from my perspective, and we've spoken about this, like I also used to work at Myntra before. This is one of the most misunderstood. parts of, you know, Indian business. Like everybody wants to be premium, but at the same time, you don't want to be premium because you also want to be mass. So there is this entire thing. So I feel like one of the things I wanted to do today with you is let's just talk about what does premium fashion really mean? Why is it so hard? And what exactly? And then hopefully we'll try to get an understanding of what Naika is really doing. I just start beginning, starting off. I just wanted to ask you, how do you define premium? Suppose somebody just came to you and said, I'm a brand. I want to be a premium brand. I want to do premium fashion. How would you start to break this down from your standpoint? Speaker 2 (13:21) Well, you know, when I Speaker 3 (13:22) used to work in Titan, there used to be a saying that somebody asked, what is Titan? Speaker 2 (13:27) Okay. Speaker 3 (13:28) So a very beautiful answer came that Titan is a mass merchandise brand with premium imagery. So now you can break it in two parts. You're available in 8,000 outlets. But the consumer sees you as aspirational because every single act that you do at his touchpoint. is telling you that I'm slightly better than the other guy. You know, at that time, whether you compare it with the foreign brand, which is probably a Japanese or a Swiss brand, I'm talking about Titan, Speaker 2 (13:58) giving Speaker 3 (13:59) you a contextual example. And I will come to a fashion apparel example again. was that they Speaker 2 (14:07) were delivering, Titan was delivering the same quality, you Speaker 3 (14:10) know, the same assurance, whether it is coming in the form of guarantee or in terms of functionality or in terms of choice of movements and functions and designs available at par. So first of all, you create, you know, you match the rational parameters on which consumers choose. And then you build the emotional appeal around the whole packaging around. around premiumness, which is the consumer's environment, the consumer's lifestyle, the consumer's aspirations and what he wants to do and be. And of course, whether it... For me, a simple definition of a premium brand is it needs to do something to my social mobility. You know, either to self or to the external world. I should feel good about it. And the world seeing using me should feel, you know, good about it both ways. I don't think it has anything to do with price. This price is, you know, luxury in the Swatch Group, luxury is a concept of time and not price. That if you save time and spend more, it doesn't matter. Are Speaker 2 (15:26) you saying that in the fashion side, there are brands that are not necessarily highly expensive, but also are premium? Speaker 3 (15:34) So some several examples are there, which are. You look at the ethnic side of the business in women's wear, there'll be labels, but they're considered very premium. Well, they're not so expensive, you know. Jewelry brands. Speaker 3 (15:55) I mean, Tanishq is considered Speaker 2 (15:57) valuable money. It's not considered expensive. So I'm just going to summarize what Alok said, right? You need to have, if you're a premium brand, you need to have approachable internationalism. You need to be priced a notch below your obvious comparison. You need to have some kind of social mobility, either for self or somebody else. And you need to be priced based on... creating some kind of an emotion and not specifically on material or tags, etc. Now, if you just take this, it looks like Naika spent eight years doing exactly the opposite of all of these things. And we all know where that landed, which was in the drop down under others, at least inside Myntra. But the question I really wanted to find out was how did it get here? So I asked Noha. to walk me through it. And I kid you not, this is really what happened when we were recording. Speaker 1 (16:55) Okay, there's someone at the door. No problem. Speaker 2 (16:57) Take it. No, no, take it. It's okay. Speaker 1 (16:59) Yes, sorry. I am back. One second. Speaker 2 (17:02) No worries. Speaker 1 (17:03) Believe it or not, that was a Nika fashion return. We Speaker 2 (17:08) should keep this in. Okay, go on. One Speaker 1 (17:10) second. Speaker 2 (17:11) Let me ask the question again, which is, could you tell me about Nika's... you know, encounters with fashion. Like it started off doing fashion in its early years. Then for some reason, it seems to have gone away. And now what you're writing is it's back, right? Can you walk us through that journey very broadly, what Nykaa did with fashion? Speaker 1 (17:32) Right. So in general, for any fashion e-commerce platform, there are two ways that you try to grow. You either have private label brands on the platform, your own brands, you get a higher margin from them. Or the second way is you get these global international brands like what Myntra has done for years bringing exclusive brands on the platform like an H &M and the third thing though in Nykaa's case which is kind of interesting is they went ahead with something they did with their beauty thing which is they had Dot N Key which is a very big brand for them they did not own the brand for many years they put more money in it and they acquired it year after year so 25 percent earlier than they had 90 % acquisition, I think, a couple years back. They try to do the same thing in their fashion category where they don't own the brand initially, but they'll put more money in certain brands, which are not key international brands, but in