Nykaa cracked fashion at last. Myntra sees no reason to panic

Snigdha Sharma (0:00)

Picture the screen of a senior executive at Myntra, India's biggest online fashion retailer. There is an Excel sheet open, tracking the rivals that Myntra watches most closely. Flipkart fashion, Amazon fashion, Reliance's Agio, MeShow, but there is one name missing.

Nykaa Fashion. To find it, you have to open a drop-down menu, click on the word Others and then look for it. For years, this is exactly where Nykaa Fashion has had in the industry's mind. You probably know Nykaa as a beauty company. It is the place that millions of Indians go to buy lipstick, skincare, perfume, and it has built an empire doing it.

What fewer people talk about is that Nykaa also runs a fashion business. And for most of its life, that fashion arm has been the overlooked sibling. And that is beginning to change now. In the last financial year, Nykaa Fashion sold nearly 5,000 crore rupees worth of clothing and accessories, which is a jump of 30% from the year before. And this figure, the total value of everything sold on the platform, is what the industry calls Cross Merchandise Value or GMV. In fact, in the three months to June, the fashion arm did something that it had never managed to do before. It actually made money. A small profit, but a profit still. Around the same time, Nykaa's share price climbed to its highest level in more than three years. And investors pointed to the fashion turnaround as one of the reasons why. Now, here is what makes this interesting. Nykaa Fashion did fix itself by refusing to play the game the way that the rivals do, which meant no price wars or race to be the biggest. But the same choices have also kept it small. The biggest global brands which are arriving in India now are still walking straight past Nykaa Fashion. So how did Nykaa's overlooked fashion arm finally start winning and why, even now, does so much of the industry still not take it seriously?

Welcome to Daybreak, a business podcast from The Ken. I'm your host, Nykaa Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghese and I will come to you with one business story that's worth understanding and worth your time. Today is Tuesday, the 8th of September.

For years, Nykaa Fashion had an identity problem. It ran a clothing business, but it used the playbook that it had built for makeup. And that meant going light on discounts and leaning hard on slick videos and content instead. It wanted to look premium, and in some way, it genuinely was. The average Nykaa Fashion shopper spent around 4,500 rupees per order. On Myntra and Adjio, for comparison, that same number sits closer to 1,500 to 2,500. So people were spending more per order on Nykaa.

Now the trouble is that a premium price tag needs premium brands behind it. And those were exactly what Nykaa Fashion did not have. Its early efforts went into curating smaller emerging designers and a scatter of digital first names that most shoppers had never heard of. A mass market staple, for example, like H&M, was not even on the platform until this year, partly because H&M had an exclusive deal with Myntra until 2023

So Nykaa charged premium prices without the premium brands to justify them.

To the larger labels, it was a place to dump leftover stock, a kind of a liquidation platform. In the industry's own words to my colleague, The Ken reporter, Nuhab Ubere, it was the industry's fourth platform listed on after the ones that mattered. And then the strategy changed and the change was quite blunt. The management decided it would simply not fight the discount war at all. Instead, it doubled down on being premium and went after brands that shoppers already wanted, and pushed into categories where the price battles were less brutal. It offered third-party brands a friendlier cut of the sales. And it also cleaned house on its own in-house labels, shutting down some offline operations and swallowing losses to get healthier. And it also tightened the screws on shoppers themselves, adding a flat Rs 29 platform fee and penalizing people who return orders too often. And it worked. Nykaa Fashion now carries more than 1,500 outside brands, adding over 130 in a single quarter, including Birkenstock and H&M's Activewear line. H&M, in fact, became its number one brand almost overnight. Men's wear grew 83% in a year. And the cost of winning each new customer fell by nearly a third. All of this goes on to make the next fact about Nykaa Fashion even more striking. More on that in the next segment.

Nykaa Fashion still cannot attract the brands that matter the most right now, which is the wave of global labels pouring into India. Recently, more than 30 international brands entered the Indian market. Almost all of them chose to list with Myntra or Reliance. In August, a Reliance company signed an exclusive deal to bring in Skims, the shapewear label co-founded by Kim Kardashian. Myntra alone has added more than 40 international brands this year. And Reliance carries over 90 global luxury names. Nykaa was largely left out of all of this. So, why do these brands walk past a platform that just turned profitable? Because Myntra and Reliance offer something that Nykaa cannot yet match. Call it full service. They will run a brand's online store, manage its supply chain, handle its marketing and its deliveries, and also hand it instant access to a huge ready-made customer base. For a foreign brand lining in India, that means it barely has to lift a finger to reach millions of people. Nykaa does not have that machinery in fashion.