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August 24, 2024
Writankar Mukherjee & Navneeta Nandan, Economic Times
24 August 2024
Quick-commerce operators such as Blinkit, Swiggy Instamart and Zepto are aggressively trying to lure away consumers from large ecommerce platforms like Amazon and Flipkart by matching their prices across groceries and fast-selling general merchandise, triggering a price war in the home delivery space.
This is a departure from the earlier pricing strategy of quick-commerce players who typically charged 10-15% premium over average ecommerce marketplace prices for instant deliveries, industry executives said.
The strategy now is to win consumers from large ecommerce at a time when urban shoppers increasingly prefer faster and scheduled deliveries, they said.
An ET study of prices of 30 commonly used products in daily necessities, discretionary groceries and other categories, including electronics and toys, in both ecommerce and quick-commerce platforms reveal the pricing disparity has been bridged. “The pricing premium which quick commerce used to charge for instant deliveries is gone with these platforms now joining a race with large ecommerce to offer competitive pricing to shift consumer loyalties,” said B Krishna Rao, senior category head at biscuits major Parle Products.
It seems to be working. Quick commerce is the fastest growing channel for all leading fast-moving consumer goods companies, accounting for 30-40% of their total online retail sales, according to company disclosures in earning calls.
These platforms are also expanding their basket with larger FMCG packs to cater to monthly shopping needs but also non-groceries such as electronic products, home improvement, kitchen appliances, basic apparel, shoes and toys amongst others.
“Consumers have all the apps on their phones and all they want is quick deliveries at the best price,” said Rao of Parle Products.
The increasing competition is putting pressure on ecommerce majors to reduce delivery time.
‘Market acquisition cost’
Flipkart is even eyeing a quick-commerce foray by piloting a 10-minute delivery service called Minutes in some parts of Bengaluru.
Jayen Mehta, managing director of Gujarat Cooperative Milk Marketing Federation that owns the Amul brand, said now that people are buying regularly from quick commerce with an increase in their assortment, legacy ecommerce platforms like Big Basket and Amazon are trying to deliver faster and same day, which has increased competition pressure.
“At the end of the day, consumers compare across channels before buying. So, pricing equality has become important,” Mehta said. “But then, quick commerce has a delivery charge if the order is below a certain value,” he added.
But does their business model allow quick-commerce players to wage a sustained price war against ecommerce platforms?
Quick commerce model requires multiple dark stores to be set up in close vicinity in each market, while ecommerce players mostly make deliveries from centralised warehouses.
But then, quick commerce platforms right now are at a phase where ecommerce was 7-8 years back, said Devangshu Dutta, CEO of consulting firm Third Eyesight.
“Price matching by quick commerce is to acquire market share and is part of market acquisition cost even when it might not be profitable at a per unit transaction level,” he told ET. “They may have to sacrifice margins in the short term to get customers shopping more frequently.”
Blinkit chief executive Albinder Singh Dhindsa earlier this month said the advent of quick commerce has made people want things faster than they would have otherwise got from ecommerce.
“This has led to a direct share shift of a number of non-grocery use cases to quick commerce where customers were primarily reliant on ecommerce for buying these products,” he said in the Zomato-owned quick-commerce platform’s June quarter earnings release.
Dhindsa said quick-commerce platforms are gaining sales by incremental growth in consumption, shift in purchases from next day ecommerce deliveries and mid-premium retail chains.
Citing an example, he claimed the demand Blinkit has generated for online-first oral care brand Perfora is a testament that such brands’ growth and adoption on quick commerce is much faster than on ecommerce.
(Published in Economic Times)
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July 20, 2024
Gargi Sarkar, Inc42
20 July 2024
The Indian government’s ban on Chinese apps and products in 2020 saw two massive casualties. Everyone knows about TikTok, but fast fashion brand Shein was equally as big in India four years ago.
But the India setback did not halt Shein’s global momentum, just as it did not stop TikTok from becoming what it is today. Shein became the world’s largest online-only fashion company in 2022.
Valued at a staggering $10 Bn, the brand accounted for nearly one-fifth of the global fast-fashion market in 2022, outpacing giants such as Zara and H&M. To put things in context, Shein was founded in 2008, whereas Zara was incorporated in 1975 and H&M in 1947.
In India, Shein set the market on fire. Launched in India in 2018, the brand was already a major player by 2020, dominating online searches and influencer-led content. But the ban in 2020 meant all that came to a halt.
The Indian government’s ban stemmed from fears of Shein’s Chinese parent company storing or transferring data of Indian customers to China. While the ban itself came under a tense geopolitical climate, one could say that Shein’s exit left a gap in India’s fashion market which D2C brands quickly filled.
Brands such as Urbanic, Twenty Dresses, Cilory, attempted to fill the void but couldn’t quite match Shein’s popularity. Indeed, VCs also backed fast fashion and casual wear startups such as The Souled Store, Virgio, NewMe and others which looked to replicate the Shein formula.
Ecommerce unicorn Meesho has also looked to fill the gap with affordable fashion and a similar content-led sales strategy that worked wonders for Shein.
While many of these brands have grown in scale over the past four years, none of them — at least so far — have quite replicated the magic of Shein and how quickly it disrupted the market.
And that’s arguably why Shein’s re-entry into India through a partnership with Reliance Retail is a big deal.
Shein joins the Mukesh Ambani-led conglomerate’s exclusive portfolio of over 50 brands, including Silk Feet, Jivers, Xlerate, Feet Up, Dhuni by Avaasa, Riva, John Player Select, Kidlyboo, and Altair. Besides this, Reliance Retail has similar deals with designer labels such as Kenzo, Y3, Marc Jacobs, Coach, Steve Madden, Kate Spade, among others.
It’s clear why Shein has looked to re-enter India, where the fast fashion industry is projected to reach a size of $30 Bn by FY23, as per a Redseer report. The overall fashion segment grew at a modest 6% YoY in FY24, whereas the fast fashion subsegment surged by up to 40% in the same period. Now, Shein is back to grab a large chunk of the market once again, though there’s definitely a lot different about this Shein.
Reliance Punches Shein’s Ticket To India
The first thing that we need to note is that Shein is not back as a standalone entity, but its products will be available on Reliance Retail’s apps and physical stores. Shein is not operating business in India — Reliance is said to be bringing in former Meta director Manish Chopra to lead the brand.
Shein’s parent entity will receive a licence fee as a share of profits generated solely within India. The operations will be managed by a company wholly owned by Reliance Retail. Crucially, all data and the app itself will be hosted and stored within India, ensuring that Shein has no access to or control over this data.
These are some of the key factors behind Shein’s comeback to India being approved by the government nearly one year ago.
Reliance Retail is set to launch the Chinese fast-fashion label Shein within the coming weeks. Further, to diversify its supply chain and promote domestic industries, Shein reportedly will be sourcing goods from India for its global operation in the Middle East and other markets.
More than anything else, fast fashion brands and indeed other some of the more premium brands need to worry about the Reliance factor. Shein’s brand name and Reliance’s massive resource base are a deadly combo.
Reliance Retail’s fashion ecommerce app Ajio directly competes with Myntra, Nykaa Fashion, Meesho, Amazon India, Flipkart, Tata Cliq, and other platforms. From a distribution point of view, Ajio will be the exclusive storefront for Shein, and exclusivity is a big deal in fashion ecommerce.
Ajio commands around 30% market share based on monthly active users (MAUs), data sourced from AllianceBernstein shows.
Flipkart Group’s Myntra maintains the highest market share in terms of active users, surpassing 50%. However, the report notes a decrease in transaction frequency, with Myntra’s GMV growing only 12% in FY23 compared to 35% in FY22.
“Shein’s re-entry may have a somewhat negative impact on Nykaa Fashion, as Nykaa primarily targets the premium fashion segment. In contrast, Myntra caters to both the mass and premium fashion markets and already has strong brand recognition in the fashion industry. Therefore, the impact on Myntra might be mild, whereas Nykaa Fashion could feel more significant effects,” Karan Taurani, SVP, at Elara Capital said.
He added that Shein is part of a broader strategy by Reliance Retail to expand its portfolio of brands. In that sense, Shein is just another addition to its portfolio.
A Myntra executive admitted to Inc42 that Ajio has an edge when it comes to exclusivity, but added that Myntra has also introduced Gen Z-focussed features which are gaining fast traction. Myntra’s focus on in-house brands or private labels is paying off, however, at the same time, the company is also looking to snap up more exclusive brand partnerships.
Should D2C Brands Worry?
One thing that Ajio cannot afford to do is give Shein more prominence. Fashion ecommerce marketplaces are quick to see gaps in terms of sales of particular brands and look to woo them to their side. In this regard, Shein will be competing with a number of D2C brands as well as international labels in fast fashion.
As per Inc42 data, between 2018 and 2023, D2C fashion brands captured almost 93% of the total funding raised in the Indian fashion ecommerce space.
The Myntra executive quoted above believes that Shein will definitely disrupt D2C fashion brands in India as many of them target the Gen Z audience, but they are also looking to protect margins and break into the premium segment.
The D2C landscape in fashion includes the likes of Andamen, House Of Rare, Bombay Shirt Company, Snitch, Damensch, The Souled Store among others. And there are houses of brands such as Mensa Brands, TMRW and others which combined have dozens of brands across categories in fashion. It’s not easy to stand out, and Shein will have to fight for its space on the aisles.
Most of these brands are looking to widen their net margins by adding premium products. Premiumisation is a major thesis among Indian D2C brands right now as they realise many of them are targeting a very limited cream of the market.
On the other hand, Shein has built its reputation on affordability. So is Shein actually directly competing with these players? Market experts believe that Shein is not successful just because of its pricing, but its use of data.
“Brands with the right product and high-quality service should attract customers who are not price-sensitive. A price-oriented brand is not a major threat; the real risk is if your product fails to keep up with market trends. Fashion-driven brands could take your business away if your product quality and service do not meet customer expectations. However, if your product is trendy, the quality is high, and your service is good, you should be safe in retaining customers who are not focused on price,” Devangshu Dutta, founder and CEO of Third Eyesight, said.
Those in the industry do believe that one brand cannot conquer the fashion market. That simply does not happen with the fashion industry, which is why there is so much depth in the market. Shein’s success will lead to the emergence of more D2C brands that look to mimic the data-led, trend-first model.
“The potential of the Indian market is evident, and it’s becoming increasingly exciting. This means that many companies will emerge in this category to serve this customer base. It validates the hypothesis we had two and a half years ago: the Indian consumer is evolving, and fashion should evolve along with them. From that perspective, Shein’s entry justifies and validates our hypothesis,” the founder of a Bengaluru-based GenZ-focussed fashion brand said.
Good brands always emerge from intense competitive churn, and Indian brands have the potential to go global if they hit it big. “Competing against Shein and building a successful business will open new opportunities for us and strengthen our execution and agility,” the founded quoted above added.
Is Shein Ready For Second Innings?
Now, coming back to Shein, it remains to be seen if it will be able to gain popularity like its first stint in India. One must remember that Shein tried to make a comeback in India in 2021 after the government’s ban through ecommerce giant Amazon, but the brand supposedly did not get much traction.
“I think the case of visibility is different when comparing Amazon and Reliance Retail. Through Reliance Retail, the visibility could be much higher compared to Amazon because Reliance Retail already has a very wide portfolio of fashion brands, including more than 25-30 luxury brands across various categories. It’s all about creating visibility, generating buzz, and going to market together in terms of marketing efforts. Reliance has a very strong omnichannel presence, both online and offline,” Elara Capital’s Taurani said.
While Amazon is, of course, a large ecommerce phenomenon, the platform is not a primary port-of-call for online fashion shoppers. This is why Shein could potentially perform better with Reliance Retail.
“We have to wait and see how Shein performs in India. We will need to observe how this unfolds to comment on its visibility and performance, both online and offline. In marketplaces, brands compete daily, and Shein’s strength has always been its designs. We’ll have to closely watch how Reliance leverages this strength,” an industry analyst said.
(Published on Inc42)
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October 26, 2023
Sagar Malviya, Economic Times
26 October 2023
Surging demand for fitness wear and sports equipment for disciplines other than cricket and football helped Decathlon’s India unit expand sales 37% to Rs 3,955 crore in FY23. With more than 100 large, warehouse-like stores selling products catering to 85 sporting disciplines, the French company is bigger than Adidas, Nike and Asics all put together in India.
In FY22, sales were Rs 2,936 crore, according to its latest filings with the Registrar of Companies. The retailer, however, posted a net loss of Rs 18.6 crore during the year ended March 2023 compared to a net profit of Rs 36 crore a year ago.
Experts said a host of factors – from pricing products about 30-40% lower than competing products to selling everything from running shoes, athleisure wear to mountaineering equipment under its own brands – has worked in its favour. “They have an extremely powerful format across different sporting activities and have something for both active and casual wear shoppers. For them, the market is still under penetrated with the kind of comprehensive product range they sell for outdoor sports beyond shoes and clothing,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Even their front end staff seem to have a strong domain knowledge about products compared to rival brands.”
By selling only private labels, Decathlon, the world’s biggest sporting goods firm, controls almost every bit of operations, from pricing and design to distribution, and keeps costs and selling prices low.
Decathlon uses a combination of in-house manufacturing and outsourcing to stock its shelves. In fact, it sources nearly 15% of its global requirement from India across sporting goods. And nearly all of its cricket merchandise sold globally is designed and made in India.
(Published in Economic Times)
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October 7, 2023
Gargi Sarkar, Inc42
7 Oct 2023
The Indian ecommerce industry anticipates a stronger festive season compared to last year with over 20% sales growth, driven by the D2C segment’s expected 40% QoQ surge
The overlap of festive celebrations and wedding seasons, particularly with a later Diwali this year, is predicted to further stimulate demand
Despite the evident purchase intent, retailers are preparing for a possibly neutral festive season as economic challenges may hit consumers’ spending
As the festive season rings in its 10th anniversary in the ecommerce realm, giants like Flipkart and Amazon are prepping for their annual mega sales, set to begin on October 8. This year, however, they will face tough competition from newer players, including Meesho, which carved out a significant slice of the festive sales pie last year.
With new entrants like Tata Neu and JioMart, and fashion and lifestyle ecommerce players such as Myntra, Nykaa, and AJIO, the stage seems to be set for a fierce showdown.
For these ecommerce platforms, the annual festive sales aren’t merely about revenue generation; they’re pivotal customer engagement and acquisition opportunities. These events lure consumers with compelling discounts and promotions, giving a considerable boost to their yearly sales targets.
Through strategic marketing blitzes, they also aim to amplify brand recognition and glean insights into shopper preferences. Following last year’s subdued festivities, market analysts have predicted a revival in shoppers’ enthusiasm this year, forecasting a robust 20% surge in sales.
The festive season this year is set to witness a remarkable upswing in the ecommerce sector’s gross merchandise value (GMV). According to consulting firm Redseer, the GMV is anticipated to see an 18-20% surge, amounting to INR 90,000 Cr, a leap from INR 76,000 Cr in the previous year.
“The preceding quarter (April to June) witnessed a subdued performance in both offline and online retail sectors, primarily due to persistent inflationary pressures. However, the scenario is expected to undergo a transformation during the upcoming festive season. Festive periods tend to unleash latent consumer demand, prompting individuals to open their wallets more liberally,” Ashish Dhir, EVP (consumer and retail) of business consulting and services firm 1Lattice said.
There is a growing focus on electronics and appliances as traditional categories of interest. However, fashion and beauty are also emerging as important categories. The emergence of luxury goods is another important segment, which will likely make waves during the upcoming festive sales.
The ecommerce industry anticipates a stronger festive season compared to last year with over 20% sales growth, driven by the D2C segment’s expected 40% quarter-over-quarter (Q0Q) surge. However, average user spending is likely to remain flat.
Further, Tier III cities and beyond are becoming key revenue contributors, particularly in the fashion and beauty categories. Although consumer sentiment has improved, retailers are wary that buyers could maintain a cautious stance when it comes to spending lavishly.
While there is much to look forward to, let’s delve deeper into what shoppers and retailers can expect from this milestone year, which marks 10 years of festive sales fervour in the Indian ecommerce space.
D2C Brands To Lead The Charge
Notably, the Indian market is projected to have 500 Mn+ online shoppers by 2030, growing at 12% compound annual growth rate from 205 Mn in 2022, according to a 2020 report.
As far as the upcoming quarter is concerned, industry experts forecast that the homegrown ecommerce sector will likely see impressive growth of over 20%.
Playing a pivotal role in this escalation will be the D2C segment, predicted to grow more than 40% QoQ from October to December. Established ecommerce giants like Amazon, Flipkart and Meesho could also be looking at an approximate 30% uptick in sales, according to experts.
Tracing back to the inaugural ecommerce festive sales in 2014, the industry’s GMV was recorded at INR 27,000 Cr. Fast forward to 2023, the GMV is poised to touch an impressive INR 5,25,000 Cr, a nearly 20-fold increase, per a RedSeer report.
Festive Ecommerce OffersAverage User Spending Could Remain Muted
Despite the rise in GMV in 2022 compared to 2021, average expenditure per shopper held steady at INR 5,200 during the initial four days of the festive season sale, according to a RedSeer report.
This year doesn’t seem poised for a significant spike in individual user spending either. However, there is a silver lining in the form of rising consumer activity in smaller towns and cities. On the flip side, elevated living costs in metropolises like Bengaluru and Mumbai could dent extravagant consumer spending, noted Devangshu Dutta, the founder and CEO of Third Eyesight, a boutique management consulting firm.
Yet, with the growing online shopper populace in these cities, there’s potential for the average order value (AoV) to reduce as more users flock online to shop.
“As the online shopping base continues to expand, the average spending per user naturally tends to decrease. This phenomenon occurs as more people venture into ecommerce, with platforms like Amazon and Flipkart extending their reach to cover a broader audience. However, it’s essential to note that this drop in the average ticket size is a common trend when the customer base expands,” Sangeeta Verma, director of digiCart India said.
Consumers Sentiment Positive, But Retailers Remain Realistic
With the waning impact of inflation, India is witnessing a positive shift in consumer sentiment from the previous year. Unlike several developed nations wrestling with inflation, India has remained largely untouched by its dual impact on demand and supply, experts suggest.
For example, Flipkart delivered strong gross merchandise value (GMV) and sales growth in the company’s second quarter of the financial year 2023-24 (FY24), Walmart’s chief financial officer John David Rainey said during an earnings call.
“In India, the distinguishing factor in terms of festive demand is that it’s not merely brand-driven; consumers here are eager to spend, and the purchase intent is notably high. Unlike some developed economies grappling with inflationary concerns, both the demand and supply sides in India have not seen any impact of inflation. The consumer demand continues to stay buoyant,” Chirag Tanjeja, cofounder and CEO of GoKwik said.
The overlap of festive celebrations and wedding seasons, particularly with a later Diwali this year, is predicted to further stimulate demand, 1Lattice’s Dhir added.
Nevertheless, a note of caution reverberates among retailers. Despite the evident purchase intent, retailers are preparing for a possibly neutral festive season as economic challenges may hit consumers’ spending.
However, a recent study conducted by Nielsen Media India and commissioned by Amazon India says otherwise. According to the report, 81% of consumers are enthusiastic about shopping during the upcoming festive season. More importantly, this positive sentiment towards online shopping is not limited to metropolitan areas but Tier II and III cities and towns.
Ecommerce Platforms Ramp Up Efforts To Woo Sellers
In this year’s festive season, a standout trend is ecommerce giants’ intensified drive to court and captivate sellers with multiple strategic offerings like enticing commission rates, equipping them with advanced selling tools, enhancing the overall selling experience, and broadening their outreach.
Recently, ecommerce heavyweight Meesho made its platform accessible to non-GST registered sellers too. Not too behind in the race is Amazon India, which unveiled its multi-channel fulfilment (MCF) last month for D2C brands and retailers. This initiative is expected to aid sellers in managing customer orders from diverse channels.
Meanwhile, Flipkart flaunted its impressive seller growth, citing a tally surpassing 1.4 Mn — a notable 27% jump since 2022. Meesho currently has a seller base of 1.3 Mn and Amazon has over 1.2 Mn sellers.
Echoing the seller-side optimism, digiCart’s Verma said, “As a seller, we hold a very bullish sentiment. We’re so confident that we started stocking up well in advance. The robust build-up is evident from the current numbers. Mature sellers will expand into existing and new categories after.”
A recent survey by Redseer revealed that sellers are projecting a 15% increase in festive sales year-on-year. Even though the recent sales momentum on ecommerce platforms has been somewhat subdued — with only 40% of those surveyed reporting a 10% quarterly hike — there’s palpable enthusiasm for a significant festive sales boost across a multitude of product sectors.
Who Will Drive The Festive Ecommerce Growth?
Tier II and III cities and towns are expected to be the biggest contributors in this year’s festive season sales. According to experts, customers from these cities and towns are keen on giving their wardrobes and beauty kits a festive makeover. Although Tier I cities are spoilt for choice with numerous offline stores, spanning both legacy and contemporary brands, such luxuries are scarce in smaller cities.
However, this is steadily changing now. Some of the prominent D2C brands that have emerged from the country’s Tier II & III towns and cities are Raipur-based Drools, Mohali-based Lahori, Kanpur-based Phool, Coimbatore-based Juicy Chemistry, just to name a few.
Furthermore, consumer demand in the eastern regions of the country, along with enhanced connectivity in the Northeast, is also on the rise. Semi-urban and rural areas are fast emerging as the driving force behind the new wave of ecommerce growth, a trend expected to be pronounced during the festive season.
Considering that a whopping 65% of India’s populace resides in rural regions, the untapped ecommerce potential is immense, according to the Economic Survey 2022-23.
Yet, fostering trust will be paramount. Residents in these regions typically bank on word-of-mouth endorsements and recommendations from local retailers when exploring new products and brands. This is expected to give local D2C brands a much-needed boost in the upcoming festive season.
What’s Beyond The Festive Sale Fervour
As festive trends leave their mark in the ecommerce landscape, we’re likely to witness several transformative strategies. Central to this evolution will be Buy Now, Pay Later (BNPL) schemes. Yet, the traditional cash-on-delivery remains a preferred choice for many.
Ecommerce brands are increasingly prioritising customer retention, recognising that fostering enduring relationships offers more value. This shift is evident in the rise of loyalty programmes.
Notably, Flipkart introduced “Flipkart VIP” – a direct competitor to Amazon’s Prime – right before the festive sales kickoff. Simultaneously, Meesho debuted a loyalty initiative, targeting both customers and sellers.
Apart from the dominant themes, a few other noteworthy trends are slated to redefine the festive shopping narrative. Black Friday, for instance, is set for a revamp. Gen Z’s influence, especially their propensity to favour specific brands, will be significant.
Last year, for D2C brands, the Black Friday event overshadowed the traditional Diwali and Dusshera festivals in sales figures. GoKwik data indicates that brands on their platform saw a staggering 63% rise in GMV during the Black Friday sale, contrasting starkly with the 10-day Diwali sales.
Also, Christmas, too, is evolving. The allure of winter holidays and modern gifting practices are propelling this transformation, turning Christmas into a significant commercial event.
Given that the final leg of 2023 (October to December) will host almost all the major Indian festivals, the ecommerce players are in for a treat. Even though there will be a lot of cut-throat competition among ecommerce players, there will be no dearth of opportunities for them to woo customers who are eager to splurge to add more flavours to their festive celebrations this year. Going ahead, we will keep a close eye on the ecommerce players and D2C brands that will emerge triumphant after the great Indian festive showdown.
(Published in Inc42)
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May 6, 2023
Gargi Sarkar, Inc42
6 May 2023
With one of the largest consumer bases in the world, the Indian retail industry is on a constant upward spiral, thanks to the increase in the purchasing power of Indian consumers and the ever-increasing ecommerce adoption.
Notably, this has helped segments like online beauty and personal care (BPC) sustain and grow faster than the players in the offline space.
According to industry experts, the online BPC market has been growing in the range of 20% to 25% annually, compared to the offline segment at around 8% to 10% a year. According to a IMARC Group report, India’s BPC market size reached $26.3 Bn in 2022 and is expected to reach $38 Bn by 2028, growing at a CAGR of 6.45% between 2023 and 2028.
Notably, in their endeavour to capture this opportunity, new players are entering the BPC space, and the existing ones have started to scale their omnichannel presence.
The newest entrant in the space is Reliance Retail. The retail major forayed into the BPC market with its omnichannel platform, Tira, earlier last month. Along with launching its app, Reliance Retail also opened its flagship Tira store in Mumbai.
It is crucial to note that existing marketplaces like Nykaa and Purplle, and D2C brands such as SUGAR Cosmetics and Mamaearth, too, have started expanding their offline footprint, after scaling up their online presence.
Similarly, offline retailers such as Loreal India, Sephora, and Hindustan Unilever’s Lakme have increased their focus on expanding their online presence via direct-to-consumer websites.
Given that Reliance’s Tira has entered the market with an omnichannel playbook, piggybacking on its parent’s cash reserves, it becomes all the more important to understand what impact it will have in the long run on the existing players and industry dynamics.
According to the industry experts that Inc42 spoke with, the beauty and personal care market offers more than enough opportunities for multiple players to grow, due to multiple favourable factors.
“The BPC segment remains one of the fastest growing categories in consumer retail because the penetration of beauty products has remained relatively low. With increasing awareness, and more disposable income, the BPC segment has witnessed decent growth. Now, since the segment is growing, there is a scope for multiple players to grow. That is why some of the big players have entered into the market,” Ashish Dhir, EVP (consumer and retail), 1Lattice said.
Despite Dhir’s optimism, it is pertinent to note that Nykaa saw some initial pressure on its share prices and overall stock performance with the launch of Tira. Brokerage firm Macquarie said that the entry of new players such as Tira could exacerbate the problems for Nykaa at a time when the competition in the segment is already tough.
In the past, Reliance’s entry into the fashion ecommerce space with Ajio impacted leading existing players like Myntra. Now that we already have an example from the past, coupled with a falling will to spend due to factors like rising unemployment and inflation, it will be interesting to see how Nykaa performs under such pressure.
How Tira Could Threaten Nykaa & Ilks Dominance In The Beauty & Personal Care Space
It is no wonder that Reliance Retail will look at disrupting the market to emerge as a market leader as it has done in every segment.
Compared to sectors such as apparel and telecom, the BPC segment is different, and it is not very easy to scale here the way Nykaa has done over the years, according to Karan Taurani, SVP Research, Elara Capital. He noted that many other players in the past tried to scale but failed.
“Nykaa has emerged as a winner due to several factors such as a superior consumer experience on the app, trustworthiness, and product variety. Currently, the product delivery time is also lesser on Nykaa compared to Tira, although the latter could improve it. Moreover, Nykaa has created a network of influencers over the years, and its approach on social media is very different,” Taurani added.
He, however, highlighted that there will be an initial consumer churn as some customers will try Tira as well, and whether the new venture, Tira, can retain all these customers will depend on the consumer experience it provides.
As per Taurani, marketplaces like Nykaa will see some sort of pinch in terms of demand but will not have a significant impact until Tira offers a differentiated experience. Right now, Tira has very few differentiating factors.
However, we should not forget that Reliance Retail is experienced in building brands and has the heavy financial backing to scale in the offline segment.
Given that many players do not have much experience in the offline segment, they may see a visible impact facing the retail giant in the offline BPC space.
It is important to note that Nykaa’s consolidated net profit fell 70.7% year-on-year (YoY) to INR 8.5 Cr in the December quarter of the financial year 2022-23 (FY23), despite the festive season.
In addition, Mumbai-based beauty ecommerce startup Purplle’s net loss almost quadrupled to INR 203.6 Cr in the financial year 2021-22 (FY22) from INR 52 Cr in FY21.
An optimistic Dhir, however, likes to believe that Tira would only increase the competition in the segment and would not impact the profitability of its rivals, at least in the near term.
Will D2C Beauty & Personal Care Brands Face The Heat?
Along with conglomerate-backed large players such as Tata Cliq and online marketplaces, there are several Indian startups and brands such as mCaffeine, Mamaearth, Sugar and Minimalist, which are looking to capture a big chunk of the ever-increasing BPC market pie.
According to an Inc42 report, BPC will remain one of the fastest-growing D2C segments between 2022 and 2030, growing at a CAGR of 27%.
Talking about Tira’s impact, experts said these (aforementioned) D2C brands will not see any major impact due to two factors.
“Firstly, these brands will have similar arrangements with Tira as they have with Nykaa. Secondly, these brands have created a loyal customer base for the products they offer and they have their recall,” Taurani said.
“While deep-pocketed companies can spend their way into buying the market share, all brands need to be prepared for the long term. Also, for these brands a clear positioning be crucial to stand out, not just in their product and service mix but also the overall customer experience specific to their target audience. This would also give opportunities to several beauty and personal care brands to profitably serve niches that may be too small for the larger companies driving for the market, “Devangshu Dutta, the founder of Third Eyesight, said.
Also, Nykaa and Purplle have a portfolio of private labels, which includes skincare brands such as Dot & Key, Earth Rhythm, and Good Vibes, among others. Hence, it will not be surprising if Tira launches its private labels or acquires small brands to grow its portfolio.
As brands like Dot & Key, and Good Vibes are already direct competitors to these D2C beauty brands, a new player can pose more challenges for them.
What Else Could Work In Tira’s Favour
“Our vision for Tira is to be the leading beauty destination for accessible yet aspirational beauty, one that is inclusive and one that harbours the mission of becoming the most loved beauty retailer in India,” Reliance Retail’s executive director Isha Ambani said at the time of launch in April 2023.
When Reliance entered new segments like telecom and fashion ecommerce with Jio and Ajio, respectively, many of the existing players struggled to sustain in the segment as the Mukesh Ambani-led conglomerate scaled up quickly, thanks to its strong financial position. Hence, it will work as the biggest favourable factor in the beauty and personal care space as well, industry experts believe.
Tira is also expected to lure customers with big discounts. “For Tira, a big chunk of revenue will initially go towards marketing and customer acquisition, at least for the first couple of years, as it is a new brand. More than marketing, Reliance will look at discounting more prominently. Reliance will try to give higher discounts compared to other players,” Taurani said.
He added that Reliance has some expertise in building new platforms, such as Ajio, and a rich talent pool and strong brand exposure.
While players like Tata Cliq, Purplle, and Myntra’s beauty segment have tried to scale up in BPC, none of these players has seen significant growth. Hence, the market consists of one large player, making it easier for a deep-pocket player like Tira to carve its positioning quickly and create a duopoly with Nykaa.
At the time of Tira’s launch, the company said that the brand would offer a curated assortment of the best global and home-grown beauty brands. In terms of its offline play, Reliance Retail can leverage partnerships with global beauty brands and suppliers to get better deals. As it is looking at an omnichannel play at an entry stage itself, it may be able to gain market share from smaller beauty retailers, especially in bigger cities.
The Tira offline store will have the latest beauty tech tools such as virtual try-on to create customised looks and a skin analyser that will personalise and assist consumers in making purchasing decisions based on their needs, the company said.
On the luxury side, Reliance Retail is also directly targeting the market which has higher margins and could eat into the margins of Nykaa easily. It must be noted that Nykaa’s Luxe is still in its infancy.
While it is true that Tira will increase the competition in the BPC segment, it is not likely to rewrite the industry’s future over the next couple of years. Tira currently has very few differentiating factors in both the online and offline segments. Additionally, in the offline segment, Tira has opened only one store while Nykaa already has 141 physical stores across 56 Indian cities, as shared in its Q3 earnings report.
Even though there are glaring differences, some industry experts see Tira’s journey to be the same as that of Nykaa, going ahead.
(Published in Inc42)
