Winning the customer trust and winning their long term engagement is a key focus for , says Falguni Nayar, Founder & CEO, FSN E-Commerce Ventures.
Nykaa’s consolidated net profit of Rs 1.2 crore for the quarter ending September, 2021, is down 95% from Rs 27 crore reported in the same quarter last year and 69 per cent, compared with the June quarter. What changed?
To us, nothing much has changed. Even last year, the first half was a seasonally adverse quarter for our industry and it has always been so. In fact, last year, I am talking about March ‘21. Because of the Covid impact, the first quarter had a loss and even the first half had a consolidated loss which turned into profit for the full year. Our first half losses last year were Rs 25 crore and second quarter last year was just Rs 4.7 crore of profit. These are small numbers.
Last year, marketing cost was only at 5.2% of sales. Again in the first half, which according to us is not sustainable, there was a very low level of marketing which was impacted in the first three months by Covid and second by uncertainty of how long Covid will last. In wake of that, we were conserving capital. All of that has since changed. The market opportunity is huge. This year we are seeing a very strong festive quarter, we were seeing that starting October, which is when our festive quarter begins. We expect the festive quarter to be strong, led by festivals and weddings and demand as well as e-commerce industry which does big sales during Singles’ Day and Black Friday, which we also call Pink Friday.
Given all that, we were investing in customer acquisitions and we have taken up our marketing cost to level of 13.7% in the September end quarter and 12.5% in the first half. We believe that this is as per plan and you can see the impact of that in terms of unique customer visits or annual transacting customers. All those have gone up on both our beauty and fashion platforms.
How will you react to those who say look at this company, it has a market capitalisation of more than Rs 1 lakh crore but quarterly profit of just about a crore of rupees?
I have always said that for any investor to understand e-commerce companies which have a large addressable market and very small e-commerce penetration at the moment. Even in beauty, the industry’s e-commerce penetration is 8% and fashion it is about 12%. So given that the market opportunity is large, all of us are investing in new customer acquisition and our numbers are a reflection of new customer acquisition that we chase in any quarter or in a year versus all the returning customers who come and buy on our platform and for newer segments that we cater to like fashion which is only third year in making.
Obviously during the early phase we spend a lot more on marketing relative to more mature businesses like beauty. I would urge institutional investors and even public investors to understand how our industry functions and with that, all I can say that Nykaa will be reasonably transparent with all our numbers so that they can see that we are treating their capital with a lot of respect. We are doing the right thing from the perspective of what is right in the long run.
Any guidance that you can give to the Street? You are already profitable but you are saying that the 65% decline that we have seen sequentially is also because you had to increase your marketing spends on customer acquisition.
Unfortunately I cannot make any forward looking statement. But all I can say is that our story is pretty transparent and a lot of learnings are there from historical numbers itself. I would urge investors to look at last year’s analysis and also between the first half and second half. In fact, we have seen a very strong growth in revenues year on year. If you look at the first half net revenue growth from ops has grown 91% year on year. We are not even asking investors to extrapolate that for the full year. We are saying most of the learning will come from comparing our first half and the second half last year.
First half was unnecessarily subdued on revenue and hence the net revenue growth for this year is at 91% year on year and in terms of profits also, in the first half, marketing cost was only 4.3% and this year we spent 12.5%. We are going to definitely spend more on marketing but rest assured, all of that will lead to higher level of customer visits, unique customer visits and annual transacting customers and hopefully orders and hence net revenues. That is the whole plan that continues to build momentum in our customer acquisition journey.
Most of the new customer acquisitions are happening in the smaller towns where you are also seeing a more favourable bias when it comes to the wallet share. Nykaa fashion is being seen as the next business that will be scaled up. Bernstein sees that as a much bigger market.Will you be opening more stores and therefore the spend is only going to keep going up?
Yes and no. We are definitely growing in all the markets — tier one, tier two, and tier three and we are not de-prioritising tier one. We want to grow in all the three tiers because if there is demand in metros and there is demand in non-metros, we will be focussing on both even vis-à-vis a physical store rollout or ecommerce and we are just highlighting the reality today where the tier two and three markets are growing faster than tier one because tier one markets were also impacted more by Covid and people not as free about either stepping out or mingling. The level of activity in metros was lower. All that has since changed since October and we are definitely seeing greater desire to enjoy a normal whether it is festivals or weddings or you know year end season so this is a seasonally strong quarter and we are hoping that there will be good growth but yes we will continue to acquire and added it to the top end of our funnel but at the same time our top end of the funnel is very large.
This quarter, there were 21 million monthly visitors on our beauty website and 16 million monthly visitors on our fashion website. Now a lot of our customers know about Nykaa and are familiar with it. They are visiting our website and the task remains to match the right products to the right customers so that they have a pleasant experience and shop online. So winning the customer trust and winning their long term engagement is a key focus for Nykaa.