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Hey! In this post I want to talk about Nykaa. Even though I wanted to do a longer & detailed post consisting of Frameworks as well as Company specific details like I have done in case of IEX, Suven, Natco and TIPS, but due to paucity of time that did not seem possible at the moment.

But I could not keep my itch fingers from writing about Nykaa and thus in this post I am sharing the Frameworks & Thought process that I am using when evaluating Nykaa as a business & company.

Value of a Brand In Current Era

Sometime back I had stumbled upon a very interesting piece from Ensemble Capital talking about Brands and what actually is the utility of a brand.

This is a must read for everyone and would be very helpful in understanding even better what I explain below.

This article is the core framework for me when I look at Nykaa.

The above para truly helps us understand what actually does a brand represents for a consumer. In its true sense, a Brand basically helps a consumer in selecting what goods to buy.

In the very early days, a brand might have signified a better/superior product, but that’s no longer true in the modern era wherein every company has products with similar quality & features. What a brand really does is it helps a consumer in selecting which product to buy among so many choices with same quality.

And when I reflect on this, it is actually very true given that most of the FMCG companies no longer manufacture their products, most products are manufactured by a contract manufacturer who would be manufacturing the same product for various other companies as well.

So, the value of a brand has transitioned from signifying a superior product in early days to signifying Trust in the modern era, which basically helps a consumer decide which product to buy among so many.

Ensemble Capital defines this value created by brands as Reduced Search Costs.

A brand basically provides value to a consumer by reducing the efforts that a consumer requires in determining what to buy.

But we are seeing a shift in this ability to lower search costs from manufacturer/provider of goods & services to distributors of goods & services. Ensemble highlights that internet has allowed for reduction of search costs on a global scale. Consumers no longer need to determine which product to choose by themselves instead they are increasingly being helped by others vouching for products on social media or via reviews on various websites/apps/blogs.

Ensemble provides two very good examples of this-

First example is that of Costco. Costco has established itself as a place that only sells quality products. This has resulted in a situation wherein any product that is offered by Costco is considered to be trustworthy. So, it is not the brand that is helping the consumer choose the product, it is actually Costco that is helping the customer to choose. And this has allowed Costco to introduce private labels & non-branded products.

Second example is that of Uber-

Now this is not to say that Brands of providers of goods/services have lost relevance or have no utility, but the thing is that in an era wherein it is increasingly becoming difficult to provide differentiate offerings, when it has become extremely easy for newer brands to reach out to global audience and when the no. of choice available to consumers have increased massively, the brand owners does not commands all the power that they used to, a good part of their value has shifted to distributors that are increasingly helping consumers make decision, which is what is the real value that a Brand offers.

I would also highlight that in some kind of products a brand would be commanding significant value, especially in some areas of offerings of Nykaa, something what Ensemble has termed as Identity Brands.

Even though the brands have upper hand in these categories of products, but distributors still command good brand value through different ways of helping consumer in decision making, which is what we will talk about going ahead.

If one considers this entire shift in the value that a Brand provided- from offering something differentiated, to helping reduce search cost, to the economic shift in this search cost value from owners of brands to distributors, one can really understand the value proposition of a platform like Nykaa.

Nykaa is basically a distributor who commands the reduced search costs value proposition of a brand by helping consumers in decision making while buying Beauty, Personal Care and Fashion products.

Nykaa has become a go-to place for people looking for Beauty products as it is helping customers decide by providing them a rich offering of beauty products, by assuring quality/originality of products as Nykaa works & sources directly from brands and by providing a rich content around products like blogs, reviews, product videos etc.

And content is at the heart of what Nykaa does. Take a look at this snippet from Nykaa’s RHP-

This is exactly what we have discussed above, Nykaa commands brand value as it is helping simplify decision making for consumers.

One of the best case study to understand the success of content led retailing is that of SHEIN. SHEIN is a fast-fashion company based out of China that is valued at over $30 billion.

One should read this blog by Packy McCormick to get detailed insights into what makes SHEIN so successful.

The success of SHEIN stems from two key things-

1. It has been able to integrate its back end supply chain directly with its front end, which is your consumer trends, to offer what is now being termed as Real Time Fashion. (Read the above blog for deeper understanding here)

2. It has been able to stimulate consumer actions, feedback and loyalty like no other retailing company has been able to do. Some of the initiatives taken by SHEIN to accomplish this includes-

The trend of buying off of an influencer’s live stream is what has led to major success of SHEIN. And this video below will give you some good insights on this trend.

(If you did watch above video in full, you would have noticed at ~9 mins, the host talking about risk of working with mega influencers. This is again the same concept of shift of brand value from manufacturers to the distributors/sellers of products)

Nykaa has actually been doing all these things as well. Here are few snippets from RHP highlighting them-

And this what has allowed Nykaa to build a competitive advantage around not just the consumers but also the brands that it is selling. For brands, Nykaa offers the prime destination to market & sell its products.

Look at this snippet from Nykaa’s RHP that highlights the value proposition that Nykaa offers to brands-

And the success of this is evident from the fact that some of the Luxury brands have entered into the Indian market by leveraging Nykaa’s Platform & Brand and are also exclusive to Nykaa in most cases.

Nykaa in some sense has been able to create a network effect wherein its ability to help consumers in decision making is resulting in more traffic and engagement which is again helping Nykaa gain more insights around consumer dynamics, which in turn is helping it increase the value proposition that it can offer to global brands, resulting in exclusive partnerships and is also helping Nykaa in identifying the gaps in the market and then introducing its own brands to fill such gaps; all of which leads to more consumer traffic & engagement, and thus establishing the Network Effect.

One another thing that I wanted to highlight which again makes it possible for Nykaa to help simplify decision making for its consumer is the whole strategy around vertical focus.

So, I have never bought any apparel from e-commerce sites like Amazon or Flipkart, reason being that these platforms are not optimized for fashion products, every product is displayed and marketed in a vanilla offering like an FMCG product wherein discovering, comparing or filtering products is extremely difficult. Plus, there is this constant issue of unlimited offerings by God knows how many brands which makes establishing quality of products difficult because literally anyone can come on these platforms and sell their own brands.

Further, even for known brands, everyone is allowed to market the branded product which in many cases are fakes as well. This has been the issue with even vertical focused players like say Myntra, who even though does a better job at discovering, comparing or filtering than what Amazon or Filpkart does, but it still has the issues of unlimited offerings and establishing quality.

I personally prefer using something like Even though Lifestyle also offers some brands that I might have not known, but I am comfortable with trying them because I know that it is not that anyone can list any brand on Lifestyle and that Lifestyle will only carry products of brands wherein it can ensure a certain level of quality & genuineness.

Look at this comparison done by Jefferies, which highlights the point that we discussed above.

Here as well, Nykaa understands that different category of products needs different consumer journey which is why they have separate platforms for their Beauty products and their Fashion products.

This sums up one of three broad areas that I want to cover on Nykaa. In this part I have tried to explain that brand value also comes from reducing search costs & simplifying decision making for consumers and how this value has shifted to distributors of products & services. I talked about how Nykaa has come to derive this value though its content led & vertical focused strategy which has not only provided Nykaa with competitive advantage from the consumers point of view, but also from brands point of view; resulting in strong network effect for Nykaa.

Two more areas that I would look to cover going ahead is-

1. A very good framework which lists some specific & common traits of some of the world’s leading consumer-oriented stocks/businesses and how Nykaa fares in these traits.

2. Finer aspects of Nykaa as a company- like different business models for its different verticals, marketing strategy, depth of involvement with brands, other various initiative around offline stores, B2B business, Global Store etc

Even though I wanted to do cover all these in a single post, but I realized that most people would derive larger value if I provide atleast some of it before the listing day of Nykaa which is on 11th, as it would help them in decision making on the listing day. A post covering all three parts didn’t seem feasible by 11th; so there you have it, hope it add value.

Stay tuned for remaining parts and lastly, I’ll leave you with these two videos-


Surge Capital is a trade/brand name used by Ankush Agrawal (Individual SEBI Registered Research Analyst INH000008941) to provide equity research services in the Indian Equity Markets.

“Registration granted by SEBI, and certification from NISM in no way guarantee performance of the Research Analyst or provide any assurance of returns to investors”

“Investments in securities market are subject to market risks. Read all the related documents carefully before investing.”

“The securities quoted are for illustration only and are not recommendatory”

This blog was originally published on my personal blog-


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