The beauty industry is changing, and D2C brands are seeing an enormous growth in a short period of time.
Nykaa, the online beauty and fashion retailer, is looking to raise $500 million via an historic initial public offering (IPO). Going by the draft papers, the company’s public share sale will consist of a fresh issue of shares of up to ₹525 crore ($70.63 million), and an offer for sale (OFS) of up to 43.1 million shares. The company is expected to go public at a valuation of more than $4 billion.
Falguni Nayar is the founder of Nykaa, and if the IPO goes as planned, Nykaa will be India’s first women-led unicorn to go public. Nayar owns around half of the company with her husband and their twin children, meaning the value of their stake could surpass $2 billion if the startup reaches or exceeds initial projections. According to Bloomberg, this means that Falguni Nayar may become a billionaire with this IPO.
Growth Of Beauty Startups
One of the sectors that clocked huge growth during the pandemic is online beauty and personal care, and Nykaa’s IPO is one of the proofs of such growth. The sales of beauty products, including makeup, fragrance, wellness and personal care consumables increased during the lockdowns. Analysts told Business Standard that the trend has been made possible due to two reasons — higher household savings during the lockdown, and a jump in orders, particularly from women, in tier II and tier III cities.
The below graph shows how the size of online sales channel as a distribution channel has grown over the past few years, and will continue to grow in the future as well.
Source: TechSci Research
This rise in consumer spending has also led to a jump in the funds raised by beauty startups. According to data from Tranxcn, as mentioned by ETtech, in the first three months of 2021 alone, the *Direct to Consumer (D2C) beauty space in India witnessed more funding than in all of 2020. *D2C is a retail model where brands can market, sell and ship their products directly to the consumer without any middlemen being involved in the process.
There are several D2C beauty brands in India, and some of them, including mCaffeine, Khadi Essentials, Arata, SUGAR, WOW Skin Science, Plum Goodness, Nua, My Carmesi, Pee Safe, PeeBuddy, The Man Company, Beardo and The Moms Co., have emerged as big players in the online beauty and personal care space.
Source: HelloMeets
Earlier, it was all about bigger companies like L’Oréal Paris, Revlon, but now D2C companies are emerging as strong rivals to the big cosmetics and personal care giants. If we compare the growth rate between popular beauty companies, and D2C brands, we could see how the latter is doing better than the former. For example, famous brands like Revlon and Lotus took nearly 20 years to hit the ₹100 crore revenue mark. However, it took MamaEarth 4 years and SUGAR eight years to reach that milestone. Bigger personal care companies like Emami and Marico have already invested in The Man Company and Beardo, respectively, understanding the potential of D2C brands.
The Growing Industry
The beauty and skin care industry is changing. Gone are the days when only established brands were making revenue by selling beauty and personal care products. These days, you don’t need a physical store, but only a website and good products. Some brands sell products via Instagram, before developing a fully functional website. The rise of social media usage, and influencer marketing has changed how the beauty and cosmetics industry has been functioning until now. Influencer marketing has shown that anyone with a few hundred thousand followers has the potential to make small brands immensely popular.
According to a report by Avendus, the global beauty and personal care market is anticipated to hit $725 billion by 2025. The report also said that the Indian market is projected to grow to $28 billion by 2025. The D2C Beauty And Personal Care Brands In India: Customer Perception Report, 2021 by Datalabs by Inc42 Plus, estimates the number of online beauty shoppers in India to be over 122 million by FY2025. The report also said that the market opportunity for D2C brands in beauty and personal care space will be $5.6 billion in India by 2025.
In The End
These days, the conversations around beauty and skincare are changing. What was once seen as silly and reserved only for film stars, makeup, is now seen as something that is empowering, and loved by all genders. Earlier, skincare products were targeted only for women, but now, men are also taking care of their skin by investing in high-quality products. So, this market will continue to grow in the future as well. We might also see more D2C brands popping up to spoil consumers with more choices than ever before.
But the question is, will these D2C brands survive in a market dominated by big beauty brands? Sakshi Chopra, Principal at Sequoia India told ETtech, the country’s beauty e-commerce space will adapt to multiple models. Chopra added that some brands will be acquired by big players and others will go on to build a house of brands, like a digital version of Unilever or Procter & Gamble. At the end of the day, the consumers will emerge as the winner, with more choices than they could handle, but who doesn’t want more choices when it comes to choosing lipsticks, and eyeshadows?
