Nykaa sees a bright spot in cosmetics factories in the GCC

Cosmetics retailer Nykaa is setting its next growth frontier in a new market, the Gulf Cooperation Council (GCC), as it looks to expand its market beyond national borders.

As announced in October 2022, the Mumbai-based company has entered into a strategic partnership with Apparel Group, one of the largest retail conglomerates in the UAE. The e-commerce site titled Nysaa was launched in January this year and marks the first physical retail store in Dubai opened in March, marking Nykaa’s first international foray.

Combining offline and online multi-brand retail, Nykaa aims to gain a significant presence in the region, replicating its national beauty playbook across multiple channels.

“…We believe Nysaa has the potential to become a significant business over time because it presents clear market opportunities,” Falguni Nayar, founder and CEO of Nykaa, said on Wednesday’s fourth-quarter earnings call with analysts.

The e-commerce company also plans to pump significant capital into the venture. In February, the management board of FSN E-Commerce approved the transfer of USD 2.5 million to Nysa. On Wednesday, the company announced it would invest an additional $1.9 million in the venture through its overseas subsidiary Nessa International Holdings.

Nykaa follows in the footsteps of many Indian brands that have ventured into the GCC region, aiming to capture a rich technology-driven customer base.

Read also: Nykaa should focus on digital technology rather than physical technology

Adventure equipment maker Wildcraft India on Wednesday signed an agreement with Apparel Group to sell products in the GCC region. Last year, Tata Group’s Titan announced aggressive expansion of its jewelry brand Tanishq, including in GCC countries.

In 2017, Kishore Biyani’s Future Group also entered the region to expand its FBB fashion business.

A significant opportunity

According to Nykaa’s Nayar, the Gulf region offers a number of opportunities in the beauty market.

The GCC cosmetics and personal care market is worth $30 billion and has the highest per capita spending in the world. What’s more, almost 40% of the population is women – Nykaa’s largest audience – and around 40% of the market is made up of people under 25 years of age.

“The region’s passion for beauty, high per capita consumption, rapid growth potential and consumer profile are clear opportunities,” Nayar said on a call with analysts, adding that Nysaa is able to materialize revenues and profits much faster than other markets.

Read also: Nykaa is elevating the fashion game, but the beauty segment is fading

Nykaa can benefit from Apparel Group’s network of over 2,200 retail stores, including in the United Arab Emirates, Kingdom of Saudi Arabia, Qatar and Kuwait.

According to Karan Taurani, research analyst at Elara Capital, Nykaa’s advantage is driving growth in new markets with its technological expertise and understanding of e-commerce markets.

However, growth may stagnate beyond a point that may result in the need to promote private labels or exclusive brands. “Nykaa does not have a first-mover advantage in the region like in India. To make a name for itself, the company will have to invest a lot of capital in marketing,” Taurani said Mint.

According to Taurani, Nysaa is likely to add marginally to Nykaa’s overall revenue in the near future, while profitability will remain a challenge.

Brand exclusivity on the platform plays a key role in attracting and retaining customers. In India, Nykaa has several beauty brands available exclusively on its platform, including Charlotte Tilbury, Fenty Beauty, Color Pop and Elf Cosmetics.

Taurani noted that the success of Nykaa’s international expansion will be determined by how it chooses to differentiate itself from incumbent retail brands.