ONLINE-TO-OFFLINE COMMERCE
Nykaa, Zivame, Faballey — Brands that successfully implemented Online-to-Offline commerce.
Being a digital-first brand — Nykaa, Zivame, and Faballey had success with their omnichannel strategy (Online and Offline channel). The power of customer experience is truly seen by its right mix of Online and Offline commerce.
Nykaa
It is a wider opinion that the vertical marketplace (Eg: Nykaa) would never be able to complete or scale with a horizontal marketplace (EG: Amazon): The larger customer base, infrastructure, technology, funding, and supplier network of a horizontal player would outperform a vertical player. Nykaa’s 100% growth year on year says otherwise, Nykaa has been a revelation.
Nykaa was founded in 2012 by Falguni Nayar as an e-commerce website that sell beauty and wellness products.
Beauty the complex kind
Electronics category or consumer products can take “one size fits all” approach to sell, but beauty and personal care, on the other hand, has to be personalized according to the skin type, skin tone and complexion , sensitivity, and climate. So, the customer need is multitude and thus it requires a large quantity of products and SKUs(A product with slight variation, take Lipstick as an example). Driving online adoption for the complex category would be significantly difficult.
Nykka rightly identified the inventory heavy business model which sets it apart from its competitors. Nykaa sourced products from brands and distributors and sold it directly from their online platform. This is in contrast to a marketplace model where the products are listed by third party sellers. This approach created trust in the first few years.
The Verdict
The brand was originally established as an E-tailer and later in 2018 established Online to Offline commerce strategy to be demand-led retailer, not a ‘push’ retailer. Offline retailer approach empowered Nykaa to be a curated, style-led brand rather be a discount-led fashion website.
The verdict to expand from an online model to being an omnichannel retail model was right shifted to influence a large number of people. The O2O approach persuaded how the brand is presently perceived by its audiences alongside allowing the brand to encompass a range of audience they were not able to include previously.
“We have taken the call to be an omnichannel retailer because beauty is a category where physical trial is critical. We realised that if we want to sell premium products or even affordable products in categories like blush and foundations, colour matching is very important. So, we realised that in order to give our customers a really holistic beauty experience, we had to build a physical retail distribution,” - Falguni Nayar, Founder and CEO of Nykaa
The Retail Show
Nykaa adopted corporate chain retailer store format with 76 retail stores across the country and over 500 brands with 1,30,000 products available in e-store, mobile app and retail store.
Nykaa’s O2O strategy has three retail store formats namely Luxe, On Trend, and Kiosks. With the Nykaa On Trend focused on trending and fashionable Lakmé, Kaya Skin Clinic, L’Oréal Paris, etc brands, Nykaa’s Luxe stores feature more premium and luxury brands such as Dior, M.A.C Cosmetics, Estee Lauder, and Huda Beauty as well as a range of others.
The Future
The company is focusing on its offline expansion with plan to open 180 stores by 2024.
- Over the recent times, the company launched a range of new product in their personal brand.
- Nykaa will most likely look at achieving overall profitability this year before going public. Nykaa is looking at a stock exchange listing by the end of this year or early 2022 at a valuation of over $3 billion.
Zivame
Zivame is an online lingerie store launched in 2011 as an e-commerce platform and later pivoted as an online brand. Zivame founders Richa Kar and Kapil Karekar started with $600K in seed money and raised their first round of external capital $3MM in May 2012.
Zivame was not a novel concept, but they were solving women’s lingerie problem where most local manufactures and sellers offer limited and poorly designed lingerie. Also, she realized the social embarrassment in Indian surrounding lingerie shopping. Women in India have to look abroad for quality lingerie. With no surprise, zivame gained traction and sales.
Everything was smooth
By 2013, Zivame acquired 20K new customers each month and 60% of them are 1st time customers. Zivame utilized their initial traction to expand their supply chain to Tier -2 and Tier 3 cities which contributed 30% of their sales with their share slowly increasing.
In 2014, Zivame debuted lingerie under their private label pen.ny. They made their 1st pivot from being an online marketplace model to be an online brand. This model helped them to fetch margins of 30 % — 60 %, which is double the margin of their marketplace commission model.
Having closed 2013 with a $6MM Series B round, it raised another $40MM in late 2015 to establish itself as one of the leading players in the large and growing market.
Everything was smooth, but the tough time is approaching……
The troublesome time
In 2017, Indian lingerie market estimated to be $3B and it was projected to 14% annually to reach $6.5B by 2023.
In Spite Of the market opportunity, the vertical e-commerce remined a hard battle to win. The growing competition in the lingerie space such as Clovia, and Jockey’s market share, followed Zivame to lose ground.
To stand out of the competition , Zivame started an aggressive marketing and advertising campaign which costed double the spend if its FY16 cap.
It is obvious that in FY16 numbers where the net loss of INR 54Cr ($9MM) was close to the net revenue of INR 63Cr ($10MM) around that period.
The company’s pivot to private label didn’t boost the margins and eventually they have to revert back to marketplace model. Furthermore, the brands degrowth posting $9.2MM revenue in FY17 down from $9.7MM in FY16.
The 2nd pivot with Hopes
The company therefore focused on profitability by reducing marketing & advertising expenses and tightening staff.
In 2018, the company re-strategize their growing policy to reach more customers who didn’t understand purchasing innerwear online. The solution to revamp Zivame’s revenue focus on the right mix of online and offline strategy.
With its O2O commerce, Zivame partnered with 800+ partner stores, created 26 chain retailer store which offers more than 5,000 styles, 50 brands, and 100 sizes.
By Jun 2019, almost 42% of sales coming from brick-and-mortar stores across the country and it has a tremendous reception to its Online-to-Offline strategy.
The Retail Show
Zivame reportedly planning to set up around 100 stores with an investment of approximately Rs. 30 crores. Interestingly, the launch of integrated online and offline business model, the brand claimed to witness a spike in the revenue.
Zivame’s offline model had a 2x conversion with 1.2x order value vs online. Zivame announced that renewed Online-to-Offline commerce narrowed their losses from 32 crore in FY18 to 20 Crore in FY19, is also looking to achieve break-even in the next 12 months.
Zivame’s Flagship stores are operated on its own. Recently, Zivame adopted franchise model to lure 25 to 40 lakhs as a revenue from the franchise to balance their margins.
Debatable Future
Even after a decade of e-commerce in India, getting online women shoppers to buy lingerie has remained an issue. Just 6% of the 40MM shoppers buy them online. Zivame’s O2O Strategy — Online was the discovery channel, while offline was for the purchase is a catalyst to their sales conversions and revenue.
Due to Covid-19, Zivame’s offline play is halted. Yet, offline pivot is showing improvements and they are narrowing down their loses in FY20. We have wait and watch the number to see if Zivame can overcome their struggles.
Faballey
High Street Essentials Pvt Ltd which owns and operates two women’s fashion brands FabAlley and Indya was founded by Shivani Poddar and Tanvi Malik founded in 2012 as a n online only brand, but later expanded into offline market. In 2016,they launched Indo-Western fusion wear brand called Indya. Indya is affordable private label brand from High Street Essential that pairs Indian heritage fabrics with western cuts and currently contributes to over 20 percent of its overall revenue.
Fast Fashion
When Faballey was founded the online and offline women merchandising category is already flooded with domestic and international brands. But what made faballey capture market share in India ?
Shivani Poddar and Tanvi Malik found a huge gap in fash fashion model which was not available in India at that time. The founders came up with a strategy to build trend-centric fashion brands at affordable prices. Faballey righty discovered the fast fashion retail model which helped them to penetrate Indian women’s fashion market that estimated to be 250–300 MM.
Shop-in-shop Strategy
Being a fashion brands, Faballey believed that having an offline presence can drive their business more efficiently .In 2016, Faballey played a safe game to open 50 shop-in-shop by partnering with Central which is a future group’s fashion chain.
The shop in shop strategy started performing well in the metro cities that made Fabelley a pre-eminent fashion brand of the country. The O2O Commerce strategy strengthen their brands awareness campaign and built brand trust that eventually contributed to profitability and high growth.
By going offline, the brands learnt the art of selling offline and raised funds to emphasis their e their omnichannel selling.
High Street Essential’s first exclusive flagship Indya store was launched in Bangalore in July 2017. They raised Rs.5 crore in venture debt to build offline stores across the country. Faballey’s offline strategy was to expand Indya’s presence across multiple cities, thus creating the touch-and-feel experience for the customers.
“After being strong from an online point of view, we still felt that there a lot of customers who wanted the kind of touch and then buy the product as opposed to buying online. We felt if we have enough touch and feel points for customers to get familiar with the brand. After reaching a certain stage, we felt the next level of growth will come from ensuring enough outlets offline, so that customers can shop on all channels,” she said in an interview to IMAGES Retail Bureau in 2017.
The retail show
HSE adopted corporate chain retailer store format and shop-in-shop format for their retail presence across the country. The brand gets about 45% revenue from its offline channel, which adds to 35 Indya & Faballey stores and 350+ shop-in-shop stores.
The brands gross sales were 125 Crores in FY19, and 1.3 crores in net profit. By the end of FY19, HSE made a complete transition as an omni-channel entity while ensuring infrastructure, supply chain, and product lines expanded efficiently to accommodate both online and offline retail growth with continued capital efficiency.
Thriving in the Pandemic
Earlier, Faballey and Indya were profitable and doubling the revenue every year. But Mid-March onwards the revenue started declining but from October 2020 to February 2021 things tend to change and the business started picking speed.
The Offline was the largest part of the business and that went to zero since the footfall were very low during this pandemic stage. Now in the short term, for the next 6 to 12 months our larger business is online , but things will change eventually. As a company, we aim to have both online and offline presence.
The Future
COVID-19 has halted the brand’s strategy to create over 650 retail touch points for the customers by the end 2021. Yet, the brand believes that they will continue to build offline post lockdown phase.
HSE has announced its foray into the personal care segment with the launch of an in-house brand, Indya Skin Care.
HSE is aiming to turn into a holistic fashion house with the addition of more categories like accessories, bags, shoes, juttis, etc
At 3-brands, we help DTC brands and E-Retailers expand into physical retail store with a low risk and cost-effective approach. Are you interested in getting more details about this through a free consultation with our experts?
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