What is the impact across businesses on account of GST changes? And on the operating leverage for your beauty business, fulfilment costs and marketing costs have been ballpark in the same range. How to think about operating leverage going ahead?
I think from the operating leverage perspective, you are seeing a fair amount of operating leverage come in on both beauty as well as fashion vertical. I think on Beauty, clearly, there are, beauty vertical is a mix of combination of omnichannel beauty business along with our owned beauty brands, which are now contributing a reasonable amount and eB2B business. So, there is also a mix impact. But overall trend that each of the businesses are increasing their EBITDA margins and working on a path to improve the EBITDA margin. In fashion, own brands, clearly, there was a little bit of a drag over the last couple of quarters. But there are improvements clearly visible on the fashion journey, both on fashion.com as well as fashion owned brands. And on Beauty, also, like we do believe that a little bit of improvement can come through leverage.
Follow-up on operating leverage mechanism in Beauty business.
Let's remember the beauty vertical is a combination of 3 or 4 very different businesses. And sometimes what you're saying in terms of the margins, I think in each of the individual businesses that make up the beauty vertical, you are seeing some operating leverage. You are seeing an improvement in margins. But again, because some of the younger businesses like eB2B continue to grow faster than the core retailer business that we have, they start to account for a larger percent of the overall mix. So, I think some of it is mix. But also, as we said in our opening remarks, we are investing. We continue to believe in the opportunity to drive further penetration of beauty in India given it's globally some of the lowest penetration rates in the world. So, I think a quarter in which we have taken on a new brand ambassador, which is Deepika Padukone and we have spent behind brand building and we have spent behind marketing in terms of customer acquisition. And we have also invested behind rapid stores and quicker delivery to keep fulfilment and marketing in the similar ballpark, I think, still is a very positive outcome.
On the early festive - because usually our second half is stronger, particularly the third quarter. Can we expect the same trajectory this time as well?
Definitely for Beauty, we think our third quarter will be strong because of Nykaa, Pink Friday sale and also Nykaaland that's happening now. I think on fashion, we did see some benefit of Diwali because Diwali is more of a fashion purchase. So, we did see that benefit. But we think the momentum will continue this quarter, hopefully.
Any broad sense on where you think fragrance could be in your overall GMV mix?
The great thing about selling fragrance is that it doesn't cannibalize existing makeup and skin care sales, right? It's not either/or, it's very much additive. So, our ambition is just to continue to drive penetration of basket through fragrance. But the reality is we want each of our categories to grow as fast as they possibly can. How the mix shakes out in the near term, we're not really focused on it from a mix perspective because that would mean artificially trying to grow it faster than other categories. Longer term, if you look at global retailers in more developed markets, fragrance is usually anywhere from 15% to 25% of their total business. And in some markets like the Gulf, it's even more than that. So, India is still far away from the Gulf when it comes to affordability and consumer behaviour. But I think we're definitely on our way to getting closer to where it's really an equal representation in our overall revenue mix, but we're not committing to any timelines.
On marketing income in fashion business.
Yes, we are seeing significantly higher interest from brands and marketing income as a more and more meaningful line item in the P&L. But also, the fashion business compared to where beauty is in terms of its evolution of the sophistication of our tech platform to provide opportunities to brands to invest and to see ROI on their investment is, we are in the more early stages. I think fashion is also a much younger business compared to beauty on the Nykaa side. But there is significant upside in this, because there is a lot of interest from brands to want to invest to attract and retain the right kind of customer.
On the Fashion side, how sustainable is this trajectory, both on bottom line and top line? And how much of the delivery that we have seen in H1, will you give credit to Nykaa Fashion-specific initiatives versus improvement in market environment?
For a marketplace business, the core is the assortment that we have and the user funnel that we have. Are we able to add the right assortment? Are we able to work with brand partners to deliver growth both for them as well as for us? And then are we able to attract the right quality of customers and provide them an experience with which they decide to come back to the platform. On both aspects, I think the intrinsics give us confidence that structurally, we are on the right path as far as the future also goes. On the second one, it is indeed true that there seems to be in the broader market also more positive signs compared to last year in the first half of this year. But I feel confident that we have delivered faster than or rather significantly faster than market growth in the first half of the year. And with significantly better and continuously better intrinsics, I think that should continue to be the case going forward also. So, I don't think it's a first half phenomenon alone.
On Nykaa Now, the plan earlier used to be that we'll focus more on personal care side. Over the call today, it was mentioned that luxury SKUs are also being distributed and the fastest delivery was in 7 minutes. Is there any change in the strategy there?
Nykaa Now will allow Nykaa to have a bigger share of the pie within personal care, which has historically been a lot more fragmented amongst ourselves as well as the other horizontal platforms and quick commerce players, whereas Beauty was always an area where we had very dominant market share. We are seeing customer penetration of certain products, which are personal care products like shampoos and conditioners and body wash increasing on our platform and growing very healthily. The other objective was also to allow customers to have access to the beauty assortment with quicker delivery. One thing we did not foresee in the early days was that we would have the ability to even sell luxury products by enabling our retail stores to become hyperlocal delivery hubs for luxury. But if we realize that we can do it and we can do it in a cost-effective manner, so why should we not allow customers to also get access to the best luxury products with quick delivery speeds. So, both are working well.
This 7 minutes seems like a pick and drop delivery. Are you getting into a pure-play pick and drop model as well?
Our quick commerce is very much, we have 53 Rapid stores across 7 cities. So if you live within a certain vicinity of one of our Rapid stores, the order is dispatched quite with speed. And so, 7 minutes is an example of how quickly we are able to do it. But I think most of the Nykaa Now orders are being processed and being delivered anywhere from 30 minutes to 70 or 75 minutes.
On GST - the deflationary impact and longer-term impact on growth?
I think you're asking about deflationary impact of GST. It is small in our business. But yes, on eB2B business, there was some amount of deflationary impact on their ASP and AOV but because in our beauty.com business, a lot more weightage for premium products and a lot more weightage for beauty products, I don't think it was very significant. And in fashion, some adversity at high end, but some benefit at the low end on demand pickup. We don't see a major long-term impact. Some minor benefits, some minor near-term adversity. So that's what it was.
Kay Beauty has done well overseas in London. Can you explain a little bit more about the opportunity for Nykaa owned brands overseas and how you're looking to expand that?
We're definitely going to double down on the U.K. and within that the Space NK partnership. And I feel that every geography requires a lot of attention and focus and bringing the right level of passion and energy to build that brand in that region. So, I think while the response has shown us that there is a lot of potential internationally for Kay and possibly even for a couple of our other brands, we'll sort of be doing it in a measured manner and picking geographies one by one and picking the right retailer partners within it, rather than going for a very wide distribution.
Is there any plan to also have the platform extend overseas? Or this is just for the brands?
This is just for the brands. It has nothing to do with the platform.
What proportion of the owned brand products is now coming from outside of the platform?
So, at a consolidated level across the beauty brands, about 44% is coming from outside of the Nykaa ecosystem. And a large part of that 44% is actually GT, MT.
On the H&M arrangement - will this include sales in physical stores or it's purely an online arrangement? And will there be a difference in pricing between what's available in their stores and what's available online?
It is an online partnership across their fashion portfolio and the recently launched H&M Beauty portfolio. It will not be retailing in our offline stores. The scope is online. The assortment will be the entire assortment that H&M has for India across categories, across fashion, beauty, kids, home, the entire assortment. Generally, for brands of that size, we work very closely with brands to ensure that not just availability, pricing is also on parity with whatever it is on their own D2C platforms or offline. So, pricing will also be by and large on parity.
Could you give a broad sense of what fragrance now is in your overall mix? And on the store expansion plan, is fragrance sizable enough of a category in its own right?
Fragrance is one of our fastest-growing categories consistently every quarter. Globally, you're seeing fragrance as being the category which Gen Z is really, really adopting. And you're seeing the same thing in India. So, fragrance is going to be a big driver of growth for beauty globally as well as in India. In the past, we've spoken with you about all the initiatives we're taking around building awareness and driving education for fragrance usage amongst consumers in India, which historically fragrance has not been part of daily life for Indian consumers. Fragrance is also a big part of our retail stores because really the ability to test and smell a fragrance can only be done in physical retail. Fragrance is one of, if not the fastest-growing category on the platform, a big part of our retail store network, a high ASP item, very, very good for average order values and ticket sizes. We are about to open a fragrance-only store called Nykaa Perfumery. So, you will start to see some of those stores popping up across several key metros in the coming months.
Just wanted to know whether you expect a little bit of an AOV dilution going forward on the fashion business given the kind of brands you're onboarding as well as H&M coming in?
We don't see a dilution of AOV per se. It could be a little bit here or there. But generally speaking, for the same brand, which is live on Nykaa, as well as on other platforms, the AOV for the same brand is also consistently higher on Nykaa, because the day and age that we live in is one where the same consumer has access to multiple apps, but it's different kinds of use cases, which bring customers to different apps. Nykaa Fashion is positioned as a slightly more premium platform. It's a platform where customers come in to buy more high fashion product. And that has consistently been also, when we do consumer decrypt, it's consistent feedback that we have received. So, the positioning of Nykaa Fashion as a platform under the Nykaa umbrella is such that the use cases that bring customers to us even for the same brand are different from the use cases of the same brand, which take them to other platforms. So, for that reason, we don't see there being any meaningful dilution to AOV.
What is driving the improvement in new customer acquisition in fashion business despite only double-digit growth in Marketing and S&D?
Below under the hood, there is, of course, a very large percentage of our business, which comes from female customers, but there's also a kid's business. There is also a men's business, which are smaller in share, but which are very fast growing. There is a smaller but very fast-growing home business. And these are interesting categories which are growing almost at the clip of close to 70%, 80% even year-on-year. So, we are seeing a very healthy customer acquisition across the board on all four of them, not just women, but women, kids, men, as well as home. And that is what is driving this new customer acquisition. And once new customer acquisition is healthy, that leads to obviously much healthier funnels in the months to come. Also, now with the addition of brands such as H&M, which have portfolios across both beauty and fashion, that also leads to a lot of cross-pollination across both platforms.
Regarding the spend by brands in terms of advertisement on quarter-on-quarter basis, are we seeing increase in that on the platform?
The short answer is yes, there has been, I think a couple of things have happened. One is, as I've spoken to you in the past about is a lot of investments, we've made towards creating more advertising opportunities for brand partners. So now we've got ability for brands to advertise across the funnel, so not just top of funnel, but even mid and lower funnel through PLAs and in-line widgets and other in-line banners and other such opportunities for advertising. So just creating a lot more real estate. Second is we've also started to personalize, which means now brands can really be a lot more targeted about whom they target when it comes to advertising. And third, we've launched self-serve dashboards and real-time data sharing. So also gives brands the ability to manage their ad campaigns more in real time. I think for any brand who is retailing beauty products, there is no platform with this size and scale of relevant shoppers in a very relevant demographic. So, as we continue to invest and spend on marketing to acquire customers, we're then able to also get more ad dollars from our brand partners to advertise to a larger base of consumers.