Flipkart, along with its fashion units Myntra and Jabong, is estimated to have cornered 65-70 per cent of the online fashion market in India, and Amazon another 15 per cent, according to industry estimates. That leaves 15-20 per cent of the estimated $3-3.5 billion online fashion market for smaller retailers such as Voonik, Nykaa and Limeroad.
To strengthen their share of this portion of the market, these online retailers are launching products beyond their bread and butter revenue streams. This, they are hoping, will lead to opportunities to cross-sell across categories and add to overall revenue.
Voonik introduced beauty products and daily essentials shortly after Nykaa began selling lingerie, sleepwear and accessories about eight months ago. LimeRoad introduced men’s wear around the same time -a category that the company says now contributes 25 per cent to its topline.
The strategy is to interest customers in a few more things beyond their core products. In other words, at least Voonik and Nykaa are not expecting much by way of revenue contribution from the non-core categories -a strategy analysts as well as investors are not comfortable with.
“We will operate beauty as a zeromargin category . Voonik will charge just the cost price plus whatever is needed to fulfill the item,” said Sujayath Ali, CEO of Voonik.
“In my business plan, I have not put any contribution from beauty as a category towards revenues or profit and loss. The only contribution will be due to increased cross-sell opportunities where revenues in other categories will go up,” he added.
Nykaa has partnered with brands including Clovia, Zivame and Pretty Secrets for its lingerie category . While Nykaa operates this category at the same gross margin range of 20-25 per cent as its beauty products, the company does not expect it to be a strong revenue churner anytime soon.
“The rationale to (introduce) this (category) was not for growth since we are growing at 350 per cent annually . The main advantage of this is that our customer cohort being strong, we felt that customers wanted to buy more from our site,” CEO Falguni Nayar said.
The category accounts for 5 per cent of the company’s revenue and Nykaa believes a 20 per cent contribution is two years away . LimeRoad, however, said the 3.5 times growth in its gross margin value last year included eight months of contribution from its new men’s category.
“We have always focused on building a business that runs on high engagement of users. Every year people are finding the platform more and more valuable,” said Suchi Mukherjee, CEO of LimeRoad.
Analysts say a growth path that rests on thin margins with little contribution to a company’s coffers may not be the best solution for these start-ups, which, unlike their larger competitors, do not have the luxury of deep pockets.
Source: Times of India