Nykaa Fashion, under the leadership of CEO Adwaita Nayar, has taken a strategic step towards improving its profitability by introducing convenience charges to its customer base. This decision comes in the wake of Nayar’s acknowledgment that Nykaa Fashion’s performance hasn’t aligned with its internal expectations.
Embracing Additional Charges for Profitability Enhancement
To optimize its profitability and encourage positive customer behavior, Nykaa Fashion has opted to implement an additional fee on all orders. Adwaita Nayar, the CEO of Nykaa Fashion, shared this development with analysts on August 11. This strategic move aligns Nykaa Fashion with a growing trend among e-commerce players, where additional charges are being introduced to create new revenue streams. Notably, Moneycontrol reported in June that Myntra, a competitor, was also charging customers a ‘convenience fee’ of Rs 10 to promote profitability and minimize product returns.
Following Industry Trends in Implementing Charges
Nykaa Fashion is not alone in this endeavor. Other prominent e-commerce platforms like Swiggy and Zomato have also ventured into charging customers extra fees. Swiggy initiated a ‘platform fee’ of Rs 2 per order in April, which was subsequently emulated by Zomato. Despite the seeming insignificance of these charges, they accumulate significantly for companies like Myntra and Zomato, which manage hundreds of thousands to millions of orders daily.
Nykaa Fashion’s Approach: A Slightly More Expensive Route
Nykaa Fashion has adopted a nuanced approach to this strategy. The Nykaa Fashion app now includes a ‘convenience fee’ component of Rs 29. Interestingly, this fee is even higher for low-value orders. Presently, the additional charges are applicable exclusively on the Nykaa Fashion app and have not been extended to the primary app. It remains uncertain if and when similar fees will be introduced on the core Nykaa app.
Transparent Communication of Charges
A notification on the app clarifies the purpose of the ‘Convenience Fee,’ stating, “Nykaa charges a nominal Rs 29 ‘Convenience Fee’ on all orders. This fee ensures a strong fulfillment network for timely delivery of your items.” For orders amounting to less than Rs 500, a convenience fee of Rs 99 (comprising Rs 29 and a shipping fee of Rs 70) is levied to cover logistics.
Profitability and Customer Behavior Enhancement
Advait Nair said that the additional charge will contribute to the profitability of the division. He explained, “We are doing a lot on cart charges. Even Zomato and other companies are starting to charge a lot of charges at the cart level, be it shipping or returns or whatever. So, we think there is a Margin opportunity to levy some fee at cart level to improve customer behavior. This will also increase profitability to some extent.” This strategy complements Nykaa Fashion’s focus on optimizing profitability through various means.
A Multifaceted Approach to Profitability
Apart from the cart charges, Nykaa Fashion is employing multiple strategies to enhance its profitability. The company is prioritizing women’s Indian wear over men’s footwear to boost operational efficiency. Concurrently, it is implementing measures to reduce the rate of product returns, further contributing to profitability.
Challenges and Growth Outlook
The decision to introduce additional charges comes at a time when Adwaita Nayar acknowledges that Nykaa Fashion’s performance hasn’t met internal expectations. Nayar clarified that the challenge stems from Nykaa’s commitment to building a profitable business without incurring losses. However, she emphasized that the company remains committed to achieving its growth targets for the year. Despite a relatively underwhelming Q1, Nykaa Fashion managed to gain market share, showcasing its resilience in the face of growth challenges.
Performance Metrics and Financial Insights
Nykaa Fashion’s Gross Merchandise Value (GMV) witnessed a 12 percent YoY growth, reaching Rs 653.7 crore. FSN E-Commerce Ventures, the entity behind Nykaa, reported a 27 percent YoY decline in profits, dropping from Rs 4.6 crore in Q1FY23 to Rs 3.3 crore in Q1FY24. This decline can be attributed to a slowdown in discretionary spending during the quarter.
At the company level, FSN E-Commerce Ventures registered a net profit of Rs 5.4 crore in Q1FY24, marking an 8 percent increase from Rs 5 crore in Q1FY23.
In conclusion, Nykaa Fashion’s implementation of convenience charges as a profitability enhancement strategy mirrors industry trends. This strategic move, guided by CEO Adwaita Nayar’s vision, aims to optimize customer behavior and generate additional revenue. While challenges persist, Nykaa Fashion’s commitment to growth and innovation remains steadfast.
Personally Recommend: https://amzn.to/45jRuAQ
