Dark stores bring vitality to online beauty businesses

Some companies are piloting dense networks of micro-warehouses or dark stores to fulfill orders within hours and improve profit margins, marking a strategic shift for e-commerce companies that currently offer delivery schedules of one day or longer.

Beauty marketplaces Nykaa and Purplle are at the forefront of this trend and are considering experimenting with dark stores in major cities such as Mumbai and Bangalore to boost customer satisfaction and stay competitive against quick-commerce platforms such as Swiggy, Instamart, Blinkit and Zepto, two people aware of the developments said.

While strategies are still being worked out, the companies are considering conducting pilots by either operating their own facilities or co-opting existing space with logistics companies such as Delhivery and Shadowfax, the people added.

“Companies are actively exploring the economics of operating dark stores for top-selling products in high-demand areas. This strategy is likely to take shape over the next three to six months,” one of the people said, adding that the move is also likely to benefit their own brands.

Nykaa and Purple are mint.

Nykaa owns more than 27 brands across skincare, cosmetics and fashion, including Nykaa Cosmetics, Nykd by Nykaa and Pipa Bella. ₹It has raised Rs 100 billion from the Abu Dhabi Investment Authority and other investors and operates brands such as Carmesi, Good Vibes, NY Bae and Faces Canada.

“These companies are platforms themselves competing with other platforms like Zepto and Blinkit. They want to retain customers by offering faster delivery, as some of their demand has been taken over by quick commerce platforms,” ​​the person said.

These companies may not offer delivery within 15 minutes, but they will focus on delivery within a few hours, and they are also working on upgrading their websites to reflect the shorter delivery times, this person added.

Nykaa has already partnered with logistics companies to enable next-day delivery of select products in select zip codes in some major cities, and the company is now aiming for same-day delivery.

Some direct-to-consumer brands are also evaluating the ability to partner with third-party logistics providers to store fast-moving goods in shared warehousing facilities and enable faster delivery, the person said.

These brands will continue to be featured on quick commerce platforms such as Swiggy Instamart, Blinkit and Zepto while simultaneously working to reduce delivery times for orders placed through their websites.

For most consumer brands, website sales only account for a small percentage of total sales, but if brands can offer faster shipping, it can become a significant sales channel.

The surge in quick commerce

Quick commerce has grown exponentially in recent months, with consumers enjoying the convenience of ordering products and having them delivered to their door within minutes.

RedSeer said the segment's gross merchandise volume (GMV) surged 77% year-on-year to $2.8 billion in FY23, driven by a steady increase in new users and surge in orders during events such as the Cricket World Cup and the final match of the IPL.

Zepto recently secured $665 million in pre-IPO funding at a valuation of $3.6 billion, its largest fundraise so far this year. Zomato expects its quick commerce vertical, Blinkit (formerly Grofers), to become larger than its core food delivery business in the next 12 months.

Dark Stores in Tough Economics

Dark stores are the lifeblood of fast-moving commerce. Typically measuring 2,500-3,000 square feet, dark stores have the capacity to stock limited, fast-selling items across categories such as groceries, personal care and stationery.

However, the cost of opening a dark store can be high, and the profitability of each store is important in the long term. Running a dark store has many fixed costs, including rent, electricity, and employee expenses.

Moreover, to make deliveries fast, a large number of dark stores must exist within a small radius, which further increases costs.

For context, Zepto pointed to the fact that it took the company three years to realize operational efficiencies. mint The company announced last month that most of its 350 dark stores are now profitable, reducing the time it has for each store to reach that goal from two years to six months.

“Significant order volumes are important to recoup infrastructure costs. Nikaa and Purple have the capability to achieve that, but it may take longer than expected,” said Satish Meena, adviser at Datum Intelligence.

Maintaining Margins

The move is aimed at countering competition from quick commerce platforms, but streamlining the supply chain is also an effort to reduce reliance on these marketplaces.

Quick commerce platforms charge anywhere from 15-30% commission per order depending on the category, with beauty and personal care, pet care, and electronics generally falling in the highest commission ranges.

Datum Intelligence's Meena said brands could realize significant savings if they could offer faster delivery, but dark stores are expensive, so it's questionable whether they will be a quick success.

“Nykaa and Purplle are marketplaces and have a wide range of products, so they may be better off focusing on high demand locations to make the most of their infrastructure investments,” Meena said.

As of March 2024, Nikaa has around 44 warehouses and 187 retail stores across 68 cities. While the company is continuously expanding its offline presence, Meena said these stores can also be leveraged to fulfill online orders more quickly.

Dark stores are becoming increasingly important in the e-commerce world, but high costs and logistical challenges mean they require careful execution to be successful.