Case

"Nykaa forays into the Gulf countries through its first international alliance with Dubai's Apparel Group"

"Nykaa is unlocking a new frontier by entering its first international strategic alliance with one of the largest retailers in the Middle East, the Apparel Group, to now enter our footprint into the GCC (Gulf Cooperation Council) countries. We now look forward to recreating our distinct beauty retail value proposition in the GCC," the company's founder Falguni Nayar told reporters in Mumbai, India. "Our strengths will help us build a robust value proposition across UAE (United Arab Emirates), KSA (Kingdom of Saudi Arabia), Qatar, Oman, Kuwait and Bahrain," she added.

Nykaa was incorporated ten years ago as a beauty e-commerce platform. Nayar added that the company will bring its proven expertise in the multi-brand retail and its distinct beauty playbook to revere the distinct trends and hyper-personalized shopping experiences in new geographies. "Their established supply chain models, fulfillment processes and partnerships with local establishments are some of the strongest in the region. In Apparel Group we found a partner that's culturally very aligned to us and together we can build the business of the future in the GCC markets," she said.

Apparel Group is a multi-award-winning global fashion and lifestyle retail conglomerate based in Dubai, UAE, with operations across the GCC. Today, Apparel Group caters to millions of eager shoppers through its 2010+ retail stores and 78+ brands on all platforms while employing over 17,300 multicultural staff.Founded by Sima Ganwani Ved in 1996, the Apparel Group is one of the largest omnichannel retailers in the Middle East.

The new omnichannel entity will likely have a new brand name and be incorporated in the Abu Dhabi Global market in which FSN International (a wholly owned subsidiary of the FSN e-Commerce Ventures which runs Nykaa) will hold a 55% stake and the balance of 45% will be held by the Dubai-based Apparel Group. This would serve as atap-in to the Gulf Cooperation Council (GCC) region and the deal is estimated to be closed by March 31, 2023.The company did not disclose the size of the investment.

The brand name resulting from the partnership will be a new retailer brand name for the region and will have an independent professional management team in an omni-channel retail setup. Nykaa Chief Executive Falguni Nayar also said that the two companies will together build a multi-brand beauty retailer business in seven GCC countries.

Apparel Group India is also looking to expand its brands in cities like Vadodara, Indore, Kochi, Trivandrum, Amritsar, and Ludhiana in India. It recently launched US-based Victoria's Secret's first physical store in Mumbai and has a portfolio of several other international brands like ALDO, Charles & Keith under the franchise agreement. "Over the years we have added Tommy Hilfiger, Calvin Klein, ALDO, and many others to our portfolio. We consider ourselves regional experts within the retail industry with a digital-first approach a focus on sustainability. We are looking forward to both groups tap each-other's strengths and tap into beauty and personal care market which is exponentially growing in our region," Sima Ved, founder and Chairwoman of the Apparel Group, said. She said that she hopes to replicate the success that Nykaa had in India, in the GCC.

This is the first time that Nykaa has entered into such an alliance to foray into an international market. It will be run by a separate professional management under a new brand.The e-commerce operations of this brand are expected to be launched in the next six months to one year, Nykaa's cofounder and chief executive Falguni Nayar said here recently. Nayar said the company decided to tap the GCC region given its high per capita consumption of beauty products as well as strong economic growth. "We are impressed with the market from its consumption and penetration of beauty perspective. Add to that you had a very vibrant economy. We see this as a multi-year growth opportunity; I think, GCC countries will grow over 10-20 years and Nykaa wants to be part of that...," Nayar said at a press conference.

"Since its inception in 1996, the Apparel Group has been focused on addressing the changing needs of its diverse customers across our presence in GCC, India, Southeast Asia & Africa. This alliance is going to be a new chapter in our expansion journey as we look forward to leveraging each other's strengths and offering unique value propositions to our consumers in the GCC region," Ved said in a statement. Nayar said the company would leverage its digital influencer marketing playbook including each other's strengths and offering unique value propositions to our consumers in the GCC region," Ved said in a statement.

Nayar said the company would leverage its digital influencer marketing playbook including potentially using Bollywood celebrities to draw customers in the region to the platform. As per a report by RedSeer Consulting, Saudi Arabia and the UAE are two of the region's biggest beauty and personal care markets, at $17.1 billion and $6.6 billion, respectively, as of 2021 and are projected to grow at a CAGR of 7% and 9%, respectively, over the next three years.

Over the last 18 months, Nykaa has acquired five brands including a minority stake in science-focused beauty brand Earth Rhythm, a majority stake in beauty brand Dot & Key, and nutricosmetics Nudge Wellness. The company, which had a bumper public market listing in November last year, saw gross merchandise value (GMV) growth of 47% year-on-year. Of this, the beauty and personal care orders grew 40% year-on-year, while fashion contributed 27% of the consolidated GMV.

Case Questions

a. Both parties appear to be upbeat on the success of the alliance. Identify four (4) occurrences which could go wrong during the early life of the alliance that could cause it to fail.

(10 marks)

B. Outline three (3) main benefits to be gained from the alliance within the first three (3) years and discuss whether these benefits are likely to be achieved during this period of time.

(10 marks)