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Makeover
Marico has spun-off its bleeding skincare business. Can it deliver as an independent company?

Adit Mathai

Sometime in 2001, a visiting friend from the US suggested Harsh Mariwala buy into a laser hair removal business. “I wasn’t that excited — it’s an easily copied model,” recalls the chairman and managing director of Marico. Expanding the idea to skincare, though, seemed more promising. Recce trips to dermatologists’ clinics and high-end beauty salons in the US and the UK convinced Mariwala this was an idea worth incubating. Less than a year after his friend’s visit, he opened the first Kaya Skin Clinic at Bandra — the medi-spa combined zen-like interiors, a signature welcome drink and trained staff in designer uniforms with in-house dermatologists and space-age sounding skincare treatments.

Now, Kaya has expanded to 105 clinics across India, West and South East Asia. It earned nearly ₹280 crore last year and is believed to be the largest recruiter of dermatologists in the country. But the good news ends there. After more than a decade, the business is still to show a full-year profit (it’s just started making a modest quarterly profit). Parent company Marico has incurred a loss of ₹145 crore on it and has finally thrown in the towel. From April, Kaya will be demerged from the consumer products business and operate independently as Marico Kaya Enterprises (MaKe). By mid-July, after obtaining all necessary approvals from Sebi, MaKe will be listed on the Bombay Stock Exchange as well as the National Stock Exchange. While Mariwala will continue as CMD of both entities, MaKe will have a separate board. Marico will transfer all its assets and liabilities in Kaya — including capital of ₹180 crore — to MaKe. After that, it’s on its own.

But why has a seemingly good idea failed to take off? And, more importantly, what will it take for the business to succeed as an independent entity? 

Pock-marked past

You do not have to look far for reasons why Kaya did not click. “The business is cluttered, with unorganised players who do not play by the same rules. This has made it harder to grow the business and increase footfalls and has also dented our profit & loss,” grouses Ajay Pahwa, the outgoing CEO of Kaya, further adding that high real estate and rental costs added a 6-7% drag on margins. Mariwala lists another factor: attrition. “Perhaps we also expanded a little too fast,” he adds reflectively.

More than skin deep

Kaya's turnaround after the spin-off depends on continuing the
upward trend in same-store growth

Between 2003 and 2005, Kaya opened 20 outlets across India. It ventured overseas in 2006 and followed that up with a domestic expansion overdrive over the next two years, opening 25 clinics in quick succession in both, metros as well as tier 1 and tier 2 towns such as Nashik, Indore, Coimbatore and Vishakapatnam. (It currently has 83 outlets across India.) The positioning, pricing and brand proposition remained unchanged, though, and customers in smaller towns proved unwilling to pay Kaya’s premium rates. Indeed, expensive services were an issue even in the big cities. “Customers shell out up to ₹60,000 for a complete skincare package from Kaya, which is three times more than what competitors charge,” says CK Kumaravel, co-founder and MD of Naturals Beauty Salon, a 202 store and ₹150 crore 

Even Kaya’s positioning as a skin “clinic” backfired — customers turned up only for skin problems and didn’t return for routine beauty treatments. Also, because most people don’t want to admit to having skin problems, Kaya didn’t get the benefit of word-of-mouth referrals, a key requirement in this business. “The brand was known more for its skin cure solutions,” agrees Vandana Luthra, founder of beauty, skincare and weight loss chain VLCC. “There was very little emphasis on products back then and beauty products play a key role in acquiring customers.” To be fair, Kaya did try to set things right and revamp its business model — but it’s not worked so far.

Lather, rinse, repeat

In 2006, Kaya stepped beyond the clinic format and opened Skin Zones in select malls. These information kiosks offered counselling on skincare and helped build brand awareness and reach among target customers. And following the slowdown in FY09, it also expanded its repertoire to offer “normal”, more affordable beauty treatments such as facials. Of course, this strategy came with its own set of problems — now, Kaya was in direct competition with neighbourhood beauty parlours, which were cheaper, more conveniently located near customers’ homes (Kaya’s clinics are typically in posh market areas such as Delhi’s Khan Market and Bandra in Mumbai). Moreover, these “affordable” services meant the average billing per customer would drop, making it that much more difficult for the store to break even. It didn’t help that the FY13 Budget imposed a 12.3% service tax on skincare and wellness services, impacting all organised players in the space, including Naturals, Hindustan Unilever’s Lakmé Salons (which aren’t doing too well, either) and Kaya. Industry sources estimate that each Kaya outlet needed about 400-450 customers a month, with average billing of ₹7,000 each. Instead, what it achieved was an average bill value of ₹5,000 for about 300-400 customers every month. For the industry as a whole, fixed costs comprise 55% of the total costs of a store while variable costs constitute the remaining 45%. 

Starting last year, Kaya made a determined effort to communicate that it was more than a skin cure treatment provider. The brand changed its tagline from “Let your skin talk” to “Love what you see”, to emphasise it was more beauty salon and less dermatology clinic. The clinics were also remodelled to reflect this changed positioning — the clinical beige gave way to more-stylish burgundy and rounded edges were introduced to exude warmth and care. As part of the campaign, Kaya also introduced the “wall of beauty” initiative, where customers were encouraged to post testimonials on the brand’s website — so far, some 592,133 women have uploaded their images and feedback. Indeed, Kaya’s efforts on the net have perhaps been more effective than its traditional media campaigns — which have had middle-rung celebrity endorsers such as Pooja Bedi, Riddhima Kapoor and now, Giselle Monteiro. Kaya is fairly active on social media, based on insights that its target customer spends a lot of time online, with the result that its Facebook page has over 186,000 “likes” and close to 2,000 followers on Twitter (twice as many as VLCC, incidentally). 

Skincare- Image

Perhaps the biggest challenge for Kaya has been to keep a lid on costs. Since it pays its higher-than market wages in a bid to minimise attrition — about ₹20,000-25,000, according to industry estimates — Kaya has now started moving staff between centres in a city depending on the demand for services, rather than hire at peak-demand level for every centre. Still, attrition remains a challenge — Mariwala complains that many dermatologists leave Kaya to set up competing skin clinics of their own. The lack of an incentive structure is also to blame, says Kumaravel. “Employees are constantly under pressure to deliver and they aren’t being rewarded for good performance,” he points out. Now, Kaya is hoping that reducing its dependence on services — and therefore, staff — will help it finally turn around.

In December, the brand announced a new format that will cut costs and drive penetration. At 500-700 sq ft, the Kaya Skin Bars will not only be half the size of the Skin Clinics, they can be set up at half the cost as well (₹30-40 lakh on average). There will be no dermatologists at the Skin Bars, which will offer limited services — whereas 75% of the Clinics’ revenue comes from services, the Bars will derive 75% of their revenues from products, for which Kaya is expanding its 36-SKU portfolio by another 18-20 in the coming few months. The management estimates that a Skin Bar should break even within three years whereas a Clinic takes four to five. “At present, there is no plan to either shut or convert the existing Skin Clinics into Skin Bars,” adds Pahwa. Kaya plans to open 150-200 such small-format stores over the next five years.

Will this MaKe a difference? Mariwala sounds confident. “Increasing same store sales, emphasising products and offering difficult-to-duplicate, revolutionary cures” is his recipe for Kaya’s success. It will take more than that, warns Luthra. “The new staff being brought in to run the business are from a non-beauty, FMCG background. What most players don’t realise is that this business requires a high level of domain expertise and consistent investment in R&D, technology absorption and training. Moreover, by launching Skin Bars, Kaya will compete with product specialist companies.”  Brands like Biotique have found out the hard way that products-only stores don’t always work out — the high-end beauty products brand has scaled down its exclusive outlets and now focuses on multi-brand retail outlets. Vanity and the need to look good will always be popular, but whether Kaya’s makeover will make money from serving that need, remains to be seen. 

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