Good Glamm struggles to solve its content-to-commerce

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the-captable.com/2024/01/good-glamm-struggles-content-to-commerce

8 January 2024

Pranav Balakrishnan

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All is not well in the world of content-to-commerce unicorn Good Glamm Group. Despite
raising hundreds of millions of dollars and acquiring promising D2C brands and content
platforms, company insiders and industry executives paint a picture of company that is going
nowhere fast.

January 08, 2024

14 MINS READ
Key Takeaways

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After a quiet 2023, content-to-commerce unicorn Good Glamm Group believes it has cracked
the D2C space

Group CEO Darpan Sanghvi says Good Glamm’s D2C brands are doing 1.5 mn orders a
month from the company’s own website and app

EBITDA profitability is also not too far away, he claims. Industry and company sources,
however, say this isn’t the case

They say the company’s content-to-commerce engine doesn’t work, it has floundered offline,
and only has a runway of a few months to fix itself

For a company that made headlines during the funding boom of 2021 for raising over a
hundred million dollars in funding and making big ticket acquisitions, The Good Glamm
Group has been largely silent for the last year.

“We have been fairly under the radar over the last six to eight months. But we are opening
up again to the media and we will soon be announcing our Series E round,” Darpan Sanghvi,
cofounder and group CEO of The Good Glamm Group, told The CapTable in an interview.
While Sanghvi declined to offer any details about the company’s upcoming round, he was
extremely bullish about the foundations upon which Good Glamm Group has been built—
content-to-commerce.

The model involves acquiring multiple high-traffic internet content properties, including
ScoopWhoop, and promoting products through these platforms as it is cheaper to do so
compared to marketing on Instagram or Google.

“Others have tried to sell through content-to-commerce but they do not have the direct-to-
consumer (D2C) DNA,” Sanghvi claimed. “We experiment with multiple hacks every month.
We know what works, what does not work, and then we bring the people in. What we did is
we understood the price point at which consumers transact in D2C.”

This, he claims, has seen the Good Glamm Group’s portfolio of brands generate a combined
1.5 million orders a month from its own app and website. Of these, Sanghvi says, 500,000
orders are generated through new customers and 1 million orders are from repeat
customers.

Sanghvi says that these figures, which he says are the biggest in the country by far, has
been attained by adding various brands bought through acquisitions to the content-to-
commerce engine that his company has created. This has resulted in significant cross-
selling, he claims. For context, in January 2022, The Good Glamm Group had only 180,000
orders from its own website and app. “I can tell you that I am definitely a leader in D2C in
India…I can take on anyone,” he said.

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While the company is yet to file its financials for the year ended March 2023, Sanghvi said
that the Good Glamm’s overall revenues grew 270% in that period. He refused to share
specific revenue figures, insisting he could only share percentages.

Sanghvi’s seeming confidence, however, appears to be at odds with trends in the wider
beauty and personal care (BPC) space as well as the first-hand experiences of multiple
former senior Good Glamm Group executives The CapTable spoke with.

Even as Good Glamm Group has gone quiet, Mamaearth, one of the biggest internet-first
BPC players, went public, creating a seminal moment for not just the BPC category but for
the tech and startup industry as a whole. Interestingly, in its red herring prospectus, Honasa
said that it has scaled down its content-to-commerce business Momspresso as its
performance had deteriorated significantly.

“The management also presented multiple scenarios with medium term to long term
estimates for the acquired business but none of the scenarios demonstrated considerable
improvement in profitability profile and any sight of realising synergies for the core product
business,” the RHP stated.

Multiple senior executives in the e-commerce industry have told The CapTable that the
content-to-commerce model, while great on paper, does not work when put into practice.
This is why, they say, their respective companies have steered clear of it.

Multiple executives associated with The Good Glamm Group at various stages of its
business echo these sentiments, telling The CapTable that the company’s D2C machine is
built on shaky ground. “The promise of content-to-commerce has not really panned out,” said
one former executive bluntly. Not only are sales largely being driven through discounts,
killing other channels like offline and marketplaces in the process, the company has no clear
path to profitability, they say.

With multiple senior executives departing the company in recent months, is Good Glamm
Group really on the cusp of its next stage of funding and scaling as Sanghvi claims or are its
content-to-commerce chickens finally coming home to roost?

The discontent with content

Sanghvi’s decision to bet the house on content-to-commerce was the result of the rising cost
of acquiring customers through social media platforms and even marketplaces like Amazon.

Sanghvi says that by buying real-estate on the internet through content platforms like Miss
Malini and ScoopWhoop, Good Glamm could advertise its products to the hundreds of
millions of potential customers who visit these websites every month—either through placing

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ads directly on these websites or by creating content around these products. Sanghvi has
pitched to investors and founders of D2C brands that this would bring down customer
acquisition cost (CAC) from $15 to less than $1.

“This is the power of owning the customer,” said Sanghvi. “You have her phone number, you
are able to engage with her in multiple ways. You don't need Facebook or Google. She is in
your walled garden. So the top of the funnel is where content-to-commerce plays. Then you
try various things like a sampling program or a subscription program.”

People associated with Good Glamm and other industry executives say that the reality,
though, is very different.

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“To actually execute the idea seemed difficult,” said a person associated with The Good
Glamm Group. “The biggest challenge was to get a customer who reads or watches content
to actually come to Good Glamm’s various BPC websites in order to complete a transaction.
Intuitively, that does not make sense.”

A seeming indictment of the model is the company’s continued reliance on advertising on

Meta and Google. Multiple industry executives point out that the Good Glamm Group
advertising on Instagram is a testament to the failure of the content-to-commerce model.
Sanghvi said that the company spends about a third of its marketing budget on Meta and
Google but argues that the content-to-commerce strategy still helps reduce its cost of
customer acquisition.

“Our content platforms provide us top of the funnel traffic. Around 70% of our top-of-funnel
traffic comes through our content platforms,” he said. “These customers are then retargeted
with very precise retargeting on Google or Meta based on data we collect on their browsing
behaviour from our content platforms.” This approach, Sanghvi claims, makes Good
Glamm’s CAC 75% lower compared to its rivals.

Xs and Os
As a result of the content-to-commerce strategy being sub-optimal, say both industry and
company sources, Good Glamm has had to get creative to acquire customers. The
company’s ads are now commonplace on websites and social media platforms, advertising
products priced at Rs 1, sources point out. Once they land on one of Good Glamm’s BPC
websites, sign up, and add the product to their cart, a Rs 198 delivery charge is added. This
delivery charge can be reduced by adding more items to the cart.

According to the former employee quoted above, this was internally referred to as the XO
model and accounts for the majority of orders being fulfilled by Good Glamm brands even to
this day. Indeed, say the former executive and a second person associated with The Good
Glamm Group, the XO model—though it seems like a sampling exercise—continues to be a
major draw even for repeat customers.

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The XO model also results in significant burn for the company as it loses money on each
order. “By potentially spending Rs 200 you are getting a product worth Rs 1,200. How is this
profitable? Because at Rs 200, even at a gross margin of 70%, the logistics cost will ensure
you never make money,” said the former executive quoted above.

Sanghvi, however, says that XO model is just one among many hacks the company uses at
the top end of its customer acquisition funnel and claims that while 58% of new customers
were coming through this model a year ago, this has come down to 10%. “This has resulted
in first order AOV going up by 45% between last year and this year,” he says. “Typically, after
consumers are acquired through growth hacks, they are then taken through a journey where
they are upsold the premium products in the portfolio.” Overall, the company’s D2C AOV
stands at Rs 300, Sanghvi says. He also claims the company does not lose money by selling
through the XO model anymore.

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Unintended consequences
While the XO model may have helped Good Glamm drive sales, the strain on the company’s
balance sheet wasn’t the only negative consequence.

The deeply discounted D2C strategy has also come at the cost of the marketplace business
of the BPC brands Good Glamm has acquired, three sources quoted above said. At the time
of acquiring these brands, almost all of their business came from marketplaces, especially
Amazon and Nykaa.

“The problem is that Darpan applied his content-to-commerce D2C formula to other
companies as well,” said the second executive associated with the company quoted above.
“And that is where these companies also lost the brand value they built over time when they
started giving products for Rs 1.”

The one brand from the Good Glamm portfolio that has remained largely isolated from the
company’s content-to-commerce engine has been feminine hygiene brand Sirona, according
to the former executive and second person associated with The Good Glamm Group quoted
above. The brand is not just the company’s fastest-growing but is also profitable.

“Sirona has done well because the founders made sure the group strategy did not touch
Sirona,” the former executive said. “Sirona is a testament as to why the marketplace strategy
works and the content-to-commerce strategy doesn’t.”

Sanghvi, while praising Sirona by saying it has “done an amazing job”, denied that Good
Glamm’s D2C business has cannibalised its marketplace business. He said that the net
revenue of all the acquired brands have grown 200% overall and that the marketplace
business of these brands grew 50% over the last one year.

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“Some brands like MomsCo had slow growth in the initial six months since we were
reworking the brand strategy [from “for every woman” to “for every mom”] but then picked up
pace rapidly and have grown exponentially in the last 12 months,” Sanghvi claims. “Some
other brands grew very quickly (150% or more) at the start and then came to normalised
growth (over 40%) in the last six to nine months.” Sanghvi refused to share specific revenue
figures.

It isn’t just the marketplace business that has been affected by the XO strategy. Multiple
sources tell The CapTable that even offline retailers have begun using the XO offer to
acquire Good Glamm products far cheaper than what they would buy them from the
company for.

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Consequently, these shopkeepers have little interest in dealing with the company or its
distributors directly as they perceive Good Glamm to be a cheap, discounted brand. This has
both harmed Good Glamm’s ability to grow its offline channel whilst further straining its
balance sheet.

Sanghvi confirmed that offline merchants in some areas would purchase some products from
the group’s online store, but he said that this amounted to only about 1.5% of D2C sales in
those months and that the company used its tech chops to discover the retailers placing bulk
orders and blocked them.

“On a longer term strategy, the portfolio of hero products between D2C, marketplace, and
offline got differentiated,” he said. “This was further visible with D2C AOV being Rs 300,
marketplace AOV being Rs 450, and offline AOV being around Rs 1,000,” Sanghvi says.

Offline teething troubles

The XO model cannibalising offline growth is only one aspect of Good Glamm’s struggle to
grow offline. According to the former executive and the second person associated with the
company quoted earlier, in an effort to grow its offline channel, the company ended up
signing bad terms with distributors. Beyond this, the company ends up with a lot of unsold
inventory stuck with distributors even as the company struggles to get what it is owed by
distributors, say two sources quoted above.

“None of the money is coming back. All the relationships are broken… A lot of the money
remains untraceable,” the second person associated with the company quoted above said.
This, in fairness, is not a challenge that is unique to Good Glamm. Multiple D2C companies
are discovering the difficulties of going offline, where large FMCG brands continue to reign
supreme.

Sanghvi denies that the company is facing challenges in getting its money back from the
market, but said that offline is a space that Good Glamm is still figuring out and optimising.

“In offline, I am learning,” he says. “There are many challenges in scaling offline. In D2C,
your products are in one warehouse and from there they go all over India. In offline, your
products are stuck in each city. And then, if a particular SKU does not move in one counter in
one neighborhood in one city, how do you bring it back? So, offline requires a very different
DNA and it will take us time to learn.”

Even as the company attempts to find its footing in the offline world, it has seen multiple
senior level exits. Nishchay Bahl, chief business officer and head of Good Glamm’s offline
business, left the company in the second half of last year to join Honasa as a senior vice
president. Good Glamm has also seen the exit of Adheesh Bhagat, group head of its
marketplace business, as well as Chief of Staff Jinit Bheda in the second half of 2023.

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“93% of the senior management has remained intact with the company over the last 18
months. The 7% that have left are a mix of voluntary and involuntary departures,” the
company said in a statement.

Crunch time for Good Glamm

The next few months are critical for Good Glamm as it is running out of cash despite raising
more than $250 million. The company also raised a bridge round from existing investors last
year. Sanghvi confirmed the development but declined to share details. According to two
sources quoted above, the company only has a runway of about five months if it fails to raise
further funding soon. Sanghvi, though, says that the company has enough runway for at
least the remainder of 2024 without a Series E fundraise.

In the current funding environment Good Glamm will have to show that it has made
significant headway when it comes to achieving profitability if it is to entice investors to part
with their riches.

“We are yet to crack is profitability,” admits Sanghvi. “We are on that path…we are currently
at -17% this quarter on an earnings before interest, taxes, depreciation, and amortisation
(EBITDA) basis. In the ongoing January-March quarter, we are about to get to -10% at an
EBITDA level. And in the quarter after that we hope to get to breakeven. Our plan is to have
at least 4 quarters of profitability before we go for an IPO.”

But while Sanghvi makes profitability seem within touching distance, others are less sure and
say that questions about the company’s ability to achieve profitability have lingered for a
while now. According to one of the people associated with The Good Glamm Group,
investors began asking about EBITDA profitability as far back as January 2023. Warburg
Pincus and Prosus are the two biggest investors on The Good Glamm’s captable.

“When the likes of Mamaearth and Nykaa are showing profits or are showing signs of
profitability, investors do have expectations,” the first person associated with the company
quoted above said. Especially since the Good Glamm Group got to a $1 billion valuation well
before Mamaearth’s parent company, Honasa.

“We are doing necessary things to make the business profitable,” Sanghvi says. “Whether it
is optimising the team, optimising marketing costs, getting out of non-performing stores or
increasing our average order values (AOV).” Whether investors have the appetite or patience
for Good Glamm’s turnaround in today’s funding winter, though, is far from certain.

According to multiple sources aware of the matter, the company has done multiple rounds of
layoffs over the last 18 months. Sanghvi confirmed the development and said that over 120
corporate level employees were let go. He also confirms that a fresh round of layoffs is
underway at the moment.

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One of the sources quoted above said that in addition to the corporate level employees,
about 500-600 employees who were part of the offline team were laid off. These employees
are mainly beauty advisors that were deployed to offline stores to educate customers.

Sanghvi confirmed that the workforce has been reduced but said that the count of beauty
advisors fluctuates depending on the level of knowledge about the product in a particular
store or area and that these are largely off-roll employees. All of this, though, indicates that
Good Glamm is taking strong measures to turn things around. Whether investors have the
appetite or patience for Good Glamm’s turnaround in today’s funding winter, though, is far
from certain.

Edited by Ranjan Crasta

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