This is part two in a three-part series on The Top 7 Beauty Industry Predictions in 2017 and Beyond. Part one can be found here.
It seems like I read an announcement about a beauty brand opening freestanding boutiques every week. Of course, I’m exaggerating. Yet, we’ve seen brands like NYX, ELF, and Philosophy take their shot at the MAC Cosmetics model. This is in addition to the expansion of global brands like Rituals and Aesop into the US market. Why is this happening? It’s pretty obvious. Beauty is an experiential category — touch, feel, and smell. It’s tough to replicate the in-store experience online. In fact, e-commerce accounts for only 10% of beauty sales. This has been consistent for a number of years. I also believe that shopping for beauty products is an indulgence for many women. It’s not a chore like shopping for groceries and it’s less stressful than shopping for apparel. No fitting room and no frustration. For beauty, it’s about sniffing, swiping, swatching, and evaluating textures and colors. When women visit Ulta, they’re looking to discover. Although product testers aren’t available at retailers like Walmart, product returns are stress-free. And, there is no worry about shipping costs.
The Growth of Direct-to-Consumer
E-commerce hasn’t killed brick & mortar beauty sales as much as it has for other categories. For some brands, this is great news. At the same time, brick & mortar retailers can only carry so many brands and products in-store. Furthermore, retailers like Macy’s and Target have closed a significant number of doors. Beauty manufacturers are forced to find new ways to maintain sales volumes. As such, beauty brands are increasing direct-to-consumer marketing activity. This is how today’s indie brands are establishing their presence.
Quite a conundrum. But it’s also opportunistic for beauty brands. Selling direct-to-consumer enables brands to collect their own behavioral data. They can cultivate new insights on how to better serve their target audiences. I can attest to this as a senior marketer who’s worked in beauty and packaged goods. We rely on syndicated market data supplied by research firms like NPD and Nielsen. Although you can access category and competitive data, the reporting is delayed. To get shopper insights we depend on retailers who have solid data from loyalty programs. Knowledge is power and direct-to-consumer (DTC) can help put it back in the hands of the brands. Brands have the opportunity to sell their entire assortment directly to the consumer. They can establish new behavioral data and uncover new actionable insights. Traditional retailers may feel threatened. But they should not. Brands can’t afford to lose any existing distribution in this hyper-competitive climate. Instead, the new data helps brands and retailers work together to grow the category.
Rapid Expansion Then Stabilization
So I expect that we’ll continue to see more beauty brands open freestanding stores. However, I’m going to go out on a limb and suggest that this trend will be short-lived. As hot has beauty is, I do not expect to go to a mall and see nothing but beauty boutiques. These boutiques must generate consistent traffic in order to drive inventory turnover and cover operational costs. In an extreme scenario, with every brand having a stand-alone boutique, this would be difficult. Each brand will have to cultivate a differentiated experience. Let’s face facts. This is a trend-driven industry where imitation is not flattery but necessary. True differentiation is very difficult.
Beauty enthusiasts don’t shop one brand. Her beauty routine features a variety of items from drugs stores brands to luxury brands. She looks for the latest and she wants to be in the know across ALL brands. This is where multi-brand retailers have the advantage. When you want to quickly see what’s new, you head to Ulta or Target or Sephora to see the new displays and promotions. If you need a new foundation, you can sample across various brands at Sephora. Brands that operate outside of this setting miss out on this key benefit. This may explain why MAC just announced that its products will available at Ulta stores as of April.
In summary, we’re going to see a growth in boutiques. NYX is going to be one of the most successful. The brand has accessible prices and an engaged multicultural and millennial fan base. These factors will help NYX stores attract a steady stream of traffic. NYX operates in a unique space. It’s not mass and it’s not prestige. It’s a brand that grew by producing high-quality, on-trend products at great prices. And with L’Oréal as its parent, NYX has more access to R&D and the ability to produce new products faster. I’m sure MAC has their eye on NYX and their growth via stand-alone boutiques. Outside of NYX, existing brands going the boutique route will grow quickly. But, there will be market saturation forcing brands to scale back. Brands will then focus on flagship boutiques. They will be in cities (e.g. New York, Chicago) where there is heavy foot traffic from residents and tourists alike.
Stay tuned for part three which, the finale of this three-part series on beauty industry predictions. Part one can be found here.