Social media, influencers and online threats change how retailers approach cosmetics
In the 1990s, glossy magazines and supermodels were the trendsetters in beauty and fashion. Young women emulated — or at least aspired to emulate — the clothing and color cosmetics looks dominating the runways. There were few other choices.
Food, drug and mass channels echoed this mantra. They offered a handful of dominant cosmetic brands supported by mega ad campaigns featuring the same looks and supermodels. This left little room for smaller players, who normally lacked the funds to support top talent and big ad budgets.
Today, supermodels and major brands no longer call all the shots in beauty. The advent of the Internet, social media and beauty influencers from YouTube and Instagram are providing myriad choices in color cosmetics and purchasing channels. A growing cadre of online beauty subscription services also let women regularly test new makeup from brands large and small.
The degree to which millennials indulge in makeup, what they buy, what they spend, and where they get suggestions on looks and styles are up to them alone.
“There’s no one-fits-all in beauty,” said Pooja Agarwal, vice president of operations at Birchbox, an online subscription beauty company. “There’s a trend towards personalization. Before, everyone saw the same assortment. Consumers still care about beauty and feeling their best. But they don’t need a supermodel to tell them what that is. Technology has changed the game.”
The new rules of the game are threatening food, drug and mass, where color cosmetics generate some of the highest profits per square foot. According to Nielsen, consumer spending on beauty has shifted online faster and more significantly than in nearly every other CPG category. Almost 1-in-3 U.S. dollars spent on beauty is spent online.
In total, Americans spent more than $12 billion online for beauty and personal care over the past year. That represents 30% of dollars flowing through online channels, up from 24% the year before. It also signifies the biggest shift among major FMCG categories.
“These retailers are competing against online players,” said Matt Sargent, senior vice president of retail at consultancy Frank N. Magid Associates. “We’re facing a major change in how convenience purchasing is addressed. Cosmetics can’t exist in its current structure and expect to have a sustainable business in these channels. If they don’t figure out a different way, the cosmetics category will die there.”
Mass retailers are fighting back. In addition to offering smaller brands, a growing number are partnering with online-only labels. They also are employing in-store consultants to advise shoppers on product use, while featuring exclusive lines that tap into new trends and differentiate them from their online and offline competitors.
“Keeping cosmetics relevant in food, drug and mass is incredibly important,” Sargent said. “People come for cosmetics and shop other categories. While price is a differentiator, you can’t have that alone. They can’t out scale Amazon or carry the same assortment as Jet.com. Part of what’s happening is a threat and part is an opportunity. They must figure out a model they can effectively scale to deliver an experience that doesn’t feel boxed away.”
On-site beauty advisors
In recent years, such chains as Walgreens, CVS Pharmacy, Target and H-E-B have begun employing beauty advisors, or consultants, in major markets during prime shopping times. Unlike department store consultants, they are not commissioned, employed by cosmetic manufacturers or assigned to leased departments.
Nor do they primarily target beauty aficionados. Hooked on the latest trends, enthusiasts frequently visit department and specialty stores and make major investments in high-priced cosmetics. Mass channels tend to attract more casual customers who want to fill a specific need, purchase cosmetics for a special occasion or have a limited budget.
“The Walgreens customer isn’t going to spend an hour seeing everything,” said Birchbox’s Agarwal, whose company recently launched special sections there. “She’s purpose-driven — she needs a lipstick or tips for a special occasion, versus people who go to a specialty retailer to explore and see what’s new.”
While they do not push specific brands, advisors’ ability to answer questions and solve problems often encourages consumers to try products or buy a higher-priced item with an application or purpose they were unsure of. Consultants also provide an experience unavailable online.
“They’re raising the bar on what a drug store is,” said Joann Marks, founder and CEO of Cosmetic Promotions. “Consultants make stores more interactive. A consumer may not know which concealer is best. They also want to touch and feel. Anything that lets people try on colors helps. These consultants are highly trained on everything from proper skin care to how to apply eyelashes.”
CVS Pharmacy’s BeautyIRL pilot offers custom makeovers, braids, manicures and hair blowouts at four Florida, Connecticut and Massachusetts locations via a partnership with Glamsquad, an on-demand, in-home beauty provider. Additional locations for the format are planned in 2019.
The BeautyIRL concept stores also have “Mini Must-Have” boutiques, where customers can assemble a personalized bag of miniature beauty products, and a “Test-and-Play Hygiene Bar” to safely try products.
Alyson Fischer, senior associate at Chicago consulting company McMillian Doolittle, said beauty departments in BeautyIRL stores are double the usual size and feature additional brands and accessories in special brand boutiques. “It’s all about service and in-store experience.”
Retailers also drive traffic and sales with in-store events. In addition to makeup tips, shoppers can watch demos and receive coupons and gift bags, Marks said. Her company works with retailers and suppliers to orchestrate these occasions by providing samples, coupons and testers. This strategy generates “higher than average rings.” Walgreens, for one, stages events twice monthly. Loyalty program customers receive extra points for purchases made during these times, furthering the sales lift.
Some events are seasonal. This past fall, Cosmetic Promotions worked with Rite Aid to stage back-to-school and Halloween demo events in its top 200 locations, providing toolkits and beauty experts. Around the same time, Kokie Cosmetics also conducted Halloween makeup demo events, working with online makeup subscription company Ipsy.
“We’re creating excitement, working with our supplier partners creating in-store beauty events in key markets,” said Cathy Furtado, Rite Aid’s category manager of skin care, sun care and general cosmetics. “They create great buzz around new items and sampling.”
Sheila Keating, national sales manager and vice president of sales at Kokie, said demos are definitely having an impact in that 25% of Rite Aid’s cosmetic purchasers are new customers. At mass, Walmart used demos during the first half of 2018 to showcase new Hard Candy cosmetic items at 365 locations. Events included personalized makeup consultations and tips on creating day and night looks. Demos emphasized five new collections containing items retailing for under $10. Walmart became the exclusive retailer of the former prestige brand in 2009.
This type of aggressive pricing is key when targeting millennials. “People discuss millennials as one big cohort,” said Maria Steingoltz, managing director at LEK Consulting. “But there are older millennials in their late 20s, early 30s and younger ones, who are much more constrained from an income standpoint. This explains the success of such brands as e.l.f., which offers affordable products — that’s their whole positioning.”
According to recent estimates, about 25% of millennials live with parents, far more than previous generations.
The Korean influence
Korean-style makeup, natural ingredients and cruelty-free cosmetics increasingly have become important. Sometimes, ingredients emulate popular food and beverage trends involving such healthy fare as avocados or green tea.
“There’s a tie between what people eat and put on their faces,” said Laura Maclay, project manager at New England Consulting Group. “If you want to know what’s happening in cosmetics, look no further than the restaurant industry. Ingredients are very important and people want to know where they come from.”
Rite Aid is featuring facial masks with ingredients that include lemon, avocado and sugar. Masks are merchandised on a spinner. And Target, Fischer said, eventually wants to eliminate certain chemicals from all beauty products.
Korean-influenced products are made from traditional ingredients like pearl powder, snail secretions, starfish extract, bee venom, ground bamboo, seaweed and Tremella mushrooms. Research group Kline said U.S. K-beauty sales totaled $225 million in 2016, up 30% over 2015.
Ingredients have been popular in Korea for years, but growth of social media brought them worldwide attention. Today, CVS Pharmacy features a K-beauty section in 2,000 stores. Products are affordable, easy to use and have eye-catching, colorful packaging.
“K-beauty, which emphasizes skin care and effective natural ingredients, merges health and beauty, which is at the core of our mission,” Maly Bernstein, CVS Pharmacy’s senior director for divisional merchandising, beauty care, told the Pittsburgh Post-Gazette when the company rolled out its K-Beauty offering. “It was a natural extension. Customers have been providing great feedback, and the program has exceeded expectations.”
Rite Aid also is bullish on K-beauty. In November, Kokie Cosmetics became an in-store exclusive. Developed by a Korean beauty executive, Kokie’s fun, colorful packaging sports elephants, following the millennial trend towards using animal designs on packaging —“Kokie” means “elephant” in Korean. Cosmetics are cruelty-free and affordable. “Millennials don’t want their mother’s makeup,” Keating said.
At the same time, Rite Aid launched Cake Beauty, another in-store exclusive featuring vegan, all-natural hair and body products. Also cruelty-free and certified by PETA, the company’s motto reads, “Beauty without bunnies.”
“Both brands offer something our competitor doesn’t,” Furtado said. “We’re capitalizing and moving quickly on trends like the new nail bar, which offers best-in-class nail selection. We are also creating a new beauty shopping experience by adding large focal cutouts, way-finding within the beauty aisles.”
Both new Rite Aid lines started as online-only labels. Keating said Kokie’s popularity was fostered by 600 online influencers, a strategy developed when the brand was launched four years ago. “It’s all about engagement, which drives in-store sales. With millennials, old ways of promoting products aren’t working.”
When it comes to differentiating mass beauty departments, changes did not begin yesterday. Retailers have been experimenting with new models for several years. Some have worked, some have not. Yet it is crucial these channels continue testing and reinventing themselves to gain and maintain consumer momentum.
“The experiments you’re seeing are important,” Sargent said. “This is a crucial category for driving margins. With the convenience component usurped by e-commerce, they must do things differently.”
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