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The Future of Beauty

By: Leslie Benson and Jeff Falk
Posted: October 9, 2008, from the October 2008 issue of GCI Magazine.

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Euromonitor International reports, “supermarkets/hypermarkets continued to be the fastest-growing store-based channel for cosmetics and toiletries worldwide, accounting for 28% of global beauty sales.”3 Information Resources Inc. concurs, stating that 84% of U.S. households shop at the hypermarket Wal-Mart, whereas 99.9% shop at supermarkets.4

Further blurring retail lines, in the U.S., supermarkets, including Kroger, have begun expanding their stores’ beauty offerings. In Cincinnati, three Kroger stores expanded aisles in 2008, adding wood and tile flooring, hanging mirrors and shelf lighting for a warmer, department store-like appeal. The retailer may do the same to its more than 2,400 other stores, according to Kline & Co., to boost its rank among mass merchandisers such as Wal-Mart and Target Corp., as well as drug stores and department stores. Currently, Kline & Co. ranks Kroger and similar grocery stores fourth in sales behind the aforementioned retailers. Though, in 2007, Kroger’s sales reached $52 billion in the U.S.1

Kroger’s better utilization of space is just one example of how brick-and-mortar sales channels can offer consumers first-hand experience with a brand. “Space isn’t just about applying design but also optimizing every meter of selling capacity for financial return, as well as brand relevance.”2 Interbrand urges retailers, including grocery stores, to use space as a springboard into a sensory brand experience for a consumer. Sephora, for example, pioneered this concept. “Before Sephora, perfumes and cosmetics were essentially bought over-the-counter. The idea of a specialist environment becoming the ‘supermarket’ of luxury perfumes and cosmetics seemed a non-starter.”2 On the contrary, in France, Sephora is worth €767 million and falls just above The Body Shop as the 16th top retailer in Europe in 2008. It’s in Sephora’s presentation of brands, Interbrand states, that gives “retail brands some advantages over virtual brands in the on-line domain.” In cyber space, you can’t use all your senses. However, retail brands with both brick-and-mortar stores and e-commerce Web sites offer not only real-life interaction with products, but also the convenience of online shopping.

Necessary E-commerce

Euromonitor forecasts that direct sales, home shopping and Internet sales channels will grow globally through 2012.3 E-commerce in the U.S. grew from $94,000 in 1999 to $191,000 in 2006, according to the U.S. Census Bureau.

Television shopping channels such as QVC and HSN have not only cornered the U.S. market on direct-to-consumer TV sales, but also via Internet sales. QVC reaches 96% of U.S. cable homes, with additional broadcast operations in the U.K., Germany and Japan. The wholly owned subsidiary of Liberty Media Corporation logged $7 billion net sales in 2006 for its general merchandise, which includes products from more than 50 beauty brands. Named number 11 in the 2008 Internet Retailer Top 500 Guide, U.S. Web sales, specifically, increased by 6.6% between January and June 2007 to $577.5 million.