Look back on the size, shape and texture of the beauty industry in five-year increments, and among the things you notice are that trends can stay on the radar for quite awhile, sometimes really catching hold. We see, too, that the pace of change has picked up considerably. Change arises from what came before—new technologies enabling the next big things in their turn. All that has come before has brought us to where we are today, with a deeper understanding of both ingredient chemistries and the skin, leading to the most sophisticated products ever. Outside the lab, the world has kept pace, with a swiftly changing retail scene and a new way of doing business that is friendlier to the environment. GCI magazine editors take a look at the future of beauty being shaped today. It’s your move.
The Changing Face of Beauty Retail Puts Channel Distinctions into Soft Focus
Lines are beginning to blur between retail channels similar to the Magic Eye 3-D images so many tried to decipher in the 1990s by placing speckled pictures up to their noses. “The longer you look, the clearer the image becomes,” the brand’s Web site reveals, “and the farther away you hold the page, the deeper it becomes.” Just so, in the realm of beauty, the farther you look into the future of the industry, the clearer the reality becomes of retail channels—including food, beverages, nutrition and wellness, personal care, cosmetics and more—crossing visionary paths into one another to advance consumer experience, offering more convenient points of purchase.
As brands such as Coca-Cola and L’Oréal partner to develop functional beverages, retailers will have to find new ways of presenting such crossover products on the shelf. No longer will consumers look to high-end department stores for their exclusive beauty regimens.
In the next five years, according to Timothy Dowd, senior analyst in the Packaged Facts division of Marketresearch.com, the “Big Blur” will take shape. “It’s the overlapping of big retail channels as consumers shop at Sephora, Macy’s and Kroger,” he says.1 Supermarkets such as Kroger will become one-stop shops not only for groceries but also for private label health and beauty products; and hypermarkets such as Wal-Mart Supercenter and SuperTarget, combining supermarket and department store formats, will see a peak in sales, reflective of consumers’ reactions to economic downturn. And above all else, electronic sales through television and Internet retail channels will continue to flourish in the next five years as technology expands.
Preparing for 2012
Tesco is the fifth top retailer in the U.K.2 For the health and beauty segments, specifically, Boots follows closely as number eight, and The Body Shop sits at number 17. Interbrand cites one reason for this distinction as the birth of the hypermarket, which has “blurred the lines of channel relevance and forced consumers to think about choices.”
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.
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.
For IAC Retailing-owned HSN, the fourth largest cable network, its television channel reaches 90 million homes. Both HSN and its online retail counterpart raked in $1.9 billion sales in 2007. The business boom, which includes sales from 75 beauty brands, even attracted exclusive distribution rights this year from BeautyBank, a subsidiary of The Estée Lauder Companies. In addition, Coty Inc. announced a new partnership with HSN and www.hsn.com in 2008 for the marketing and distribution of its select prestige products, including from Lancaster.
HSN and QVC are right on target by offering Web-based retail outlets in addition to their television channels. The Census Bureau of the Department of Commerce announced the estimated amount of U.S. retail e-commerce sales for the first quarter of 2008, at $33.8 billion, an increase of 13.6% from the first quarter of 2007. Although the rate doesn’t factor in the beauty market specifically, Internet sales are on the rise.
Karen Grant, senior beauty industry analyst for The NDP Group, says more consumers are buying their trusted beauty brands online. “Women aged 45–64 now make up approximately 41% of the Internet shopper base, compared to 36% of women aged 18–34, and this older age group is set to become still more important in the coming years.”5
In addition, research group Gartner, Inc. predicts that to stay in the game, major retailers will soon have a marketing presence in virtual worlds such as Second Life.6 Gartner suggests targeting tech-savvy Generation Y customers in environments they frequent—especially online—will better position a brand for sales. However, that doesn’t mean brick-and-mortar stores will become obsolete. On the contrary, in addition to supermarkets expanding their beauty stock, drug stores are also becoming a force with which to be reckoned.
Drug Store Analytics
Among drug stores in the U.S., specifically, CVS Caremark Corporation tops the list with triple-digit growth between 2006–2008.7 Earlier this summer, CVS Caremark announced the acquisition of Longs Drug Stores Corporation for $2.9 billion. Known as a platform for independent beauty brand launches, Longs was once one of only two chains selling Elizabeth Arden products on a direct basis. Therefore, bigger brands may hold more power in the newly acquired stores, unless CVS agrees to support more niche beauty brands.
With the acquisition, CVS expects to achieve significant cost synergies of $100 million in 2009 and up to $150 million in 2010. In total, CVS will acquire Longs’ more than 500 retail drug stores throughout California, Nevada and Arizona, as well as its Rx America subsidiary. Longs’ stores in Hawaii, however, will continue to carry the Longs banner. In summation, the deal will put CVS in control of more than 6,800 total drug stores in 41 U.S. states.
In addition to drug store expansion, professional beauty retail channels such as Sally Beauty Supply may also grow in the next five years, based on recent profits. In August 2008, Sally Beauty Holdings, Inc. announced consolidated net sales of $676.8 million for the fiscal 2008 third quarter, an increase of 6.6% since 2007. Sally Beauty Supply opened 62 new stores during the third quarter in 2008, increasing its total to 2,801 stores in North America. The company, along with its Beauty Systems Group, sells and distributes through more than 3,500 stores internationally across North America, Europe and Asia.
However, on the whole, Euromonitor predicts that with consumers switching from prestige brands to less expensive masstige brands, the U.S. beauty market will decline by $1 billion by 2012. Countries such as Brazil, Russia, India and China will not, on the other hand, feel as much burn from economic downturn, thanks to their emerging middle class markets.
Global Middle Class Markets
Accenture, a global management consulting company, reports in last year’s The Rise of the Multi-Polar World report that, “by 2010, China and India together will contain 123 million middle-class households—more than the total number of households in the U.S.” Euromonitor forecasts China to grow by $10 billion by 2012 in the cosmetics and toiletries market.3 In China, salons top the beauty sales channels with 1.5 million locations, compared to the .3 million salons in the U.S., according to Diagonal Reports, a research company based in Ireland. And “at current growth rates, it is estimated that the Chinese beauty market will overtake France, currently Europe’s biggest cosmetics market, by 2012, in value terms.”8 India, on the other hand, will see a surplus of new shopping malls offering retail options, as the number of malls there increases to 600 in 2010, according to the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst and Young.9
On par with China’s growth, Euromonitor predicts Russia to also show increased profits—$12 billion by 2012—an increase of 4% from 2008.3 Japan will remain among the top five countries powering the beauty industry, Euromonitor adds, although it represents a pre-established market, rather than an emerging one.
Brazil, expected to grow by $10 billion by 2012, will join China, India, Russia and Japan as Euromonitor’s forecasted top five beauty industry. Euromonitor predicts the beauty market will experience an average annual growth of 3%, reaching global sales of more than $337 billion by 2012.3
Sustainability in Business is the Next Step in Eco-evolution
In “Brand Green: 10 Features for Success” (www.forumforthefuture.org.uk), authors Chris Sherwin and Lena Staafgard—the forum’s head of innovation and senior sustainability advisor, respectively—note that the era in which sustainable and eco-conscious business is “cool, sexy, aspirational and even profitable” is upon us. Notably, this era has also seen businesses taking leadership roles in sustainability.
And the beauty industry is at the forefront—at both the marketer and supplier level. The aforementioned article cites P&G’s announcement for plans to generate $20 billion in cumulative sales from “green brands” by 2012, and stories of other marketers efforts abound—in both consumer and industry press. In the U.S., Burt’s Bees and Aveda immediately come to mind because of both the size of the companies, in terms of both sales and general reach, and the efforts that reinforce a message beyond natural products and niche-only status. Burt’s Bees, for example, partnered with the North American Pollinator Protection Campaign to address the faltering honeybee population. Aveda demonstrates its commitment to cutting waste and avoiding virgin packaging materials, when possible, through its reuse of misprinted packaging of already recycled paperboard for its candles, making the misprint the inside of the new box—an effort recognized with an Institute of Packaging Professionals award.
Efforts such as these are not simply cool, sexy, aspirational and profitable. They are smart efforts that have an impact that is far more reaching. Therefore, GCI magazine editors predict sustainability will be one of the greatest forces on the future of the beauty industry—not because it is a trend, or marks an era or even because it is cool and sexy. It is a model that makes the most sense in a big world that is growing smaller in terms of value exchanges and markets—particularly in the industry, where there is an intimate connection, both physically and emotionally, with products. The sustainability that will impact the future goes beyond labels, ingredients, processes, etc. It is a vision and mission that companies strive to meet, and it is good business.
All that said, it doesn’t take a special level of clairvoyance to predict this future; so much of it is happening in the present. However, it does require some filtering of labels, seals and finger pointing to get to the heart of the matter.
Widening the Scope
In his book Minding Your Business, Horst Rechelbacher, who founded Aveda and Intelligent Nutrients, provides a summation of sustainability and sustainable business: “Sustainability is not an eco-Band Aid, a luxury for affluent Westerners, nor pie-in-the-sky idealism. It is the necessary life-blood of a new era of enlightened capitalism. A successful sustainable business involves ethical transactions or energy exchanges in the form of services, products and money that benefit all parties—the company, the clientele and the greater community of which they are a part.”
This broader stroke look says nothing about components, ingredients or processes, but implicitly suggests the foundation of what these issues are and how deep that foundation must run, the extent to which it is ingrained for ongoing and far-reaching success in these endeavors.
As noted previously, many beauty industry suppliers also hold leadership roles in sustainability. The efforts of Diamond Packaging and Curtis Packaging are well documented, with both building business practices and processes year-on-year toward a level of eco-consciousness and sustainability that would serve as admirable benchmarks in any industry. And though their efforts may currently be among the most prevalent, in the packaging segment, they are not alone. Efforts by ingredient and chemical suppliers, too, have clearly ramped up over the last few years—and there’s, with a seemingly constant battle against labels generally denoted as “dangerous,” may be the most significant within the short term in that “efficacious” can’t be sacrificed in the quest for “not dangerous.” This quest also brings more complicated issues of sustainability—sourcing alternative ingredient choices, for example.
Ingredient supplier Alban Muller International and speciality chemical company Cognis Corporation base their activities on principles of sustainable development.
“In 2002, Cognis launched a wide ranging program under the general heading 25 by 2012,” says Ulrich Issberner, senior marketing manager, personal care, care chemicals North America, Cognis Corporation. “Wishing to make a meaningful contribution to reducing environmental impact, Cognis’ aim in instituting this project is to achieve a 25% reduction in all the major indicators—that is to say specific energy consumption, emissions and wastewater, among others—by the year 2012. Being successful as an enterprise, of course, is the top-most priority of Cognis and its management and staff. All our business and corporate activities are, however, based on the principles of sustainable development—achieving a sensible balance between economic, ecological and social needs without, in any way, compromising the development opportunities of future generations,” says Issberner.
Enriching People’s Lives
Cognis subjects its sites to regular audits, monitoring standards of safety, health and environmental protection. These eco-inventories allow the provision of environmentally relevant facts and figures to its customers—again providing those customers with more for their sustainable back story for consumers who now look for and expect this story line.
“Generally, consumers’ needs and expectations have changed considerably over the last few years,” says Denise Petersen, marketing manager skin care, care chemicals North America, Cognis Corporation. “Whereas in the past, going ‘green’ meant making sacrifices; today, it is seen as something that actually enriches peoples’ lives. The ‘green’ market, for example personal care and cosmetic products based on natural ingredients, is no longer a niche, but very much part of the mainstream.”
Natural and organic are important components of many sustainable efforts, particularly for ingredient and specialty chemical suppliers, and perhaps that’s why they can also be the catalyst and impetus for more encompassing efforts.
“The ‘twinkle’ [for sustainable development] was green ecologists who saw a future in organic growing techniques for agriculture,” says Alban Muller, president, Alban Muller International. “They were trying to change the way people would live in a renewed society: natural products and no chemicals, bicycles and no cars, etc. In other words, back to nature and to a simpler way of life. It might not have been ‘sustainable’ in today’s terms, but it was a philosophy against ‘super consumption’ way of life, and it had its supporters.
“One of the greatest visions of our group was to use plants to offer phytocosmetics in a time when collagen, elastin and [animal] extracts were the one and only fashionable cosmetic actives. I decided to go against the tide because I did not feel animal extracts would last forever, and, moreover, I had always been fascinated by the beauty of plants and flowers. And as plants were our raw material, we could not imagine using them without protecting them. Without even knowing it, we have pragmatically built a sustainable way of working, which today constitutes the philosophy of the group.”
The company went from “dreaming green” to “managing sustainable,” and Muller equates sustainable development management with a new way of life in which problems of long term supply is addressed. This management includes trust-based relation with its farming partners and sourcing locally—cutting delivery delays and transportation costs.
“We have no other choice than developing sustainable products, selecting production techniques which respects the environment, using less fuel, without polluting the air for instance,” he says. “And it proves to be an economically sound way to manage. Most people have not realized yet that caring for a sustainable development is simply caring for your company.”
For more from Petersen and Muller, read “Principles of Sustainable Development Q&A.”
- Kroger Making Big Changes in Beauty Aisle, Cincinnati Enquirer (Jul 25, 2008)
- Top Performing European Retail Brands 2008, Interbrand report
- 2008 State of the Industry, Euromonitor International
- Lines Begin to Blur Between Retail Channels, Beverage World (Jan 15, 2008)
- Emerging Channels: Beauty Care Products Over the Internet, The NDP Group, 2007
- Gartner: 20% of Retailers in Virtual Worlds by 2010, Virtual World News (Dec 7, 2007)
- Hot 100 Top Ten, National Retail Federation, 2008
- Largest Hair Salon and Beauty Salon—Spa—Chains China 2008, Diagonal Reports (Aug 2008)
- Winning with Intelligent Supply Chains, The Federation of Indian Chambers of Commerce and Industry (2007)