In the past 20 years, there has been a dramatic change in the methods by which consumers gather information, interact with beauty products and choose the retail channel of their preference. In North America, Asia, Western Europe, Russia, India and Brazil, there are new patterns emerging in which brand owners are encouraging direct and open dialogue with their consumers through online outlets. While department stores, drug and specialty stores, and direct-to-consumer channels are still viable channels for beauty sales, online sales have skyrocketed, and brands can no longer afford to ignore e-commerce as a critical part of retail strategies. In 2009, NPD Group, Inc., a market research company, reported that the Internet was the only retail channel to post an increase from the previous year in beauty product sales. What does the rise of e-commerce and digital marketing mean for the global beauty industry?
On a global scale, the Internet provides the same benefit to the consumer regardless of geographic location. Online retail offers a more convenient point of purchase and more ways to compare prices, endless product options and more information about those products without leaving home. The Internet is becoming intertwined in the daily lives of consumers everywhere, and is considered the most widely used resource for information gathering. As a result, consumers are making more informed purchase decisions, and are no longer limited by the products available in their direct offline community, otherwise known as brick-and-mortar stores.
In the U.S., Europe, South Korea and China, blogs are trusted sources of information for millions of readers daily, providing objective information in the form of product reviews, recommendations and resources on demand. Blogs have, in effect, replaced the beauty counter of the past, providing a more “personal” interaction for purchase decisions.
Since 2007, the influence of the blog has grown immensely, bringing with it the perks of a legitimate information stream and the attention of beauty marketers and public relations executives. Blogs provide an important experiential aspect for consumers to interact with others in their own kitchen or at the coffee shop—whether it’s a girlfriend or acquaintance, or someone they’ve never met from across the country or across the globe. And in areas such as China, blogs present an opportunity to connect with women in other regions that those consumers otherwise may not have the opportunity to communicate with.
As the popularity of blogs increases, greater legal issues and government regulation abound. In the U.S., beauty bloggers were specifically targeted in October of 2009 when the Federal Trade Commission ruled that blogs must clearly state the connection between a product endorsement and the brand owner, disclosing any compensation received. In China, bloggers continue to experience a growing number of government restrictions on what they are allowed to say and where they are allowed to say it. Even pervasive sites such as Facebook and YouTube have been outlawed by the Chinese government.
Still blog networks, such as Sugar and Total Beauty, are taking the beauty industry by storm, reporting more than 45% growth in advertising revenues in 2009. These sites function as a digital publication, producing editorial content on various beauty topics generated by hundreds of different bloggers. In 2007, Sugar acquired ShopStyle, an e-commerce site that brings in more than half of the blog network’s revenue. At ShopStyle, shoppers can browse for items and then click through to a retailer’s Web site to make a purchase. According to comScore, women are spending an average of 3.6 minutes per visit to TotalBeauty.com gathering information on beauty products. This is higher than even top print-media Web sites such as Elle.com and InStyle.com. Total Beauty attributes this success to providing a valuable online beauty resource, consumer research and thousands of user-generated product reviews for both prestige and mass-market beauty products.
In China, online shops on Taobao, an Internet marketplace and the largest online retail platform in the country, has become the most popular retail outlet there. However, Chinese consumers still prefer a more experiential environment for considering and purchasing cosmetics, and rely on traditional cosmetic stores to receive customized skin advice from beauty advisors. After gathering tips at the beauty counter, research shows that consumers return to online resources to compare prices and products, and to make their final purchase decision with Taobao retailers.
In South Korea, beauty product sales are booming with a steady momentum of new product launches targeting women in their teens and 20s. As surfing online is a major part of the everyday lifestyle of young Korean consumers, it is becoming more convenient to shop and gather information online.
As technology advances, the beauty industry continues to adapt new strategies to interact with consumers online, making their online communication with consumers more personal and more experiential. L’Oréal Paris recently created an interactive site to help consumers find cosmetics based on their own skin type, personal features and taste. Sites such as Daily Makeover provide visitors with virtual try-on technology to create customized makeovers. As LPK has seen in its caseload, mega brands like Olay continue to expand their use of social media on sites such as YouTube, Facebook and Twitter to engage brand fans and promote loyalty. Olay’s OlayForYou.com was created to provide a way for the consumer to interact with the brand and gain specialized skin care recommendations. OlayForYou.com also offers another outlet for product purchase.
Although brick-and-mortar stores have traditionally ruled the beauty industry, within the past decade, department store beauty counters have continued to struggle, losing more than half of their market share to specialty stores like Sephora and Ulta. Some specialty stores have also been impacted. Crabtree & Evelyn filed for bankruptcy in July 2009, but will emerge in 2010 with a strategy focused less on retail locations and more on e-commerce. Mass marketers like Procter & Gamble continue to experiment with e-commerce sites, where they are offering many of their big brands, including Olay, traditionally only found at mass stores. CVS, which recently launched eight Beauty 360 stores in the U.S., will now include an e-commerce alternative. Similarly, Sephora.com is still the largest retail outlet for the company in North America, in terms of sales and selection of products and brands. Supermarkets, hypermarkets and drug stores are blurring the lines with department and specialty stores, sometimes offering a more experiential and personal experience with a brand.
Where Retail Strategies Counter the Trend, Sales Lag
In Japan, where beauty and appearance play a major role in society, the beauty industry is the second largest in the world only to the U.S. However, while online retail is increasing in Japan, it is not as widespread and has been slow to catch on. Japan is also the world’s oldest market with just 2.6 people of working age for every person over 65, and is only expected to get older in the coming years. With Japan’s beauty market almost completely saturated, beauty companies are looking for ways to personalize their beauty products and the consumers overall experience. With that in mind, mass and prestige beauty brands from the likes of Procter & Gamble and Shiseido are focusing on specialty shops or dedicated counters where a consumer can receive focused attention and advice on their skin, to increase brand recognition and loyalty. Even with these strategies being employed with premium brands popular to the Japanese consumer, these brands continue to see the least amount of beauty sales.
According to the Direct Selling Association, beauty companies that employ direct sales techniques in tandem with Internet-based retail sales, are positioned to grow exponentially by using a combination of door-to-door and online media tactics. However, still more than 76% of direct sales are made to face-to-face, a figure that may continue to decrease as Internet sales become more prevalent globally. In Russia and Brazil, for example, where a majority of the population remains in rural areas, direct sales continue to remain the strongest retail channel for beauty sales.
With direct sales comprising more than 1% or 29.6 billion of consumer sales globally, companies such as Avon are keeping up with the evolving trends and changing the way they do business. In 2009, Avon’s sales reached $10.4 billion, nearly double what they were selling in 2000 with still more than 5.8 million representatives worldwide. So, what is its trick? Avon has been adapting with the market by combining its traditional home sales with social media and new product categories. In 2003, Avon debuted Mark, a beauty brand focused exclusively on teenagers and women under 30. The brand combines low price points with digital marketing tactics such as personalized e-boutiques, iPhone apps and Facebook e-shops where “Mark girls” can sell their products directly on their Facebook pages.
As consumers continue to rely on the ease of shopping online, gathering information from beauty blogs and the availability of a wide range of products on the Internet, the beauty industry will continue to develop new strategies to prosper and to better understand its consumers. In established markets, brands will rely less on traditional brick-and-mortar retail and continue to embrace digital technology as the key to keeping up with the demands of the consumer.
Liz Grubow is vice president and group creative director of the LPK Beauty. In her 20-plus year career, Grubow has helped develop and manage brand identity programs for some of the world’s most successful beauty brands—including Pantene, Olay, MAX Factor International and Cover Girl.