A shake-up in the beauty world — are you ready?
The beauty industry has experienced a massive boom in recent years and is on track to hit $800 billion in global sales in the next five years.
Naturally, fresh consumer interest also brings with it waves of new competition. But what impact is that having on beauty brands globally?
In our work with one of Europe’s leading cosmetics brands, we’ve seen firsthand the revitalising of strategies and the drive to future-proofing businesses. Let’s take a look at what’s behind some of those major industry and consumer shifts in the last couple of years.
Beauty got social
Social media has been pivotal to change in the industry. Its ability to reach large global audiences has forged an entire realm for online commentary. Beauty communities have driven product knowledge that no longer exists solely in its niches of highly engaged consumers: the mass market customer is now incredibly clued-up.
According to Stellar Rising, 58% of beauty consumers say social media is a primary influence when buying make-up. But that journey is most often completed at a physical location. Accenture found that 61% of make-up and 55% of skincare shoppers still prefer to make the purchase in-store.
Brands are relying heavily on influencer marketing and live videos allowing instant conversations, as traditional marketing initiatives are losing effectiveness. Platforms like YouTube and Instagram have given consumers a voice. In turn, customers are embracing the process of discovery and experimentation in beauty. To tap into that sense of adventure, beauty brands are ramping up creativity, in both marketing and assortment.
New D2C brands sweep in
The combined forces of social media and e-commerce also lower the barrier to entry for brands launching. In recent years there has been swathes of new brands highly targeted to the needs and aspirations of younger consumers — something many legacy beauty brands had overlooked. Brands like Glossier, Drunk Elephant, Fenty, Deciem, Kora Organics and Kylie Cosmetics have changed the playing field.
That has driven an uptick in acquisitions from the major players trying to diversify their offering and audiences. In recent years L’Oréal has been on a buying spree, snapping up Korean beauty brand Nanda, German natural brand Logocos Naturkosmetik and beauty AI startup Modiface. Estee Lauder has invested in Deciem and acquired Becca, Too Faced and By Kilian.
The dynamics between brand and shopper have changed radically — having gone from brands ‘pushing’ products out to their shoppers, to a relationship where shoppers ‘pull’ what they want from brands. The impact of that can’t be understated and requires an overhaul of operational processes and an agile approach.
It was these factors which convinced our co-founder Joaquin Villalba that there was huge opportunity in using artificial intelligence and prescriptive analytics to drill deeper into product decisions and automate processes at beauty brands. Today Nextail is helping the beauty industry in some of its core challenges.
Supporting an expanded assortment
Reduced factory minimums are enabling young brands to enter the market with diverse offerings. Where once a cosmetics minimum order size could look like 25,000 pieces, today new brands can get 10,000 pieces through a factory and build out ambitious assortments early on.
This has got the beauty customer locked into the thrill of the new. Not only that, but social media amplification means beauty trends move fast and spread globally. Established brands with their slower development times are being forced to reconsider.
But with that expanded product offering comes a lot of new challenges — many of which are unique to beauty. Beauty’s rigid display units in store mean that it’s a careful balance between store image and catering to demand (compared to fashion where you can just move rails around). At Nextail we’ve developed a solution that sets parameters around certain products, giving weight to those that are key to visual merchandising and therefore are stocked to cater to image versus the weighting of those which are in high demand and less visual.
Shrinkage is typically higher for beauty and cosmetics brands than in fashion — this too meant the Nextail software needed a unique approach. Missing products mean that the theoretical stock count of what should be in a store is inaccurate. As replenishment is based on theoretical stock, this impacts the store availability. Nextail’s AI ghost stock reporting detects through sales and trends: products on which there are likely to be discrepancies. Those products are flagged with the store to review. The algorithm is accurate in 90% of cases, automating the replenishments needed, meaning retailers are able to quickly fix otherwise overlooked discrepancies, and minimize lost sales.
Promotional activity in the market needs a tailored approach too. As beauty products are repeat purchase consumables, the impact of promotions is typically higher than fashion products. We’ve see beauty brands attain between four and five times the number of sales at product level during promotion. These are just a few of the insights that have been invaluable in helping beauty brands tackle the new frontiers in retailing.
Delivering Sephora levels of customer experience
The beauty market has incredibly high frequency of purchase — Cowen’s Consumer Tracker suggests that 70% of beauty consumers shop on a monthly basis. Beauty brands need to be acutely aware of the impact which that has on loyalty. This customer prioritizes frictionless experience, requiring retailers to get smart about the entire customer journey.
Amazon’s health, personal care, and beauty category is its third fastest-growing. That means in order to compete with Amazon-levels of service online, experience has to be immaculate in store.
That is something which US beauty giant Ulta is committed to. “We’re all really focused on what our guests are looking for at the end of the day, and if we can make sure to offer that to them; I think we’re going to continue to be in a good place,” Mary Dillon, CEO at Ulta, said on an earnings call, as reported by Forbes.
The commitment is reaping rewards for Ulta — it reported 9.4% same store sales gains in 2018. And it’s not the only beauty retailer in the game delivering stunning in store experiences — Sephora has set the bar high with its diverse product offering, insightful store staff, compelling loyalty offering and seamless customer service.
Things like Sephora’s innovative Visual Artist mobile app is an AR tool which allows customers to try on different shades of make-up and do guided beauty tutorials on their own faces. The tech has also been installed on iPads in two of Sephora’s NYC stores, enabling customers to immediately try on new shades without having to remove the make-up they’re wearing.
Being prepared for the new consumer
A recent Piper Jaffray survey found that American teens are spending less on fashion accessories than ever before. At the same time, 38% of 13–18 year olds are spending more on skincare.
Not only are beauty consumers getting younger, but the younger customers have distinctly different values and beliefs around beauty than generations and even the sub-generations proceeding it. Inclusivity and diversity are a top line priority — something which tech, like Il Makiage’s artificial intelligence shade matcher, is leaping on as an opportunity.
Another consumer group newly booming in beauty is men. The male grooming market is expected to grow 5.3% year-on-year to 2023, when it’s estimated to be at a $78.6 billion value globally.
Digital has grown male awareness in the grooming space. Through social media, men are discovering brands and getting an introduction to the science behind products in a way that wasn’t happening before. And e-commerce has removed the barrier to entry, making these products accessible in a non-intimidating space.
Dollar Shave Club not only tapped into the opportunity to redefine men’s grooming online at the right time, but also into the social tone last year with their beautiful ‘However You Get Ready’ campaign , which went viral in the US.
Attitudes around gender are shifting as the younger generations redefine masculinity, femininity and all that’s in between. Brands in the beauty and cosmetics space will need to quickly develop the ways they understand and engage with their audiences.
Beauty going clean
Consumers are also becoming increasingly vocal about ‘clean’ beauty, prioritizing ingredient and cost transparency, sustainable packaging and ethical manufacturing.
UK skincare and cosmetics brand, Beauty Pie has introduced an unusual model to the market. Its membership packages give subscribers access to special member-prices with a maximum monthly spend. For example, its £30 Everyday Great Skin Foundation is available to members at £7.70. The latter price point is broken down to show complete transparency (£4.69 product and packaging, £1.35 warehousing and £0.31 tax) which gets the consumer questioning luxury price points elsewhere in the industry.
Beauty Pie’s sibling brand, Soaper Duper sells cruelty-free, vegan products in large-sized recycled or recyclable plastic containers, meaning consumers need to replace less frequently. According to Grand View Research, the global market for vegan cosmetics will be worth $20.8 billion by 2025.
Deciem’s controversial line, The Ordinary, (the tagline for which is “Clinical Formulations With Integrity”) strips back on branding and is able to cheaply manufacture ingredients normally reserved for luxury lines. The brand “exists to communicate with integrity and bring to market effective, more familiar technologies at honourable prices.” The brand’s anti-ageing Granactive Retinoid Emulsion formulation costs just $17.90…and is used by Kim Kardashian.
While it’s positive to see so many clean beauty brands entering the market, there is increasing debate as to whether ‘greenwashing’ of products is misleading customers. While there is definition around what can be labelled “organic”, there is no such standard for “natural”. Consumers will continue to drive clearer definitions and greater transparency — it’s up to the industry to educate its shoppers.
Nextail software helps decipher these increasingly complex customer groups, mapping out consumer behavior down to the specific store and day of the week. The technology can also be used to properly allocate cosmetic shades, ensuring that the customer can find their product every time they go into a store.
There may be a lot of change right now but the future of beauty retail looks vibrant, so long as brands seek out frictionless experiences for their shoppers. We’re here for it.
Nextail is a smart platform for retail merchandising. Developed by retail experts, it delivers agile data-driven decisions to meet increasing consumer demands.
Visit our website to find out how we can help your beauty or cosmetics business.