Like other CPG categories, beauty and personal care is becoming increasingly complex due to a proliferation of newer, smaller, digitally native brands. In today’s era of digitization, the barriers to entry to start and grow a brand are lower than ever before, creating a competitive threat to even the most established players.
As new beauty trends emerge, products seem to be created at the speed of light to fill consumer demand. In the United States, for example, there are more products on the shelf in the average cosmetics aisle than in any other FMCG category.
To be successful, big-name beauty and personal care companies such as Procter & Gamble, Johnson & Johnson, Unilever, L’Oreal and Coty need serious e-commerce strategies designed to drive growth in this increasingly competitive environment.
Digital beauty is booming
With beauty consumers being arguably the trendiest segment of shoppers, it only makes sense that they embrace the shift to e-commerce. Beauty and personal care products are also well suited to be sold online, as they typically have reasonable unit prices and are compact in size. Additionally, consumers’ combined interest in both discovering new products and replenishing the ones they already own make the category ripe for online development, according to Nielsen.
As a result, consumer spending on beauty products has moved online faster than almost every other CPG category. Today, nearly 30% of every dollar spent on beauty products in the United States is spent online, totaling over $12 billion in e-commerce sales over the last year. What’s even more impressive is how quickly the online beauty and personal market is growing, with an almost 20% CAGR over the next five years.
"Consumer spending on beauty products has moved online faster than almost every other CPG category."
Amazon is leading the way in sales
Amazon is the leading online beauty retailer in the United States in terms of sales. In Q2 2018 alone, the total estimated sales for Health & Personal Care and Beauty products on Amazon were $1.9 million, a 23% increase year over year. Between first-party and third-party sellers, Amazon’s market dominance secured about 35% of online beauty sales in 2016.
According to a recent survey, beauty and personal care products are the second-most shopped category on Amazon behind books. Additionally, over 50% of Amazon Prime members have bought beauty or personal care products on the web retailer in the past 12 months.
Specialty retailers are driving growth
Though Amazon leads in online beauty sales, specialty retailers such as Sephora and Ulta are driving the bulk of online beauty growth, according to Nielsen. Ulta, for example, has had eight straight quarters of 40% growth in its e-commerce channel. The retailer is also adding 100 more stores to its already impressive 1,100 total locations in the United States. This omnichannel approach helps specialty retailers like Ulta, Sephora and Macy’s provide offerings that give them different value propositions than Amazon, such as expert product advice, loyalty programs, and individualized samples.
Not to be forgotten, Walmart and Target, which both own large shares of the total retail beauty and personal care market, continue to advance their e-commerce buying experiences and fulfillment options. Trends like click and collect will help these mass retailers grow their online share of the category.
Digitally-native startups are dominating e-commerce
Not unlike other CPG categories, beauty and personal care is dealing with increased competition from an abundance of digitally-native startups. According to Nielsen, while the top 20 brands still capture 90% of the dollars going to brick-and-mortar retailers, those same brands only capture a 14% share online.
Further pressure is being caused by the fact that these new startups are disrupting the very retail experiences that grew the dominance of market leaders. These attacks are coming from marketing-savvy, direct-to-consumer pureplay brands and subscription business models that rarely exist offline.
To illustrate, let’s look at three of the best-selling beauty and personal care products on Amazon in 2017:
- Gillette Fusion Manual Men’s Razor Blade Refills: Dollar Shave Club, Harry’s and several other men’s grooming startups have made the clunky and expensive retail razor buying experience more convenient with subscription models for refills.
- Men’s Rogaine Hair Loss & Hair Thinning Treatment Minoxidil Foam: Hims, Keeps and Roman have transformed the very public (and sometimes embarrassing) experience of buying hair loss products into a discrete process that allows customers to create personalized treatment plans online and have products regularly delivered to their doorsteps.
- Crest 3D White Professional Effects Whitestrips Whitening Strips Kit: Companies like HiSmile and Smile Brilliance are disrupting traditional customer acquisition strategies by leveraging social media to market their products, making teeth whitening one of the top categories promoted by social media influencers.
Younger generations are driving the shift to online
Millennials are outpacing older shoppers in their shift to buy beauty and personal care items online. A July 2017 survey from Prosper (cited by Coresight Research) found that some 45% of participants said they buy skincare and cosmetics online. Among 18- to 34-year-olds, that number jumps to 60%. All in all, almost half of the Millennial age group purchases between 1% and 50% of their skincare and cosmetics online.
Millennials are also changing the way big-name beauty brands must market to drive traffic to online retailers. Visual-focused social media, like Snapchat, YouTube and Instagram, work in a synergistic way with the beauty and personal care market. Many young consumers turn to social media as a source of information and expertise when deciding what items to buy. This is made no more apparent than by the meteoric rise of Kylie Jenner’s line of cosmetics that was built solely on the popularity of the influencer’s social media accounts.
When it comes to beauty and personal care, Millennials are driving a major and irreversible shift purchasing online. This, combined with the onslaught of digitally native startup brands, has made the industry more competitive than ever before. To succeed, brands must ensure their products stand out as boldly in the digital world as they do on the physical shelf.
This requires a comprehensive e-commerce strategy that encompasses pureplay online retailers such as Amazon, specialty retailers such as Ulta and Sephora, and mass retailers such as Walmart and Target. It also involves leveraging social media and other digital marketing channels to push traffic to product pages on retailer websites.
Joshua Schall, MBA has an 11-year background in the emerging and intersecting CPG/FMCG categories of functional food and beverage and nutritional products.
He currently is the owner of J. Schall Consulting, an Austin, TX-based boutique management consulting company that focuses on digital growth strategies for CPG/FMCG brands that range from pre-launch to portfolio companies with $500M in yearly revenue.
Joshua enjoys an active healthy lifestyle but still finds himself spending way too much time scanning social media and digital grocery aisles for new consumable brands.