The share of sales captured by e-commerce varies significantly between categories and countries. In the US, the figure of 10% is often mentioned, but it conceals ample disparities. In many categories, that figure is much higher. And it is growing in most. The latest data I could find about the share of online sales for Beauty products date from 2016. They evaluate the percentage of e-commerce in Beauty sales at about 7% worldwide (11% in the UK, 8% in the US). By comparison, Consumer Electronics online sales amounted to 28% of total sales in the US and 49% in the UK! (source: Fung Global Retail & Tech)
What reasons explain this discrepancy? Can they be overcome? Is Beauty e-commerce going to boom or will it lag behind for a long time? How can brands and retailers succeed online in the long run?
Understanding differences between categories
How can one rationally explain category-to-category differences in e-commerce performance? Traditional analysis split goods into three categories.
- Goods with physical properties, which can easily be compared to one another, have always performed better. Screen resolutions and hard drive capacities require minimal touching and smelling to evaluate. Strong brands also help set customer expectations. This category includes consumer electronics, toys, and games.
- Intermediate goods like fashion and beauty products are a bit slower to take off. They are far less standard and require some degree of visual experimentation. Retailers and brands have been hard at work to eliminate reluctances: offering free returns, using high-resolution pictures, shooting video contents...
- Non-standard, unbranded products like fresh food are the latest to move online.
Beauty products are in the intermediate category, along with fashion. Yet the penetration rate of e-commerce is still vastly different between the two (about 7% for beauty and 15% for fashion).
Comparing beauty and fashion
Fashion is a more mature e-commerce market, and there has been more work on countering customer objections to buying clothes online. This may explain the massive difference in e-commerce penetration rate between the two. As such, it is interesting to look at these reluctances, see how the fashion industry has addressed them, and see if the solutions they found can be applied to beauty.
The first obstacle to buying fashion online is the impossibility to try on the product. This is both a matter of size and style. Fashion brands offer reassurance with free returns, size guides and also real-life pictures of their styles. Beauty poses an additional level of complexity with notions of skin colors and types, fragrances, etc. Brands and retailers are setting themselves in motion to tackle these questions. A good example is Dior's skin shade finder.
Another challenge for online sales of fashion is the lack of counsel typically provided by clerks in brick-and-mortar shops. There doesn't seem to be a straightforward compensation. While retailers with high average basket values, in consumer electronics, for example, may offer free callbacks from sales assistants, the solution is not viable for most. Live chat on e-commerce websites has gained in popularity. High-end fashion site Nordstrom has implemented it for instance. Sephora has used the more innovative solution TokyWoky which lets website visitors interact with each other and answer their questions autonomously.
It is also interesting to note that low online sales for beauty are not inevitable. China is a great counterexample: from about 4% share of sales closed online in 2010, the figure skyrocketed to 21.5% in 2015 (source: Euromonitor International, Fung Global Retail & Technology).
In a separate article, we analyzed 9 ways beauty brands tackle low e-commerce sales.
How did Beauty fall behind?
While the comparison between beauty and fashion seems relevant, how can one explain why Beauty underperforms online? We will look at a handful of probable reasons.
Traditional brands and retailers were late to the party
Contrary to the fashion industry which was always fragmented, the job of beauty brands used to be easy. They had a handful of distributors in each country and a few select retailers to work with (Sephora, Boots, Nocibé, Marionnaud, Douglas, Ulta). Those retailers launched their e-commerce websites no later than the rest (Sephora launched sephora.com in 1999), and so e-commerce was simple: just an extension of traditional relations.
Smaller designers and small cosmetic brands had to fight for department stores to put them on the shelf. Additionally, the tight relations between brands and retailers was an extra barrier to entry for new retail players.
In such a favorable situation, established cosmetic brands may have not seen the urgency to move online. However, the emergence of widespread e-commerce rapidly broke down the barriers for new entrants. The concomitant rise of independent beauty brands like Colourpop and KKW Beauty removed the need to deal with traditional brands. Indeed, many innovative retailers (or equivalent services like Birchbox) built their success without any help from established brands.
Cosmetics are tied to groceries
In the US, supermarkets are very slow to move online. The share of grocery products sold in traditional retail was still 98.4% in 2016. While high-end makeup and fragrances tend to steal the show, we should keep in mind that many purchases are mass-market cosmetics from grocery retailers. As such, it is unsurprising that the trends in beauty and grocery shopping be correlated.
Slow growth for online groceries probably means slow growth for online cosmetics and beauty. In any case, it is definitely a metrics that beauty brands should monitor.
What will drive the growth of beauty online?
In a world where shoppers spend less time in the store, clerks are no longer the preferred advisor. Influencers have a crucial role in brand discovery and recommendation. While most of the content from influencers is consumed online (YouTube and Instagram lead the pack), the influence naturally stretches to all retail sales.
However, the first brands who were successful in capitalizing on influencer marketing were challenger brands, some of which mostly sell online. Influencers helped contest the status quo and eased the emergence of new beauty trends. They are also a big part of the success of Instagram shopping.
Of course, established brands were quick to react and invested in influencer marketing with budgets only them could commit. They hired the best, most influent beauty YouTubers and Instagramers. Yet sometimes the best seems to be the enemy of the good; some campaigns backlashed. Overall, the industry realized that top influencers don't convert as well as micro-influencers (5K to 15K followers). So there is something to look into here: how can brand work with large numbers of small influencers rather than strike million-dollar deals with rising stars? Services like Ifluenz that let brands create large-scale campaigns with many influencers at a time may be part of the solution.
New business models
E-commerce in its traditional form (website, shopping cart, etc.) does not account for all online sales. Subscription boxes are swarming in the wake of Birchbox, and they are not just for sampling anymore. New initiatives are emerging here and there. In France, Jolimoi has launched a service of personalized beauty coaching operated by independent coaches. The coaches are incentivized on the sales they close.
Subscriptions to daily cosmetics are another trend. Amazon has pushed Subscribe & Save for a while but only recently went beyond diapers and toilet paper towards personal hygiene and cosmetics. Repeat purchases are big, and the actor who can secure them definitely gets a head start over the competition. In any case, this tends to accentuate the shift to a higher share of sales closed online.
Internet penetration in China and India
Although some experts predict that the sales of cosmetics online in China will eventually plateau around 24% (which is enormous), at the moment China still has the most robust yearly growth. Additionally, the attention that we give to China should not eclipse some other markets in the region: a 2017 Nielsen study said that 47% of respondents in China had purchased beauty or personal care products online. That is huge, but 50% of Indian and 48% of South Korean respondents said as much! Respondents are, as Nielsen clarifies in the study, only existing internet users and not the general population. In India, where the online penetration rate was about 26% in 2015, this makes a tremendous difference.
While South Korea is a relatively small market with only 51 million inhabitants, India is closing in on China at more than 1.3 billion inhabitants. These two markets, which everyone know better than to ignore, show a promising predisposition towards beauty e-commerce.
The metric to observe is probably the growth of internet penetration in India and China. While China already has 56% of its population online, India only has just about 30% today, snowballing at a high pace. More Indians online mean an almost proportional rise in online sales ("almost" because new internet users are less affluent on average).
Wrapping things up: a new era for beauty
Beauty online has changed. China, the UK, the success of emerging, web-oriented brands and retailers all point towards the conclusion that we are headed towards very bright days.
The new landscape will be different, however. In the past, brands had a handful of retailers to work with. Sending the marketing materials to the stores, training the clerks, performing store checks once in a while was most of the job.
Now if I google "Nivea creme" here in France, I get 15 Google Shopping results, 7500+ reviews, prices ranging from 4€ to 11€ for the same product. Most of the retailers I have never heard of. Some of the pages have no product information or catastrophic translations. Half of the pack shots look amateurish. As we discussed in a previous article, poor online merchandising is hurting sales. And since most offline shoppers are first making their minds online, it also damages brick-and-mortar performances.
Brands who will succeed are those who can cope with this new fragmented landscape and offer a consistent and positive experience everywhere.
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