Celebrity endorsements are out, and shoppers are swayed by advice and reviews from online influencers, who are increasingly playing a role in determining which products rise to prominence. What does this mean for the beauty industry at large and what’s to come in the future?
The Internet’s Impact
Industry research indicates that 65% of millennials would rather listen to their favorite YouTuber than an in-store beauty advisor – brands are catching on as the demands of this group change the way products are presented and marketed.
For example, the founders of BH Cosmetics came from a digital background, and a portion of their advertising and marketing is done via online influencers and beauty bloggers. The recent investment they received from private equity firm MidOcean Partners came as no surprise, given the rise in popularity with millennials and the tremendous success BH Cosmetics has experienced around the world more generally.
Furthermore, at the end of last year, Anastasia Beverley Hills (“ABH”) reported $96.7m in earned media value, $86.7m of which came from Instagram. The success of ABH’s Instagram has to do with a few key things. First, the popularity of Instagram as a medium and its relevance to millennials; second, the ability of companies and consumers to express themselves via this medium and share with the world the power of cosmetics; third, the ability to directly engage with consumers and have a conversation about new products and what they can do; and, fourth, the ability of consumers to engage with each other and learn from others who are just like them in terms of the latest trends, what works well, and what fits within their budgets.
In addition to online and mobile marketing techniques, online testimonials are the new norm and can make or break a brand’s image. Consumers are engaging with each other and influencers (often via Instagram) for feedback and information
on what cosmetics products to purchase without the need to ever go to a store or speak with a salesperson.
The In-Store Experience
Even with the rise of these online influencers and mobile platforms, over 90% of beauty purchases are still made in stores. How have stores adapted to keep shoppers coming back? We’ve found that personalized and experiential elements, as well as the use of technology, have become even more imperative to success.
Particularly in the luxury and high-end market, sales staff must get to know their clients and shoppers personally. Consumers want to feel a personal connection, particularly if they’re going to be spending a lot of money on a product. Saks – The Wellery does this well.
Saks has created an in-store shopping experience focused on the latest luxury trend – wellness. This experiential portion of the flagship store offers pop-up fitness classes and equipment for sale, high-end apparel, a Brow Bar offering tinting and threading, a nail studio, salt rooms and a MedSpa. The store has transformed into a completely immersive shopping experience, encouraging shoppers to spend time looking around, ask questions and take in the full offering.
In order to be successful, these in-store experiences should ideally also include a technology and digital component. Take for example, MAC Cosmetic’s try on mirror, which allows shoppers to try on a curated set of MAC shades and looks via live video instantly in stores.
Additionally, L’Oreal’s MakeupGenius app allows shoppers in store to turn their phones into personalized hand-held makeup mirrors. Using the phone’s camera, the L’Oreal app offers instant “makeovers” and allows shoppers to scan items to “try on” new looks in real time. Furthermore, L’Oreal has recently acquired Modiface, a company that develops many of these custom augmented reality beauty apps, offering them a major leg up when it comes to leveraging technologies, such as augmented reality.
What’s to Come
The use of social media platforms to engage and inspire consumers, while also serving as a place to purchase cosmetics and beauty products, should continue to accelerate. Influencers will continue to collaborate with established beauty brands to create new products that are co-branded, as well as their own lines. Beauty incubators should play a larger role in both of these elements, creating new brands with influencers and leveraging the power of social media to accelerate growth.
Larger brands, particularly those part of conglomerates, must adapt to this new sales reality, and you can already see this taking place. With the help of current market conditions (e.g., low interest rates and US corporate tax cuts) and a scarcity of high-quality assets, we expect the beauty mergers and acquisitions (M&A) landscape to remain robust for the foreseeable future.
Estée Lauder, for example, acquired GLAMGLOW, Too Faced and Becca, to stay relevant with, and reach younger, millennial consumers, among other reasons.
Given the availability of capital and the importance of staying relevant, it is likely that other established cosmetics brands will follow suit.
Arash Farin is a Managing Director at The Sage Group, an independent investment bank that provides corporate finance advice to premium branded consumer and retail companies.