Beauty, one of the consumer categories hit hardest by the global coronavirus pandemic, will bounce back fastest, experts predict.
The industry’s resilience can be attributed to its pace and agility, says Audrey Depraeter-Montacel, global beauty lead at Accenture. “Luxury is all about heritage and has a long history. Beauty is an innovation-led industry, which is why it has been able to adapt more quickly.”
The global beauty market, which generates $500 billion in sales a year according to consulting firm McKinsey, is set to surpass 2019 sales despite the pandemic’s setbacks. Fashion, meanwhile, is not expected to recover until 2022, McKinsey predicts. Beauty has made quick rebounds before, bouncing back from the 2008 recession in two years while it took the luxury goods market about three years, according to Bain. However, recovery in beauty is uneven across categories: haircare, skincare and personal care are predicted to grow in 2021, while fragrance and colour cosmetics sales are expected to fall at an average annual rate of 12 and 2 per cent this year, respectively.
For many brands, recouping pandemic losses has meant focusing attention online. Beauty brands that were ready to scale up online operations are reporting e-commerce sales growth of 10 to 20 per cent higher than pre-Covid-19 levels, while others are accelerating their digital plans, reducing it from three years down to as a little as 10 months, says Depraeter-Montacel. Many brands are operating with a DTC mindset, she adds. Having control over distribution gives brands a competitive advantage. “They are all investing massively in capturing consumer data to better know their clients, and to better personalise their products and services.”
Prioritising customer relationships
One of the biggest challenges DTC brands face is scaling, says Forrester retail analyst Sucharita Kodali. “They run into a lot of locked loop problems where it’s the same people that they’re marketing to over and over again, and it’s very difficult to expand their reach unless they pay a lot of money.”
Launched shortly before the pandemic in November 2019, U Beauty faced the already difficult task of acquiring customers at a uniquely challenging moment. Brand founders Tina Craig and Katie Borghese invested in selective sampling, rather than paid marketing, to grow the company and recruit a loyal customer base. U Beauty sent 100,000 samples to friends, editors and influencers, skirting department stores and other traditional methods of sampling where beauty brands would have been discovered in the past.
“We really believed in what I call ‘the key opinion consumer’, because whether they had 500 or 5,000 friends on social media, they would be able to relay our story to their friends,” says Craig. When U Beauty had sold out of stock globally in November and December, some users started selling the samples on eBay starting from $50. “That to me was a sign of success.” She declined to comment how much was invested in sampling, but Borghese says it was a better investment than performance marketing, which is saturated by competitors. Approximately 33 per cent of U Beauty’s marketing budget is spent on sampling.
U Beauty’s new Sculpt Arm Compound.
© U Beauty
Finding the right wholesale partner can help widen the net — U Beauty launched on Net-a-Porter, where stock sold out in less than two weeks, according to the brand. As wholesale becomes increasingly competitive, exclusives have become a prerequisite among retailers as a way to stand out, but Ashley Tolbert, Gartner’s vice president of beauty, says savvier brands prioritise their own channels to keep customers in their own ecosystem.
Five or 10 years ago, exclusivity would be written into many brand-retailer contracts, but the model is disappearing, says Accenture’s Depraeter-Montacel. She says brands need to prioritise their own networks and use exclusives as a lever to create desirability. “When you have your own space, you are more in control of the communication, the way you merchandise your products and everything else.”
Some brands say that while partnering exclusively with a retailer is helpful at the beginning, it’s less important the more the business grows. U Beauty and skincare label Indie Lee will commit to an exclusive with a retailer for no more than a couple of weeks. In the past an exclusive would have lasted six months, says U Beauty’s Craig.
Evolving shopping preferences
As well as buying more online, consumers are seeking out services such as digital chat and virtual consultations, which beauty brands have embraced since the earliest days of the pandemic.
Subscriptions are another way to keep customers returning. U Beauty offers a subscription service for members to restock products, and 40 per cent of purchases come from repeat customers, according to Craig. The repetition and high use of beauty and skincare products make them the perfect purchases to automate with subscriptions, says Accenture’s Depraeter-Montacel.
Beauty Pie founder Marcia Kilgore says that while plans for a pop-up shop at Harvery Nichols in early March were thwarted by the pandemic, the company’s online membership model protected business during a difficult period. From the end of March to December 2020, Beauty Pie saw 70 per cent growth in memberships, according to Kilgore. The company is growing 100 per cent year over year, she adds.
That doesn’t mean that physical stores and wholesale partners are no longer part of the mix, post-pandemic. Brands should make decisions by thinking of the desired outcome and working backwards, advises Beautystack founder Sharmadean Reid. “Unless you have money to be able to support store activations and whatnot, it can be expensive to be at some retailers. If you’re going into a channel and you’re unable to support it, you might not be as successful, and it’s down to the founder to decide that,” adds brand founder Indie Lee.
The bottom line for beauty’s resiliency is that control over distribution, data and customer relationships fosters an agile environment. Gartner’s Tolbert cites Drunk Elephant as a brand that found initial success through Sephora but has since grown on its own terms. “It is still a lot smaller than its peers but is still seeing growth. You really have to go back and figure out what it is that you want and the places where you’re not necessarily successful. Are you struggling with customers or awareness? Will the margin be high enough that you’re able to sustain a competitive supply chain and keep up with the pace? The retailer should always be additive.”
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