The beauty and cosmetics industry is one of the oldest in the world.
And the way retailers distribute their products and the way consumers purchase them has been largely unchallenged for many decades, resulting in massive market consolidation that has left a handful of big players to dominate the space.
But the beauty and cosmetics market is starting to change dramatically—both in the way products are distributed, and how they are sold. With the rise of digital-born, single-brand beauty and cosmetics companies, it’s becoming clear that the traditional way of doing business is beginning to face serious disruption.
According to a 2017 Deloitte study, older sales channels, such as department stores, are being challenged by online sales and specialty stores. The study also discovered that consumers aren’t as interested in the B2C mass-selling tactics that worked just a few years ago.
These shifting behaviors might seem alarming, but they actually present an exciting opportunity. New, widely available commerce technologies are enabling brands to directly reach their customers—be they traditional consumers or B2B buyers—effectively bypassing traditional channels. Now, business owners and brands can easily enter new markets and scale in ways that simply weren’t possible before.
First, it’s important to understand how changes in demographics, technology, and community are driving these seismic shifts in the beauty and cosmetics market.
These shifts are being felt across all retail categories, though the beauty and cosmetics industry is being impacted more than others, largely due to its nature as a “discretionary spending” category.
The impact of millennial buyers is one of the greatest drivers of change in the beauty and cosmetics industry. Millennials account for an increasing portion of the marketplace— Deloitte estimates they will represent about 30% of total global retail sales by 2020.
Their digital-first attitude is influencing the buying habits of other demographics, too. The parents and grandparents of millennials are following their digital-first lead. In fact, a KPMG report found that Gen Xers made an average of 18.6 online purchases (per year, per person), compared to the 15.6 online purchases made by millennials. Even Baby Boomers made an average of 15.1 online purchases in 2017.
Millennials are also taking over in the B2B space. A 2014 Google Consumer Insights Report found that 46% of B2B buyers are millennials—and that figure is steadily growing. What’s more, millennials are more likely to engage with the latest technology tools during their buying journey - they’ll try on makeup virtually, using augmented reality apps, and will order samples before deciding on a full-sized purchase.
More and more people are researching new brands and products online—and making those purchases online. Even luxury brands, which have traditionally been insulated from changing buying habits, expect to see 40% of their sales move online by 2020.
Traditional marketing channels, such as magazine spreads and television ads, are being supplemented, or even replaced, by social media marketing and social influencers. In fact, a 2018 McKinsey study found that millennials are three times more likely than Baby Boomers to say they learn about new products or brands from social media
Today’s millennials—your current and future buyers—aren’t as trusting of traditional media outlets as previous generations. A 2015 survey by Harvard University’s Institute of Politics found 88% of millennials say they only “sometimes” or “never” trust the media.
When it comes to their purchasing decisions, this generation is turning to social influencers to inform their buying decisions. Millennials are seeking out people they can relate to online, and are holding the opinions of their online communities in high regard. A 2018 Fullscreen report found 37% of millennials said they’re more likely to trust a brand after seeing an influencer post about it.
These trusted communities are also empowering brands and businesses to create new and exciting products and services. Members of these online communities are rarely shy about expressing their needs for future products, and brands that actively participate in their online communities can take advantage of the crowd-led innovation that comes with a robust and supportive community.
The traditional ways of doing business are under threat.
By diversifying your retail channels, embracing digital tools, and building a loyal community, you can counter the negative effects of changing demographics, technology, and consumer behaviors—while also maximizing the upside of this shift.
For digital-first B2C brands, expanding into the wholesale market might seem a little daunting. However, selling to other businesses can reveal new revenue streams that you might not have realized before. Wholesalers can enjoy larger order sizes and repeat purchases—but it’s important to effectively manage your inventory so you can meet and monitor the demand for your product, no matter the buyer.
Beauty and cosmetics wholesalers, on the other hand, can leverage consumers’ growing demand for premium products, and expand into the B2C market. If you’re new to the direct-to-consumer side of retail, you’ll need to be aware of the significantly smaller order sizes in today’s consumer market, especially as beauty buyers often seek out samples before becoming loyal to a particular brand.
This means that, while your perproduct price might be higher, you’ll also need to increase your marketing spend to drive a proportionally higher volume of sales.
Retailers who have embraced multi-channel sales and conduct business in both the B2B and B2C markets can drive growth by better leveraging their existing customer base. Bundling certain products, and upselling and cross-selling your existing customers can open the door to increased revenue, while also helping your customers see your brand in a new light.
As more brands emerge in an already busy market, it’s important to maintain a diverse series of multiple revenue streams.
Beauty and cosmetics brands that resist eCommerce might soon find their slice of the market shrinking. Consumers of all ages are actively seeking out the convenience of online purchasing. The 2017 Deloitte study found that a majority of the 81% of beauty shoppers who use digital prior to or during their shopping journey do so because of the ease of the buying experience. When it comes to embracing digital technologies, the B2B market is especially ripe for innovation.
Wholesale buyers are bringing their personal, digital-focused buying habits into their work, and are responding to B2B eCommerce in new and exciting ways. Your B2B buyers will appreciate you offering a buying experience that they’re already familiar with in the B2C market—such as a price-and-assortment personalized eCommerce shopping experience and hassle-free purchasing options.
But the digital transformation hardly stops there. Brands, especially consumer-facing ones, have been turning their attention to artificial intelligence (AI) and augmented reality (AR). These relatively new technologies have particularly popular applications in the beauty and cosmetics industry, enabling both B2C and B2B buyers to virtually try on makeup before committing to a purchase. In fact, L’Oreal recently purchased the leading AR makeup provider, ModiFace, so they can better leverage people’s interest in the intersection of AR and cosmetics.
What’s more, businesses can use the data they collect from these AI and AR tools to inform their future strategies. Together with crowd-led innovations, brands can more easily understand what their customers want and work to bring these products and services to the market in the most effective way possible.
Diving into new revenue streams and opening yourself to different business opportunities makes it even more important to be as organized and effective in your operational processes as possible. Process automation is truly the unsung hero of digital transformation.
Automating many operational processes can not only help you save time and money, but it frees up your staff’s time to focus on more meaningful tasks. When your sales representatives don’t need to act as a delivery service, driving from city to city just to deliver a product catalog or place an order, they can focus on winning new business for your company. They can also work on strengthening the existing personal relationships that are crucial to a successful B2B business.
And, together, your employees can engage in co-innovation, leading to even more nimble processes and better insights from a more complete picture of your business operations.
Similarly, when your B2C teams aren’t manually tracking orders and placing shipments, they can work on building the online communities on which thriving beauty brands now rely. After all, great service and strong relationships are crucial for brands to differentiate themselves from the digital giants, such as Amazon, that are able to offer consumers lower prices on often the same products.
Maybe you’re looking for a new accounting system that can help your operations team manage both a wholesale and a traditional B2C business. Or maybe they need an inventory management system that can holistically keep track of inventory across multiple sales channels and warehouse locations and in multiple currencies.
Or, perhaps it’s your sales team clamoring for a customizable B2B eCommerce portal that makes orders easier for their wholesale customers. Either way, it’s important to leverage wellintegrated technology so the efforts of your entire team can have a greater impact.
The online world has made it easier than ever before to join a community of like-minded peers. The beauty and cosmetics industry, in particular, has a strong online community of loyal fans, influencers, and suppliers—which makes these communities the perfect focus groups for your B2C and B2B businesses alike.
Wholesalers can look to these communities to gauge the market and help their buyers better understand the needs consumers have and the ways they want to shop. Retailers can also use these communities to determine interest in new products and grow excitement around their brands.
Instead of relying on so-called gut feelings alone, businesses can analyze the data they collect from these communities to support their decisions and drive innovation. Taking advantage of this crowd-led innovation can help organizations hone in on what, exactly, their customers want.
These crowd-sourced insights can also help businesses effectively forecast—and scale in ways that were never before possible. And digital technologies, like customizable online buying portals, digital automation and social media platforms, make fostering these relationships and communities even easier.
Today’s technological advancements have made it easier than ever to collect data and glean valuable insights. So it’s vital for thriving businesses to take advantage of the data they’re already collecting. In fact, a 2017 Hackett Group study revealed that many supply chain organizations are planning to more effectively use data to drive performance in cost reduction, inventory optimization, improving quality, and improving working capital and service.
Of course, getting to a place where data can help inform and even lead decision-making takes time. It starts with collecting descriptive data that simply answers the question, “what happened?” And over time, businesses can use the varied information they collect to diagnose operational issues and even predict trends in real time.
These data points—and the crucial insights you can gather from them—can not only lead to better informed decisions, but can also help you pursue the most optimal future for your business.
The beauty and cosmetics industry is facing unique retail opportunities.
In the B2C space, smaller digital-first brands are taking larger chunks of the market, while B2B businesses have the chance to scale in ways that were never before possible by embracing digital technology. Each of these digital processes become even more powerful when they are used together.
The data businesses parse from their online communities can inform their operations, which can be made more efficient through co-innovation and process automation. All it takes is a digital mindset to simplify traditionally manual processes.
These tools are available to businesses of every size—it’s up to you to fearlessly transform your business into one that embraces automation and growth through digital transformation. Your digital transformation starts with the right technology stack. Speak with a TradeGecko representative today to see how your business can use technology to grow.