US shoppers are increasingly choosing to purchase their cosmetics at specialty stores such as Ulta and Sephora, instead of at department stores and drugstores, according to a report published by the Financial Times.
According to a report compiled by Consumer Edge Research, US beauty sales grew 4 percent in 2015 to US$63 billion, with the increase attributed almost entirely to specialty stores and online shopping.
“The combination of these physical stores like Ulta and Sephora and the growth of online has changed the economics of the business,” Analyst Javier Escalante told the Financial Times.
According to Escalante, shoppers prefer the cross-brand displays found at specialty stores over the single brand counters favored by department stores. Consumers also grant ‘curatorial power’ to the perfumery format, in that they are more receptive to new and niche brands when they encounter them in that environment.
The big brands have been forced to react to this change in shopping habits, altering the way they market their products in order to attract millennial consumers. For example, Lauder’s Estée Edit launch in Sephora is designed to appeal to the younger generation with high-profile endorsement via social media courtesy of spokesperson Kendall Jenner.
However, according to the Financial Times, the need to make significant investments in digital to attract these media-savvy consumers will leave some of the biggest companies at a disadvantage. Revlon, for example, is saddled with relatively high debt, leaving little room for manoeuvre. Avon too, who recently announced a significant investment in its digital platforms, has struggled to alter its business model to account for the rise of online shopping.
Meanwhile, for new and niche brands, it has never been easier to build an audience. Blogs, social media and e-commerce are trumping huge marketing campaigns, while retailers are ever-more keen to offer their customers the latest ‘must-haves’. In turn, the big brands are altering their M&A strategies, seeking out smaller brands who enjoy a loyal following. Lauder’s acquisition of By Kilian and Dr Jart+ are prime examples.