An analysis of how big the market for beauty online sales will become
The shift to online continues. E-commerce sales worldwide rose by 23% to reach $2.3 trillion in 2017. According to eMarketer, this puts e-commerce sales at one-tenth of total retail sales worldwide. China and the US represent almost 70% of the global online market at $1.6 trillion, but US growth in 2017 was estimated at just 15%, while Asia Pacific surged by 30%.
Market researcher Mintel estimates that e-commerce spending across Asia Pacific will increase from 3.6% of total retail spending in 2010 to 31.4% by 2020. “From 2015 to 2025, e-commerce will rise in value by over 290%, and reach well over 37% of total retail value across the region,” predicts Mintel regional trends director Asia-Pacific Matthew Crabbe. “This growth has created a critical mass, with the convergence of online and offline retail and services.”
Where does all this leave the beauty industry? Online is driving beauty when it comes to growth. In dollar sales, according to Statista data for 2017, e-commerce beauty in the US grew by around $1.6bn, while brick-and-mortar sales fell by $168m.
E-commerce growth in prestige beauty across key European markets and the US is between 27% and 36%, according to data from The NPD Group. This compares with brick-andmortar growth that varied between -3% (in France) to +7% (in Spain), indicating beauty’s reliance on online. Also, in fragrance for example, online accounted for 100% of the growth in France, the UK and the US in the past two and a half years.
However, while online is driving growth, it still accounts for a relatively small share of the overall market, especially when compared to other sectors. Statistics from NPD for 2017 put online prestige beauty sales in France at 6% of the total market (this compares with 26% for toys). In Italy, online accounts for only 1% of the market and in Spain it stands at 2% of the prestige beauty category. In both the US and the UK, online’s share is much higher, representing 17% of the prestige beauty market in both countries. It is also important to note that sales online are not incremental sales, but displaced sales from stores.
The NPD Group beauty expert Europe Mathilde Lion says: “Brick-and-mortar retailers remain key points of sale for products such as fragrances or foundations.” Testing and trying in these beauty sub-categories is often critical for consumers, with online limited to replenishment purchases of known products.
Although online sales are set to see continued growth, there is a limit to how far e-commerce sales can go for prestige beauty. NPD predicts that the share of online in prestige beauty in the US could reach 25% in the next three to five years (up from 17% today), and that it will then hit a level of maturation of around 30%. This maturation point for prestige beauty online is lower than other industries, such as apparel or toys, where online penetration is forecast to reach 40%. “Much depends on the brands and their online strategies for e-commerce,” Lion tells BW Confidential. “We believe the digital maturation point for beauty will be somewhere above 30%.”
According to NPD, in some categories in the US, such as video games for example, e-commerce sales are even declining (the category reported a 3.5% fall in online sales in the 12 months ending September 2017, while online sales of accessories for the period were down 11%).
Analysts add that in some categories, online sales are beginning to shift back to brick-and-mortar stores. For example, electronics chain Best Buy is taking share back from Amazon due to a strategy that includes a focus on training staff to become product experts and a price-match policy.
This may seem like good news for brands and brickand- mortar retailers. However, with the development of e-commerce, the market has nonetheless changed: online sales have put the consumer in control and as a result brands need to rethink their distribution strategy. At the same time, while retailers need to offer all the advantages of online in terms of convenience, while providing a reason for consumers to come to their stores.
SNAPSHOT: Online gives niche a chance
Differentiation can drive loyalty, and MyShowcase is one e-commerce platform that has harnessed this. The site offers more than 50 brands that are not easily found on the high street, and also supports female entrepreneurs.
A novel element is that a stylist can go to someone’s home and provide a ‘personal shopping experience’. These group events are called showcases when attendees can try products before buying, and where the host is rewarded—not unlike the Avon or Mary Kay system of direct home selling.
Olivier Beau de Loménie, co-founder and chief technology officer of MyShowcase, led the team that built UK-based online supermarket Ocado. He says: “We have developed an online service that empowers women to set-up and operate their own beauty businesses with sophisticated, but easy-to-use, tools.” At a time when online retailers are anxious to build loyalty, MyShowcase may have found one way around that.
SNAPSHOT: Waning loyalty
AT Kearney’s survey of online beauty and personal-care shoppers (800 respondents) showed that consumers—having had a taste of technology—are unwilling to go back and are increasingly attracted to digital. “This isn’t automatically good news,” the company says. “While online sales are on the rise, they aren’t necessarily accompanied by commensurate levels of loyalty.”
In the survey, 67% of respondents reported using four or more websites to fulfill their beauty needs. This is no surprise. The beauty consumer—like any other—is looking for a good deal so comparing prices on multiple sites before buying is standard practice. The downside is an erosion of loyalty, which is challenging online beauty retailers to do more to maintain or increase penetration.
Convenient and/or fast delivery options—Amazon has this down to a fine art with its one-day Prime service and delivery to lockers dotted around cities—have become essential. Meanwhile, online transparency has led to more competitive pricing, and product selections are being increased to keep customers’ attention.
But more complex logistics are needed, margins can slide and retailers ultimately risk failing. Losers here are expected to be the department stores whose online beauty presence mirrors that of their competitor. If there is nothing to truly differentiate the beauty offers, consumers will simply choose on price.
E-commerce prestige beauty 2017
|Market||% of sales done through e-commerce||% growth of e-commerce sales 2017/2016|
Source: The NPD Group