The number of beauty brands entering retail continues to boom, creating a highly competitive and cost-sensitive market exacerbated by the adjacent increase in marketplaces and specialist stores, say experts.
Last November, beauty brands, investors and consultancy firms met at Beauty Independent’s two-day debut Dealmaker Summit EU/UK in London, UK. Amongst the plethora of trends discussed during event, the future of beauty retail was spotlighted.
“For many brands, retail is very, very important,” said Nader Naeymi-Rad, founder and publisher of Beauty Independent. “…For many, retailers are, especially now, that key accelerant to get them to the next level. D2C [direct-to-consumer] is great but it can only get you so far. At some point, you need that retail to access those Sephora members, Douglas members etc.,” Naeymi-Rad told attendees.
But, he said retail landscape had been through “a lot of changes” in recent years. What was once a very simple divide between mass supermarkets and pharmacies and prestige department stores, travel retail locations and salons had now become a diverse array of stores and marketplaces, from curated multi-brand online platforms like Feelunique to specialist beauty stores like Sephora and mass online majors like Amazon.
“It’s definitely a challenge now for brands”
Clare Horner, group beauty director at UK luxury department store Harvey Nichols, said competition for shelf space was fiercer than ever today due to the “abundance of brands” in beauty.
“There has been a massive shift; we are inundated with brands now. The selectivity is really the main challenge,” Horner said. And a lot of this, she said, was linked to lower barriers of entry for brands and the boom of innovative founder-led brands.
Whilst Harvey Nichols still stocked many established beauty brands, she said the teams were now also increasingly on the look out for innovative new offerings, particularly via founder-led brands with stories to tell.
“It’s definitely a challenge now for brands. There has been this abundance of new brands and now the retail landscape is on the move again,” she said. “We lost Debenhams just before COVID, and that really affected that middle-ground of department stores, and then there’s the whole pure-play rise. And retailers like Cult Beauty were very strong in launching new indie brands to market; they really took the space that Space NK used to be in with indie brands, and now it’s on the move again. I think it is very challenging for brands to find the right foothold.”
Part of this challenge, she said, was also linked to the costs associated with entering retail. “Trading in retail is an expensive operation and you can’t come into it with little or low budgets. At Harvey Nichols, we still do give new startup brands an opportunity if we believe in them, but there has to be a strong level of investment in the product they’re bringing to market, even if the brand doesn’t have super deep pockets.”
The cost and strategy behind beauty retail success
Nigel Lawmon, VP of global merchandising for hair care at beauty retail major Sephora UK, agreed, stating brands today had to be investing around 30% in retail and marketing to succeed in the market.
Discussing what Sephora looked for in brands, Lawmon said: “We definitely want to see a brand have had some success in their first market from a D2C perspective. If they have that, that takes them up another notch because they’ve proven themselves and they’ve got some money behind them. If they’re doing £5 million in their D2C, that’s good.
“…We need the brand to help drive their own awareness and then Sephora adds that credibility to the purchase for the consumer,” he said.
Detailing how Harvey Nichols worked with beauty brands, Horner said it centered around creating in-store experiences.
“We don’t even classify ourselves as a department store; we classify ourselves as a large boutique for fashion, beauty and food. For beauty brands that work with us, there is a formula and a way of working in our store environment and it’s all about the experience and the expertise. Smaller brands, for example, sit within a space called ’Beyond Beauty’ and we have our own team trained by brands in that space. But beyond that, we really encourage brands to come in and get involved in beauty masterclasses – connecting with our customer,” she said.
A digital Amazon revolution?
Asked how Amazon had impacted and would continue to impact beauty retail, Horner described the model as “fascinating” but said it had not yet to made significant headwinds in luxury beauty.
“The luxury brands don’t want to play there (…) because they don’t like how their brands are represented. And Amazon are clearly working hard at that and trying to onboard those brands but, so far, they haven’t managed to do it.”
Irrespective of this, she said Amazon wasn’t the easiest route to market for any type or size of brand, because of this brand representation issue but also the struggle in standing out from the crowd. “I just think: try and build your brand with your own DNA, get it to a certain level, build awareness, and then think laterally about what retail options you pursue. I think Amazon is just so big, you can get lost in that landscape.”
Lawmon agreed, stating Amazon was not necessarily the platform that offered most opportunity for beauty brands. “Amazon are a great logistics company and they shift a significant amount of volume, and we co-exist with them and they haven’t ruined our business like they dominated books and DVDs. They took those over and destroyed the high street. But with beauty, you’re building brands and also offering high levels of customer service and you’re bringing experience through stores, as well as loyalty schemes. These are all the aspects brick and mortar have on a much higher level than the transactional level that Amazon has.”
