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Specialty retailers with a focus on beauty are starting to experience a rise in online sales, while drugstores have yet to crack digital as a meaningful sales channel. Traditionally, cosmetics were risky to purchase sight unseen unless a buyer had previous experience with a product, and even though pure play ecommerce retailers like drugstore.com and Soap.com aren’t new, until fairly recently toiletries and personal care items were not cost-effective online purchases. Retailers in this sector are still playing catch-up, putting more emphasis on digital to enhance the online shopping experience, according to a new eMarketer report, “Drug, Health and Beauty Retailers and Digital Commerce: Trends and Benchmarks.”
For drug, health and beauty, it’s not easy to separate category from sector because there is so much overlap. On a product level, eMarketer breaks out health and personal care ecommerce sales, which are forecast to rise 13.6% to $19.7 billion in 2015 and make up 5.7% of total US retail ecommerce sales, a proportion not set to change in the next three years.
Looking at beauty, including makeup, haircare, skincare and fragrances, The NPD Group and Nielsen found that mass merchants had the largest share of sales (25%) in 2014. They also found that shoppers were making fewer in-store trips in favor of growing online consumer packaged goods sales. The internet accounted for 8% of beauty sales, and those trips were up 3% from 2013.
Kosha Gada, principal at A.T. Kearney, sees beauty attracting more ecommerce than personal care because the digital shopping experience is more enjoyable. Overall, ecommerce is growing, though. “It used to be about 4% to 5% of total sales in that space two to three years ago, and that’s up now to anywhere from 6% to 8%,” she said.
According to Anne Zybowski, vice president of retail insights at Kantar Retail, it’s luxury that’s driving digital sales in the drug and beauty sector. “Luxury in general has been a big piece that has led in terms of online growth, particularly when you start talking about upscale skincare and cosmetics,” she said.
Ulta Beauty’s ecommerce sales grew 56.4% in 2014 to nearly $1.5 billion, making up 4.6% of total retail revenues, eMarketer calculates. In a March 2015 earnings call, chief merchandising officer Janet Taake attributed some of that ecommerce success to increasing the number of prestige brands it had been able to partner with, Lancôme in particular.
Drugstores are a different animal. Even the major players that own pure play ecommerce retailers still see a vast majority of revenues coming from physical stores. Walgreens, for example, saw ecommerce contribute just 1.5% of revenues in its most recent fiscal year, including properties Boots.com, drugstore.com, Beauty.com, SkinStore.com and VisionDirect.com, in addition to its namesake site, eMarketer calculates. Despite ecommerce’s small share of overall revenues, digital sales registered 22.5% growth during the latest 12-month period, reaching $1.32 billion.
While most drugstores are focusing on digital in some capacity, enabling ecommerce either on desktop or mobile hasn’t been the end goal. “Our core is our digital pharmacy experience,” said Adam Pellegrini, vice president of digital health at Walgreens, referring to the pharmacy chain’s Balance Rewards platform for encouraging healthy choices and connecting digital health experiences across devices.
eMarketer corporate subscription clients can view the full report here.
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