Beauty is big business, and many leading retailers are rushing to capitalize on the ecommerce side of beauty sales. Kosha Gada, a principal at management consultancy A.T. Kearney, spoke with eMarketer’s Lisa Barron about how digital buying is changing the industry.
eMarketer: How significant is ecommerce in the beauty industry?
Kosha Gada: We are seeing continued strong ecommerce growth in beauty. It used to be about 4% to 5% of total sales two to three years ago, and that’s up now to anywhere from 6% to 8%.
Before, one of the leading reasons why people opted to use ecommerce for shopping in this category was more convenience and price comparisons and things like that. That’s still very important, but a new thing spiking is that people actually enjoy the experience [of shopping online] more. It’s actually becoming more enjoyable, and people prefer it to going in stores, where they feel maybe there is too much sensory overload or there are salespeople pushing things on them or spraying fragrances on them.
“The No. 1 was and still is Amazon for every category, and beauty is no exception.”
Beauty has seen more growth than personal care because people enjoy the experience [of buying beauty products]. Skincare by and large is the biggest area or subsegment where ecommerce is most penetrated. The second-biggest area is sets and kits, where you buy a whole set or a starter kit of XYZ fragrance or Bare Minerals, or whatever it may be. Then comes color cosmetics. Fragrance is last, which makes sense because you just can’t smell it online, obviously.
eMarketer: Are there any sites that are dominating the ecommerce market in beauty?
Gada: The No. 1 was and still is Amazon for every category, and beauty is no exception. Wal-Mart and Sephora are next. In our survey, 73% of the consumers said that Amazon is their No. 1 destination for beauty products, 42% said Wal-Mart and 35% said Sephora. Wal-Mart has really invested in Walmart.com in the past few years, and that’s showing.
eMarketer: What are the implications of such strong ecommerce growth for beauty retailers and brands?
Gada: Ecommerce is such a direct-to-consumer channel that in many ways it is disintermediating retail, and in some cases, people are going directly to the brands to buy. So the first implication is that the manufacturer and retailer collaboration really has to change more than ever. The collaboration has to master consumer targeting, online category management and vertical synergy.
The second implication is that the store, despite this, is not dead. We’re talking 6.5% or 7% ecommerce penetration, which means 93% of sales are still happening in the store. As fun as it is to talk about digital and ecommerce, it’s important to keep that in mind. But the store’s role is changing a lot. People actually prefer the experience of shopping online. Or in some cases, the store becomes kind of a showroom where consumers go and test things out, but then they go back to Amazon, for instance, and buy it. So the store has to figure out how to adapt to the changing landscape.
“The store is not dead. We’re talking 6.5% or 7% ecommerce penetration, which means 93% of sales are still happening in the store.”
The third implication is that ecommerce is beyond just a transaction. It’s not just about the transaction of selling a product and someone buying it online—it opens up this whole funnel of the experience of the customer and the brand content that she is seeing.
There are so many how-to videos and peer reviews, and so much information [to consume] before you get to the final step of click and purchase. That means that both brands and retailers have to operate more and more like media companies almost, because they have to understand content and storytelling and all of that much more than before. So content strategy has become a key competency that brands and retailers now have to have that historically wasn’t something that was core to them.
There is so much disruption in this space as it is growing. And fashion, which is a good analog, is maybe five to seven years ahead of where beauty is. Five years ago, people were saying ecommerce is probably never going to penetrate beauty that much because there’s such a touch-and-feel element to it.
That ended up not being the case, primarily because companies like Amazon and Zappos, which Amazon subsequently bought, figured out how to get over the barrier to entry that people felt. To get over the [missing] touch-and-feel element, they offer free returns and free shipping. We look at fashion as a leading indicator for beauty, and fashion “hockey-sticked” maybe four to five years after the launch of ecommerce. If beauty is going to follow fashion, then you could expect to see a hockey stick in the next couple of years.