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[00:00:00] Suzy Davidkhanian: Atmosphere TV is the largest streaming TV platform purpose-built for shared social spaces like bars, restaurants, gyms, and airports. Atmosphere TV is the creator of ChiveTV and thirty-plus mesmerizing audio-optional channels that entertain over a hundred and fifty million monthly viewers. Built for [00:00:20] business, made for fun, Atmosphere TV

[00:00:27] Suzy Davidkhanian: Hey, everyone. Today is Wednesday, September 23rd. Welcome to EMARKETER's weekly retail show, Reimagining Retail, an EMARKETER podcast made possible by Atmosphere TV. This is the show where we talk about how [00:00:40] retail collides with every part of our lives, and I'm your host, Suzy Davidkhanian. On today's episode, we're talking about beauty and what it takes to stay on both the need and impulse lists as consumers become more intentional.

[00:00:53] Suzy Davidkhanian: Joining me are podcast regulars, Principal Analyst Sky Canaves from Texas. Hello, Sky.

[00:00:59] Sky Canaves: Hey, [00:01:00] Suzy. It's great to be back.

[00:01:01] Suzy Davidkhanian: Well, I'm back from New York too.

[00:01:03] Sky Canaves: Yeah, I wish I was still in New York- It

[00:01:04] Suzy Davidkhanian: would've been fun ... with

[00:01:05] Sky Canaves: you in the studio. Yeah.

[00:01:06] Suzy Davidkhanian: That we, we should plan better next time. And Carina Lamb from Lond- from, ah, from London area.

[00:01:14] Carina Lamb: Hi, Suzy.

[00:01:14] Suzy Davidkhanian: Hi, Carina. How are you doing?

[00:01:16] Carina Lamb: I'm good. Great to be back on the pod.

[00:01:18] Suzy Davidkhanian: Thank you guys for joining [00:01:20] me. I'm really excited to talk about beauty. It has proven to be a resilient category, even as consumers become more intentional about what they're spending money on. And retailers are noticing. For example, Old Navy recently launched its own body care and fragrance line nationwide after doing an in-store pilot.

[00:01:36] Suzy Davidkhanian: And in case you didn't know, they already carry market brands in beauty. [00:01:40] Beauty is also an interesting category because sometimes it's replenishment, and sometimes it's things that we didn't even know we wanted. And so as consumers become more intentional, understanding what keeps you on their list becomes even more important.

[00:01:54] Suzy Davidkhanian: But at the same time, the places where we discover, research, and ultimately buy those products are getting a little mixed [00:02:00] up. So today we're gonna look at what loyalty means in beauty, how TikTok and YouTube are changing discovery and research, and where AI is added to the mix, and if every retailer really does need a beauty strategy.

[00:02:13] Suzy Davidkhanian: Okay, but before we get into it, my question to you is, if you think back to your first favorite beauty [00:02:20] brand or product Who introduced you to it?

[00:02:23] Sky Canaves: I wanna say it's probably something from my mom. And I do remember shopping for the older brands in the department store setting, which is where, when I was growing up, where you went to buy the high quality beauty products.

[00:02:37] Sky Canaves: Music to my ears. It was department stores, and then you had [00:02:40] your drugstore brands. And that was kind of it. And now the beauty landscape is full of so many more products and so many more channels to buy them from.

[00:02:48] Suzy Davidkhanian: Well, we will get to that in a minute, but Corina, tell us where.

[00:02:51] Carina Lamb: Yep, my mom too, and it was a product that she always bought on the plane on the way home because there was always like a discounted duty-free.

[00:02:59] Carina Lamb: It was [00:03:00] an amazing concealer stick thing. I can't remember exactly the name of it. But yeah, that was how, because we'd go on holiday and eventually I was like, "Oh, maybe I'll get one of those."

[00:03:07] Suzy Davidkhanian: Me too. My mom, Clinique, and then it was Clarins. And also it's like that whole idea around, Sky, you already had talked about it, but there were different channels.

[00:03:18] Suzy Davidkhanian: And back then, which is not [00:03:20] that long ago you guys, really word of mouth drove loyalty. And we did a lot of research when I was at a different, uh, organization about this. Everybody knows Corina's smiling. When I was at Macy's, we did Macy's Beauty. Big, they go together really well. We talked so much about the word of mouth and how people are [00:03:40] just, kids generally speaking, are discovering beauty through someone that they know.

[00:03:44] Suzy Davidkhanian: But now it's really changed.

[00:03:47] Carina Lamb: Yeah, I think, I think it's changed, but in many ways it's also the same. So we- if we look at what's really leading discovery now, we see that social commerce is kind of almost equivalent now to people going into a physical store [00:04:00] and finding something. And the kind of social content that's really driving that discovery is kind of recommendations from peers.

[00:04:07] Carina Lamb: It's short form video, it's TikTok, so it's still kind of word of mouth, I would argue, but it's just that our communities have expanded beyond our immediate family and friends.

[00:04:17] Suzy Davidkhanian: That's interesting. A different definition of [00:04:20] influencer, right? Mm. From family and friends to people you may or may not know, but you've been following.

[00:04:25] Suzy Davidkhanian: Sky, we're seeing that too in the US.

[00:04:27] Sky Canaves: Oh, sure, because these are the... what we think of as micro or nano creators. They might not even really think of themselves as creators or influencers in the traditional sense, and their audiences might not [00:04:40] either. So when we ask in our surveys about how people engage with and take influence from creators, they might not be thinking of those smaller creators because they're basically peers who they trust because they are so relatable.

[00:04:55] Sky Canaves: They're people just like them who even if they're getting a free product, it [00:05:00] doesn't seem like they're just shilling for a brand.

[00:05:03] Suzy Davidkhanian: Right, the lines are blurring.

[00:05:04] Carina Lamb: Yeah, and that's a really interesting distinction there from Sky, because what we really see time and time again is if we ask people what kind of content is most likely to make them purchase something, what kind of content do they find useful, it's things like how-to videos and people on social media [00:05:20] showing them using it, talking about it.

[00:05:22] Carina Lamb: But if you ask whether or not influencer recommendations drive sales, a lot of people will say no. And so I think they're thinking then about that kind of more obvious- Advertising using celebrity influencers and the like.

[00:05:35] Suzy Davidkhanian: Well, that's an interesting split 'cause I think if we go back to, like, one level [00:05:40] higher, is it because beauty as a category is split between the products that we replenish, that we know and that we love and that we're always thinking about, and then there are those maybe more on TikTok where it's like, "Oh, I didn't even know I needed that," or, "I didn't even know..."

[00:05:56] Suzy Davidkhanian: Back in, like, not that long ago, contouring was a whole [00:06:00] big, big thing where you saw it on TikTok and you're like, "Oh, let me get that new concealer," or whatever makeup that you use. Does that have an impact also in terms of search and where people are finding things and learning about things?

[00:06:12] Carina Lamb: Yeah, I don't, I don't think it's that even a split though.

[00:06:15] Carina Lamb: So we know that replenishment drives a lot of beauty purchases. But at the same time, [00:06:20] in the UK, I think we see around two-thirds of beauty buyers regularly comparing prices before they're rebuying a product, and a- around two-thirds are buying dupes or store brand alternatives. And a lot of people are discovering those store brand alternatives and those dupes on TikTok.

[00:06:35] Carina Lamb: So I think it's even touching the kind of replenishment side of things [00:06:40] as well as that, "Oh, I really want that" moment.

[00:06:42] Suzy Davidkhanian: So Sky, what does that do to loyalty? Like, if people are not emotionally invested in a brand, how do brands cut through that noise?

[00:06:51] Sky Canaves: Well, I think they have to focus on providing the value to the consumer that's enduring and however we think of that.

[00:06:58] Sky Canaves: In our beauty [00:07:00] consumer survey for the US, we found that almost half of consumers had purchased a luxury beauty product in the last 12 months, which I think is pretty significant. At the same time, most consumers had also purchase dupes or say they do so at least occasionally so there's this gap between the desire to [00:07:20] buy the premium product, the higher end product, and the willingness to try the dupe because as, as Karina mentioned, you might hear somebody talking about it on social media or your regular product has gone up in price and you wanna find the lower cost alternative.

[00:07:35] Sky Canaves: Sometimes you might even buy a dupe so that you can afford to buy the luxury fragrance, because [00:07:40] that's a category that's doing really well, especially with younger consumers. And fragrance is one of those categories where we think of it as being high loyalty. Like in my generation at least, you find your scent and you stick to it for life, and that doesn't really reflect how younger consumers think of fragrance.

[00:07:59] Sky Canaves: They- they're [00:08:00] doing things like layering fragrances, buying different fragrances, experimenting with them. So it's, it's, mm, does make loyalty harder, but it also creates more opportunities for brands to reach wider and new audiences.

[00:08:13] Suzy Davidkhanian: So is that where they start to think about, brands start to think about bundling or smaller sizes or [00:08:20] gift with purchase to try and get folks to buy into that?

[00:08:23] Sky Canaves: Absolutely. Doing things that can surprise and delight and meet more consumer needs. I was very excited to hear there's a Space NK related store is opening in New York called Little Luxuries that's just about minis. 'Cause I think minis really [00:08:40] are an important part of how brands can offer more value to consumers.

[00:08:43] Sky Canaves: You might not wanna buy a full size product or spend all of that money, and especially for younger consumers who are more fickle, who might never get to finishing a full size product. It can reduce waste and make a sale where it's possible.

[00:08:56] Suzy Davidkhanian: For me, I can't wrap my head around minis because if you do the [00:09:00] math, it is actually not a better value.

[00:09:03] Suzy Davidkhanian: It's kinda, but it is that entry point into kinda like how silver jewelry for Tiffany is that entry point into a brand. It is fascinating.

[00:09:11] Carina Lamb: And if you wanna try it, you don't know if you like it until you try it often, so it gives you a kinda low-cost way to try something.

[00:09:17] Sky Canaves: It makes the impulse purchase easier because [00:09:20] if the price point is $20 versus 50 or $60 for a full-size product...

[00:09:24] Sky Canaves: I look at the minis at Sephora, and I'm always feeling like I'm getting suckered in there. Yeah. And they're not even that inexpensive.

[00:09:31] Suzy Davidkhanian: No, it's like $20 for a roller if you're lucky. But you know what? I don't know if they still do it. I haven't, uh, purchased fragrance at Sephora in a long time, but they do...

[00:09:39] Suzy Davidkhanian: They used to [00:09:40] do, like, they would spray a little bit of the fragrance in those little tubes where you could try it at home a couple of times. When I was growing up, they used to just give you those little fragrance things for you to try- Yeah ... because they knew that it's important for it to... Like, that was part of their selling point.

[00:09:53] Suzy Davidkhanian: You have to try... Every scent smells a little bit different. You have to try it on you for a little bit of time. [00:10:00] Fragrance aside, if we think about beauty, there is a lot more happening in terms of video tutorials, which is where YouTube seems to be playing a bigger role. Is it because beauty is one of those categories where, I mean, maybe outside of recipes and food, where there is room to do short [00:10:20] videos, where you can really learn something new and spend your time discovering on YouTube?

[00:10:24] Suzy Davidkhanian: Like, why is YouTube so big?

[00:10:26] Carina Lamb: I mean, I think it kind of occupies a really important middle ground. So you've got your kinda short-form video and your TikTok, which is probably the format most likely to put a product on someone's radar, but then they use kind of social media and other types of social [00:10:40] media and YouTube to research products in a little bit more detail.

[00:10:43] Carina Lamb: And YouTube, as well as the short videos, you have that kinda longer format video where you can give someone a tutorial and you can kind of really talk through the product. So I think that social video, those kind of shorter and longer videos both serve a slightly different purpose, and it's quite important for brands to [00:11:00] be thinking across both.

[00:11:01] Sky Canaves: Yeah, I think we do see that social is the biggest kind of awareness and discovery digital channel for a lot of- Beauty consumers. But when it comes to research, what we see is there's really strong trend to using YouTube for beauty product research, and that stretches, that cuts across [00:11:20] generations. It's not just a Gen Z or younger consumer thing.

[00:11:22] Sky Canaves: I think because there's such a depth of content there, I think it's easier, more reliable to find the creator content. There's something also more trusted about YouTube content from beauty creators, where they're not necessarily trying to sell something, which TikTok is now a mix of, you know, [00:11:40] affiliates and real or non-paid review type of content.

[00:11:45] Sky Canaves: So on, on YouTube, I think you can find kind of a deeper mix, and audiences tend to come to YouTube with the intent to look for something, to research something, rather than just, like, scrolling through.

[00:11:57] Suzy Davidkhanian: Somehow YouTube feels a little [00:12:00] bit more authentic to me, I'm not sure why, versus TikTok. You

[00:12:02] Sky Canaves: have... You go to channels.

[00:12:04] Sky Canaves: It seems more official than just-

[00:12:05] Suzy Davidkhanian: Yeah ...

[00:12:06] Sky Canaves: some random accounts that the algorithm is feeding you.

[00:12:08] Suzy Davidkhanian: Absolutely. But if we do double down into TikTok, 'cause we know TikTok Shop is growing, TikTok in general is a very important platform, it's interesting how it really has blurred the path. I mean, five years [00:12:20] ago we were talking about it more about livestream shopping, but now it's beyond that, right?

[00:12:23] Suzy Davidkhanian: It's you can discover a product, you can hear about it either from your own real friend or from an influencer or a creator that you think is your friend. You know, all those lines are starting to feel blurred. How should brands be thinking about leaning into TikTok?

[00:12:39] Sky Canaves: Well, there's [00:12:40] TikTok Shop, which is just really taking off and has really taken off with beauty brands to start.

[00:12:46] Sky Canaves: What's interesting about TikTok and beauty brands is that beauty industry was, like, the first to really get TikTok and understand its power in reaching audiences and younger audiences and creating these social [00:13:00] conversations around beauty, th- then savvy brands like Elf or, um, Hailey Bieber's Rhode were able to really use and make the most of the channel.

[00:13:10] Sky Canaves: A lot of beauty brands have moved on to TikTok Shop and set up on the marketplace and work with creators on an affiliate basis to, you know, send them products [00:13:20] and get reviews and seed the brand. But they have to think of TikTok Shop not just as a direct sales channel, it's also a marketing tool that drives sales to other channels.

[00:13:29] Sky Canaves: There's a, there's a clear path from TikTok discovery and TikTok Shop presence to, like, Amazon sales or D2C sales that brands have to [00:13:40] consider. The other r- interesting trend we're seeing On TikTok Shop that beauty is leading is in the retailers going and selling on TikTok Shop, which is a marketplace, which is kind of unheard of.

[00:13:53] Sky Canaves: You don't really see retailers going onto a competitor platform, a different channel to sell. [00:14:00] So Sephora and Ulta have both set up shop on TikTok Shop, and they have to be, I think, a little bit mindful of how they sell their products or what they sell because they can't just distribute the products.

[00:14:12] Sky Canaves: They have agreements with brands through another channel, so they have to ... They, they work on curated selections or drops where they have [00:14:20] clear buy-in for the brands to do, like, these TikTok exclusive sales.

[00:14:24] Suzy Davidkhanian: Well, and the difference here in this particular sort of, like, new sales channel, it's kind of like TikTok Shop is the mall, and it's multi-branded retailers that are starting, like Sephora and Ulta, that are starting to go and have to really think about their assortment.

[00:14:36] Suzy Davidkhanian: But I thought you were talking about before that Carina was nodding, and I was like, "Yes, let's [00:14:40] talk a little bit more about the social conversation." It's almost like TikTok itself plus TikTok Shop combined together is not just the discovery, but it's also the validation. And so brands can really lean into that.

[00:14:53] Suzy Davidkhanian: Right, Carina?

[00:14:54] Carina Lamb: Yeah. I think it kind of comes back to this, you know, micro-influencer, peer recommendations, the kind [00:15:00] of word of mouth. Like I said, social media like TikTok is kind of really doing that job. Obviously, you now have the TikTok Shop where you can actually then complete the purchase. So I think the brands need to be thinking about it.

[00:15:10] Carina Lamb: As Sky said, it's kind of marketing, it's proof, uh, it's recommendations, and it's a storefront all at the same time.

[00:15:17] Suzy Davidkhanian: We also talk a lot about who owns the [00:15:20] relationship. What happens when it's a TikTok Shop? Is it the brand? If it's through Ulta, is it the, is it Ulta that has to worry about it, or is it a TikTok relationship?

[00:15:28] Carina Lamb: I mean, I think that's a trickier question to answer, isn't it? I mean, I guess ultimately, it's kind of where the product is being purchased and who owns the transaction at that point of purchase, and that [00:15:40] can, can vary, right? So I think ideally, most brands would still want people, you know, completing a sale on their website.

[00:15:48] Carina Lamb: But I think that the understanding now that TikTok Shop has to be part of their kind of channel mix.

[00:15:53] Sky Canaves: Yeah, and TikTok provides some analytical tools now that allow brands to see where sales are [00:16:00] flowing to their D2C channels from TikTok Shop. I think savvy brands will create incentives for customers to engage with them, um, regardless of where they buy, and, and I think one of the big ones is, like, a loyalty program where you get credit and rewarded regardless of where you buy.

[00:16:18] Sky Canaves: You don't have to buy through the [00:16:20] brand channel to get the loyalty points. I know e.l.f. Cosmetics has had this, where you can scan your receipt or upload your receipt from whatever source or whatever channel you've purchased from, and you still get the points.

[00:16:31] Suzy Davidkhanian: Well, it's tricky 'cause AI commerce, too, is starting to blur the lines of who owns the relationship, right?

[00:16:37] Suzy Davidkhanian: And as we think about AI becoming a, a bigger part [00:16:40] of how people are researching and discovering products, in beauty, I still think there's that duality of it's something that I know I need for a specific reason, like dry skin, or something that you saw on TikTok Shop or on TikTok, and you were like, "Wow, that's so cool.

[00:16:55] Suzy Davidkhanian: I want that blush." So what is the role that AI is going to [00:17:00] play in terms of thinking about both sides of that beauty need versus want?

[00:17:04] Carina Lamb: I mean, I think at the moment, AI's stronger at kinda responding to a need rather than creating a new one. In the UK, it remains a kinda pretty minor discovery channel. I think it was only 3.7% of the people that we surveyed said that AI assistants or chatbots had brought a beauty product to their attention.

[00:17:19] Carina Lamb: [00:17:20] That rises if we're looking at people that are using AI chatbots and assistants for research purposes, for that kind of research and consideration phase. It's more like 10%. And around a third of beauty buyers said that they were using general purpose AI tools to explore products. So I think at the moment, AI's kinda sweet spot is really in that research and [00:17:40] consideration rather than that discovery phase.

[00:17:42] Carina Lamb: I imagine that is gonna change a little bit over time, but that's where we're at at the moment.

[00:17:46] Sky Canaves: Yeah, we see that in the US that most of the AI use for beauty is in mid-funnel research consideration, price comparisons, these kinds of activities. What's interesting is that the interest in using AI [00:18:00] for shopping activities is really a little more skewed towards millennials in the US, who are not the youngest demographic, but maybe a little more comfortable with using the technology to meet all sorts of different needs.

[00:18:12] Suzy Davidkhanian: So if AI is helping with research, so, like, I need cream for dry skin, does that mean that brands have to work extra [00:18:20] hard? 'Cause LLMs, not Rufus, but LLMs aren't gonna give you A litany of brands to choose from. So does that also mean that being part of the consideration set becomes more complicated?

[00:18:31] Carina Lamb: I mean, I think it comes down to the things that we talk about always when we're talking about LLMs is, you know, making sure that your product data is [00:18:40] good, that your product descriptions are good, that the technical data on your site is then easy for these assistants to pull, because it really increases your chance of being in a recommendation if the LLM can read your site and pull the information it needs and the kind of technical specs that it needs.

[00:18:55] Suzy Davidkhanian: It is interesting 'cause we really do talk about it a lot, but I [00:19:00] still find that there will become a point where that consideration set in an LLM will be smaller, but it's probably not any different than any other research tool where you don't have the opportunity to look at everything.

[00:19:14] Sky Canaves: Right, and I think there's still a lot of value in that filtering support.

[00:19:18] Sky Canaves: I mean, that's kind of what [00:19:20] the LLMs or shopping assistants do is they recommend a shortlist. They curate and recommend the shortlist of products, and it helps consumers because they then feel less overwhelmed by this endless aisle of digital shopping.

[00:19:33] Suzy Davidkhanian: Totally, and you know what? That's like the job of the merchant, where too much choice, you walk the person away, but [00:19:40] not enough choice, then they also get walked away.

[00:19:42] Suzy Davidkhanian: And so maybe there is that fine balance between how much is helpful, and brands have to figure out how to be part of that shortlist. One thing is for sure, we all agree that beauty is resilient, and there's the lipstick effect, and we know that no matter how much consumers pull back, if they do pull back in different [00:20:00] markets, beauty still wins.

[00:20:02] Suzy Davidkhanian: So does that mean that every retailer, kind of like Old Navy, has to be thinking about a beauty strategy right now?

[00:20:08] Sky Canaves: I think a, it makes sense for a lot of retailers in the fashion, lifestyle, wellness space or where you have customers who are buying those products or coming into your stores. And we see [00:20:20] Just so much opportunity being taken up across a lot of different types of retailers.

[00:20:25] Sky Canaves: So you have, like, I think CVS is now getting into off-price beauty because it wants to increase its assortment, not just of drugstore beauty, but of prestige beauty, but in a way that makes sense for its customers. And there is a lot of more [00:20:40] beauty shopping that's taking place in off-price stores now.

[00:20:43] Sky Canaves: Supermarkets and grocery stores wanna improve their beauty assortments, and not just beauty, but then you have a lot of the, um, related categories expanding into wellness, for example, which is something now the beauty retailers are doing. So there will be more overlap and crossover [00:21:00] between beauty and other categories where it's relevant.

[00:21:03] Suzy Davidkhanian: So I wanna end on one final quick answer question. As we think everybody is getting into beauty, everybody's buying beauty, so what's more important? Is it winning that first purchase and being discovered, or is it about earning that second purchase?

[00:21:19] Carina Lamb: I [00:21:20] think it's quite hard to choose, but if I had to, I would say the second purchase is kinda where brands are most exposed 'cause we know that discovery is happening now across a wide range of channels.

[00:21:31] Carina Lamb: There's quite a lot of opportunities to generate a trial. But what's happening increasingly is that that kind of first purchase isn't securing the relationship. You know, people are [00:21:40] looking at alternatives constantly. So I think that second purchase really proves that your product's kinda justified its place in the customer's routine, and brands need to be planning beyond acquisition and really thinking about kind of a reason to get a customer to stay.

[00:21:53] Sky Canaves: I agree. I think loyalty is always going to be more profitable in the long run because then you can also expand the [00:22:00] relationship in other ways. It also helps fuel the word of mouth and user reviews on other channels like social media th- then get other people into the brand or product.

[00:22:13] Suzy Davidkhanian: Guys, one of my favorite categories.

[00:22:15] Suzy Davidkhanian: I could keep talking about this forever, but unfortunately, that's all the time we have for today. Thanks [00:22:20] so much, Carina.

[00:22:20] Sky Canaves: Thanks, Suzy.

[00:22:21] Suzy Davidkhanian: Thank you, Sky.

[00:22:22] Sky Canaves: Thanks, Suzy. Always a pleasure.

[00:22:24] Suzy Davidkhanian: And thank you to our listeners and to our team that edits the podcast. Please leave a rating or review, and remember to subscribe.

[00:22:31] Suzy Davidkhanian: I'll see you for more Reimagining Retail next Wednesday, and on Friday, join Marcus for another episode of Behind the Numbers, an EMARKETER podcast made possible by [00:22:40] Atmosphere TV.