The beauty industry was in a state of flux due to a multitude of factors such as a shift in the retail landscape to online, technology innovations like AI-ML, IoT, AR / VR, brands born digital first, ethical and sustainable ingredients, APAC as a growth engine for beauty industry, etc. These changes were accelerated due to the advent of the pandemic, where it became harder for consumers to shop in-person and digital interactions started becoming a key driver for growth. New digital tools have helped mitigate the lack of in-person interaction at stores to some extent.
In this paper, we take a detailed look at some of the key trends that beauty companies need to account for from an innovation, marketing, sales and distribution perspective going forward.
Shift to Direct to Consumer (DTC)
Traditionally, big beauty brands relied heavily on wholesale department stores for selling their products. The distribution between wholesale and DTC was traditionally 80:20, but with consumers hesitating to go to stores during the pandemic, the wholesale business plummeted with some beauty brands losing 80% of their wholesale sales. On the other hand, online DTC sales skyrocketed, with practically every day resembling Black Friday sales. This changing trend pushed the beauty industry’s fundamental shift toward online channels. This includes changes to all aspects of the consumer journey like:
- Use Data-driven and personalized marketing strategies like combining channel sales data with distribution partner sales data to build Customer 360 view for personalized targeting and campaigns, and shift marketing dollars to digital media to attract millennials. This information is allowing companies to build Personalized landing pages, ads, product recommendations, promos etc.
- Introduce enhanced online tools, where consumers could virtually try on their makeup online using their phone or laptops
- Invest in better distribution and fulfillment networking including DTC-specific distribution centers (3PL or owned) and delivery mechanisms.
Coming of Age for Beauty Tech
Cosmetic companies, both big and small, doubled down on integrating technology with beauty products. The key aspects of this shift include:
- Use of digital production and collaboration tools, in-house 3D labs, among others
- Augmented transparency to provide quick information about ingredients, products, and companies
- Introduction of apps that align products with personalized profiles, e.g., position augmented reality to reach new consumers and make sales conversions
- Develop 3D holographic videos for in-store product rendering/visualization of the “endless aisle”
Move to Hyper Personalization
Beauty Companies are increasingly focused on consumer intimacy to create a personalized, engaging, and immersive consumer experience to foster consumer loyalty. Initiatives in this space include:
- Integration of IoT, facial recognition, conversational commerce, and augmented reality to orchestrate buying experience, e.g., recommend personalized makeup and skincare formulations based on consumers’ skin conditions
- Integration of mobile apps, skin scanners and analyzers, and AI to detect skin conditions
- Given the growing popularity of voice search, optimize for personalized product discovery through voice search via Alexa, Siri, Google Assistant, etc.
There is a growing trend of using natural, sustainable, and local products that are ethical. Also, beauty is focusing on becoming more inclusive to include general neutral products, products for Gen-X and baby boomers, children’s beauty care etc. The key aspects of this trend include:
- The growing trend toward natural ingredients and wellness means that “clean” labels will increasingly drive market share in these categories
- Sustained innovation to create formulations that are safer for our skins as well as the environment
- Sustained production to reduce carbon footprint
- Sustained packaging with commitment to 100% reusable or recyclable or compostable packaging
- Eco-friendliness and positive social impact of products as a pillar of growth
- Product lifecycle management and tools using AI/ML for predictive formulation modeling to introduce natural and sustainable ingredients into existing or new formulations
Over the last few years, social commerce has played a bigger role in the beauty industry. Some trends in this space include:
- Leveraging social media channels to tap into DTC growth. Companies are using influencers and creating brand/product-buzz through social media. This was region specific. For e.g. In North America, it was Facebook and Instagram and in the APAC region, the fastest growing market for lot of these companies, it was TikTok and WeChat. The community interaction and cross-pollination of brand value
- Targeted social ads and influencer marketing
- Social media like Facebook and Instagram has become a commerce channel
- Bringing social to Supply Chain (Glossier’s community to crowdsource products, ColourPop reduces middle men for affordable products)
To sum up, the operating model for the beauty industry is fundamentally changing. This encompasses all aspects of the value chain including sales & marketing, product innovation, manufacturing, and supply chain. All these functions are getting impacted due to digital transformation changes. Beauty companies have to innovate and invest in the right tools and operating model to survive and thrive in the new digital world.