August 16, 2018
Over the last few years, the cosmetic industry has undergone a massive makeover and been transformed probably faster and looks younger than ever before. It has been a global transformation with each region of the world contributing in different ways. And the biggest driver has been from outside the industry – the internet and smartphones. Everyone would agree that the internet has made the world smaller and more accessible, but it has also been the source of both positive and negative changes depending on where you work within the industry. The continued harmonization of the global cosmetic industry facilitated by technology will be the real stimulus for future innovation.
For years, consumers went to the department stores like Macy’s, Belk and Dillards, to have a beauty advisor analyze their skin or to get a make-over. It was a personalized face-to-face service that drove women to stroll through the dozens of beauty counters until enticed to sit down, be pampered and buy a product. Competition in department stores was fierce as there wasn’t much difference in the product offerings between brands – colour cosmetics, fragrances and skincare, so customer loyalty was key. In response, beauty brands used gifts with purchase, beauty advisor-customer relationships and seasonal palettes to market their products. In the late 1990’s, led by Sephora, specialty retailers appeared in US malls with a new one-stop, self-serve, try before you buy model dedicated to selling only cosmetics, fragrances and skin care but with the addition of toiletries, hair care and later beauty tools. Initially, only generations x and y, with limited time and money, embraced this new model while many baby boomers continued to shop at the department stores. The allure of specialty retailers was the ability to play with and compare hundreds of products in a no-pressure atmosphere because the beauty advisors weren’t paid by any one brand. As a result, smaller, more “hip” brands launched and found success in specialty retailers without the costs associated with having to pay for their own beauty advisors or counters as in the department store model. Traditional department store brands added to the variety in specialty stores resulting in a decline in department store traffic.
The rise of additional specialty retailers like Ulta, for example, as well as e-commerce drove specialty retailers to find more creative ways to market cosmetics. To drive consumers to their stores, Sephora used technology to personalize the purchasing experience while Ulta offered hair salons to modernize the old department store sales model because consumers still wanted to see, smell and feel the products. However, once consumers found products they liked, re-purchase of those products could be done on the internet or with mobile apps. At the same time, TV- retailers like QVC and HSN offered the automatic-replenishment option providing consumers convenience while ensuring sales for brands.
Around 2010, subscription services like Birchbox and Ipsy changed the purchasing landscape again and probably forever. Subscription services targeted those consumers that wanted to try products without having to go to the mall. This opened the door to direct-to-consumer marketing of products, a less expensive route of entry for new brands. This became another launchpad for Indie brands to enter the market and the almost certain demise of brick and mortar shopping.
Ironically, the much desired, personalized shopping experience appears to have been replaced by the impersonal nature of the internet and smartphone apps as the future of the way we buy cosmetics. Now consumers can buy products from all over the world with just one click and without any human contact. In place of traditional marketing, consumer e-commerce behaviour is being monitored. The information collected is allowing many brands to look for ways to both customize product offerings and personalize the online shopping experience. This area will continue to grow in the future with increased global competition creating a new cosmetic landscape with a level playing field where traditional brands will need to either acquire indie brands or find alternative ways to remain relevant. The infusion of smart digital technology will be key.
Brick and Mortar Brands
Before the internet, consumers learned about the benefits of ingredients and product performance based on the education provided by beauty advisors. Beauty advisors, in turn, were educated by the brands and therefore, the consumer was really being educated by the brands and what they wanted them to know. Beauty advisors were seen by consumers as the experts and became a key marketing tool for brands to dictate trends to the consumers and define what they saw as consumer needs. As a result, consumers beliefs were synonymous, the messaging was simple, and not many questioned the beauty advisor’s guidance in the absence of online education and resources.
Around the same time the internet and specialty retailers became popular, concern for the environment and personal health, as well as changing social and economic priorities became mainstream shifting consumer’s purchasing attitudes. There was a growing beauty counter-culture, a desire for products made from natural or organic ingredients, sustainable packaging and cruelty-free products from companies who believed in environmental stewardship.
This counter-culture, was driven by consumer demand in Europe, but was held in check by the power of the major brands in the US via beauty advisors, thus, the primary education tool for this group was the internet. Natural beauty consumers were able to find information on the internet, from third-party organizations, not always based in science, European consumers and natural/organic brands. Several of the world’s natural/organic certification organizations are based in the EU and essentially have defined this space for the industry.
Via the internet, natural/organic brands
and certification bodies are gaining respect and influence while continuing to educate the consumer on raw materials, environmental and ethical issues. As evidence, free of claims, natural, often exotic, alternatives to traditional cosmetic ingredients and new natural ingredient claims are now the crux of most marketing stories. In response, even brands previously opposed to this movement are adding cruelty-free to their packaging or high- lighting the natural component of their formula.
This marketing trend is so popular that
the EU is now regulating these claims and we will likely see this from other governments. We may also see governments weigh in on the natural versus synthetic debate as it relates to product safety. Arsenic, while an extreme example, is natural but not safe and therefore the safety profile of many natural ingredients is being studied. Conversely, phenoxyethanol is synthetic and after many studies is considered to be safe. Even natural essential oils cannot escape scrutiny as seen in the regulation of fragrance allergens.
Anti-pollution products will no doubt be the next big thing as people struggle globally with the impact of various types of environmental pollution on their health. Intuitive beauty brands will focus on targeted product offerings that counteract the impact of specific, regional pollutants in response to the customization and natural trends. Traditional ingredients from places like China, Africa and India as well as other parts of the world are showing up in products as consumers embrace natural, old world remedies for issues like eczema, rosacea, acne and other skin conditions exasperated by pollution. Scientific studies on natural ingredients are providing breakthroughs in efficacy and performance for natural-based products.
If there was any doubt that this trend is here to stay, Kline & Company has reported that the global natural personal care market was worth $30 billion in 2013 and has grown at a double-digit pace since 2008. By 2018, the natural personal care market is expected to grow to $46 billion globally. The demand for Halal-certified products is likely to follow suit.
Predicted Winners: Natural Brands
Predicted Losers: Brands that do not embrace global trends
Back in the department store days, if you were under 30, beauty advisors recommended a three-step skin care routine consisting of cleanser, toner and moisturizer to slow down the signs of ageing followed by basic make-up. If you were over 30, the skin care routine was more focused on moisturizing to minimize the appearance of ageing and the multi-step make-up routine was about hiding facial imperfections.
The internet brought us new global beauty trends, that made us think differently about skin care and redefined our perception of beauty as seen through the eyes of people around the world. Asia, led by Japan and Korea, has been particularly influential in the last ten years. Whitening/Brightening skin care, BB and CC Creams, sheet masks, multi-step skin care, traditional Asian-based ingredients and essences are now global product categories.
Whitening products and spot treatments in combination with an increased awareness of the link between tanning and skin cancer spawned self-tanners in all product forms. BB and CC creams gave birth to both the natural beauty and multi-functional product trends. BB and CC creams replaced foundations, sunscreens and moisturizes by rolling them into a single, easy to use product that provided more natural looking skin while also including sun protection. Sheet masks hit the western countries at about the same time as the economic downturn and re-ignited the home spa market. Sheet masks gained popularity because of the belief that they help to drive the actives deeper into the skin. Korean women introduced the world to their multiple step skin care regimen. This also provided the industry with new and innovative delivery forms. Micellular cleansers, oil cleansers, serums, essences, night masks and highly concentrated treatments containing exotic Asian ingredients like snail slime, bee venom, green tea, pearl and starfish extracts are being sold in many western markets.
In support of the global healthier living trend, science-based natural ingredients will likely continue to drive skincare innovations. Ayurvedic-based ingredients are starting to make an appearance on the international scene. India and the Middle East are expected to make their mark on global skin care trends over the next year, largely supporting the demand for Halal products. Indie brands are re-focusing on prevention for all ages as older people today are younger-minded and the growing awareness of the impact of pollution on skin. Biotechnology-infused skincare will likely focus on correction but will be a hard sell due to regulatory restrictions on
claims. Therefore, finding ways to market products with innovative new ingredients in an already crowded space may need to depend on an older market embracing technology or becoming beauty influencers, sampling and online education. Lastly, natural alternatives to over-the-counter (OTC) drug actives are on the rise and again the trick is government recognition of these actives to make relevant claims.
Colour cosmetics have been impacted perhaps the most by social media and the no-make-up, natural beauty craze. Twitter, Facebook, Snapchat and Instagram have given rise to highlighters, illuminators, make-up primers and contouring products. Amateur make-up artists and beauty influencers are abundant on YouTube teaching us new ways to use these products to take the perfect selfie – essentially 21st century beauty advisors. They are also re-defining classic looks with a more modern twist. The cosmetic industry has always had celebrity endorsements, but this trend has turned YouTube video stars around the world into mainstream celebrities hired by brands to help design and promote their products. One of the most important recent beauty innovations in colour was the advent of gel nail polish and was clearly in response to consumer-driven wants/needs.
Multi-cultural beauty is predicted to be the source of future growth in this category. Customization will help to drive consumers of all ethnicities to brands that allow for colour products that can be personalized to match a wider variety of skin tones. Another area for growth will be efficacious all natural or mostly natural colour cosmetics.
South America has brought an awareness to a gap in hair care offerings that is being filled by Indie brands in other parts of the world. Hair care innovations will also be the result of science-based ingredients with innovative styling tools and new product categories. The US is most certainly a leader in this space.
Predicted Winners: Indie Brands
Predicted Losers: Brands that do not embrace global trends
One thing is certain, the electronically savvy beauty brand owners will be the driving force behind the future of our industry. Industry growth will be powered by innovations resulting from the marriage of science-based natural ingredients with novel concepts produced by nimble Indie brands responding to consumer defined needs. We will again see the competition of old but on the internet instead of in the department stores and with multiple points of difference.
Unlike the past, it won’t be the brands that are the first to use Hyaluronic Acid or Alpha-Hydroxy Acids, it will be the company that provides the whole package – flexible purchasing methods, social media education and promotion, natural, effective products, personalized and customized shopping experiences and ethical business practices. Only those brands that listen to consumers and embrace these 21st century business practices will succeed.
The number of Indie brands being incubated by venture capital firms and groomed to be sold to Fortune 500 companies is further evidence this is where industry is headed. For the first time, traditional department store brands are at a disadvantage. They can no longer dictate to the consumer and even if they buy Indie brands, they too must transform and embrace the 21st century business model. The dichotomy of today’s cosmetic market is that technology is driving us to go back to basics and find solutions in nature.
By Karen Yarussi-King
Euro Cosmerics – www.eurocosmetics.de