Even just two years ago when creators wanted to launch a brand, they could (somewhat) easily follow the direct-to-consumer (DTC) route. That way they could control inventory without having to worry about servicing stores and received valuable instant feedback from customers.
The pandemic fueled ecommerce and DTC. eMarketer put increases at 40% from 2020 to 2021.
But that has all changed. Gains are closer to 18.2% for 2022 and dropping even more in 2023, per eMarketer.
There are myriad reasons. Top of the list is Apple’s iOS 14 update which has made it harder to target customers with messages to gain exposure. The new rules from Apple require all apps to secure smartphone user’s permission to be tracked online. That becomes a barrier advertiser to measure and manage their ad campaigns.
According to data from Profitwell, customer acquisition costs jumped more than 60% last year.
Also, price tags of advertising online on Facebook and Google are out of reach for many. Subscription boxes, once an affordable option to get in the hands of consumers, have also become costly for some because of escalating shipping costs along with more expensive packaging, bottles, etc.
But beyond those hurdles, the fact is that shoppers like to go to stores. And for brands, visibility in a chain like Target adds instant recognition.
Freed from lock down in homes, Americans proved that they want to shop physical stores, especially with the safety protocols many have put into place.
“For years people have proclaimed the death of retail. As a retailer for many years, I heard it but always knew it was never true,” says Jennifer Walsh a beauty retail veteran. “People want experiences in real life… to be able to touch, feel, smell, taste something is to be human. Twenty-five years in retail and I can wholeheartedly say retail will be a place where people want to interact and have human experiences.”
According to The NPD Group, brick and mortar drove growth across all beauty categories in 2021 with overall increases of 54% for physical stores versus only 4% for online. Not surprisingly, hard to buy without seeing categories like makeup and skincare suffered the most. While overall prestige makeup sales rose 23%, per NPD, brick and mortar sales soared 45%; online sunk 8%. Skincare overall was up 18%, but physical stores produced gains of 47% to an online decline of 4%.
There really is an advantage, especially in beauty, to touching and seeing the products. One issue, sadly, is pesky supply chain issues that impact both in store and online sales.
The brick-and-mortar trend continues to grow with Mastercard SpendingPulse showing results that online spending dropped 3.3% in March of 2022; brick and mortar rose 11.2%.
By many brand estimates, physical stores still produce 80% of sales.
That said, it can be costly to take a nascent brand to retail—especially into a big box door. Retailers put the onus on brands to produce often in a fast time frame. There are costs many founders never heard of from slotting fees to chargebacks. Some experts warn profits can take a few years to trickle in and without a fat checkbook many companies falter.
The big retailers are trying to curb the risks. Target has its Takeoff five-week bootcamp that has nurtured many fledgling beauty brands onto shelves—while also showing some that they are not quite ready. Sephora offers its Accelerate Brand Incubator, now entering its eighth year.
Last year Walmart launched a new program called Start, which is dedicated to discovering and developing up and coming beauty brands. The plan it to select five specific beauty brands and provide resources and operational support to prepare for a potential product launch.
Retailers, especially discounters like Target, are courting more start-ups. Target just added 40 new brands including Pure Culture, GlowRx, Thread, Kyutee and brands from Takeoff such as Sassy Hair and Undefined Beauty.
Ulta Beauty has its Sparked spotlight that has helped emerging brands gain traction such as UOMA. Current brands highlighted include Sk*p, Hally and Tresluce Beauty where the brand founders get to tell their creation stories online.
Rite Aid has a new store format that is giving brands, especially those with a wellness focus, a place on shelves.
Brands that have succeeded at retail suggest vying for a smaller “test” market of stores and kicking off with availability on the retailer’s website.
Then, too, DTC brands are opening their own stores or at least pop-ups to gain exposure.
Even the chatter about the metaverse doesn’t trump stores, says Walsh. “While there is a huge push to rush to the metaverse, customers want to go shopping in real life. The winners are those brands that create a unique and special environment that make people want to be there.”
Still IRL isn’t for all brands—at least at their inception. Beyond stores, nascent brands will have new options ranging from livestreaming, loyalty building strategies like NFTs, greater use of email and texting—and perhaps the most important element—a product with a real “why” for its existence. No matter where sold, today’s consumers will sniff out a product that doesn’t have a reason for existence.
About Faye Brookman
Faye Brookman has reported on the beauty and personal care industry for more than 35 years. She contributes to beauty industry publications including Women’s Wear Daily and CEW Beauty News. Her articles have also appeared in USA Today, The Wall Street Journal and The Washington Post. She also is a frequent moderator for discussions of the beauty business and retail industry.
A graduate of Syracuse University’s S.I. Newhouse School of Public Communications, Brookman resides in Skillman, N.J.
In case you missed it, check out Faye’s previous article about Retailers To Watch In The Beauty Space.
Categorized in: News