Beauty Store Survival in the E-Commerce Age

The beauty store is proving that, for some retail categories, shopping in-store remains very much a social experience. Around the country, beauty stores are transitioning into places that inform, educate, and entertain, according to founders of Bluemercury, a leading luxury beauty retailer.

Beauty stores are also quickly responding to the changing habits of their consumers who crave convenience and rapid service. Bluemercury, for example, is often located in an urban and dense location, probably next to a Starbucks, so that the busy mom or working professional can easily grab coffee and then grab lipstick in one seamless trip.

Today, overall spending on makeup and beauty supply is being boosted by an influx of new brands and products creating more dollars to go around amongst retailers. In fact, spending on beauty and personal care is growing more quickly globally compared to spending on apparel and footwear, according to market research firm Euromonitor International. This may be attributable to the fact that the beauty industry also has the added benefit of not being a seasonal industry, which keeps prices relatively consistent throughout the year. Although shades of make-up change by season, products remain the same and things like facial wash and shampoo remain the same throughout the year. This is antithetical to the season-dependent clothing and accessories category.

The $80-billion-a-year U.S. beauty industry has been growing 4% annually since 2010—much faster than other areas of retail – and Hispanic and African-American women are making up a large share of this market.

How are beauty retailers reinventing to survive this e-commerce era?

Leverage social media

Fortunately, beauty consumers are also discovering new make-up looks online as they do with clothing and accessories. Many beauty retailers are getting a boost from the rise of the selfie as consumers are referring to looks they see on Instagram, Snapchat or Pinterest as inspiration for product purchases. According to Shelley Haus, vice president of brand marketing at Ulta Beauty, “Social media is shaping consumer behavior… Scrolling through Instagram, the pictures and videos bring things to life in a way that’s super absorbable.”

Sephora has even sponsored Snapchat filters that create instant makeovers to the subject in the photo. This makes the product relatable and appealing to users. Sephora also targets its Snapchat filters at specific locations within proximity of a store so that in can help capture foot traffic. Customers who may not realize they’re near a Sephora store then become aware when they turn the geofilter on.

Maintain brand exclusivity

In an age where everyone assumes they can buy almost anything on Amazon, it seems almost impossible for retailers to keep up with online Amazon sales. Ulta Beauty and Sephora, however, have managed to keep the e-commerce giant Amazon at bay by maintaining brand exclusivity. Many higher-end makeup companies distributing their products through Ulta or Sephora have little product overlap with Amazon ensuring that customers must often make purchases off of the Amazon site, according to the analytics firm L2.

This cooperation/ partnership with higher end brands is also being strengthened across all channels through combined ‘prestige brand boutiques’ whose sales rose 7% last year, according to NPD Group.

Provide satisfying in-store experience

Most importantly, beauty stores are continuing to expand beauty and makeover services provided so that customers continue to shop in-store. First and foremost, beauty stores are providing places to play with special vanity lighting and make up testing stations. This is especially important to customers who are buying a product for the first time and wish to test and sample products. Makeup shades, for example, may appear differently on screen than on the face.

More and more, beauty stores are also providing a wider range of services including full-service salons and in-store brow bars. This allows customers to learn the latest makeup application techniques that may be harder to do/ more time consuming to do online. Ulta, for example, does not charge for makeup consultations while Sephora holds free make-up classes throughout the year.

Here's more on the top three beauty stores expanding throughout the country, read on and find out what they have to offer and what they're looking for!

1.    Ulta

Description: All-inclusive stores carry over 20,000 products from over 500 brands – everything from mass-market brands to high-end cosmetics, all in a format that lets customers try before they buy

In-store services: Beauty services include nails, waxing, blowouts (Ulta launched Drybar in 400 of its stores in 2016) and salon services include facial, hair, make-up

Ulta also maintains loyalty through a successful shopper-rewards program, Ultamate. It is one of the nation’s biggest loyalty programs, with 20.6 million members—and members account for an astounding 80% of its sales.

Growth: Same-store sales rose 14.3 % for the latest period while digital sales grew 71 % in the first quarter of 2017, to $104.3 million from $61 million. Strong online sales are largely incremental to its brick-and-mortar business, with 8.6% of loyalty members now shopping across all channels

E-commerce strategies: Paid search, display advertising, paid social

Current Locations: Ulta is widely- known as the ‘strip mall secret’. Ulta’s preferred neighbors were retailers like T.J. Maxx and Target—because of the middle-class shoppers they attract. In NYC, Ulta Beauty can also be found in regional shopping centers such as Rego Center and The Shops at Atlas Park. However, its fourth store is due to open in the more urban setting of Upper East Side as it changes its co-tenancy strategy toward Trader Joe’s and Whole Foods.

Customers: Millennials, Gen X and particularly, Latinos. Customer dwell time is estimated to be at least 15 minutes per visit.

Expansion Plans: Looking to expand from 1,400 to 1,700 locations across the US, or 100 per year.

Site Requirements: 12,000 SF (10% taken up by salon stations)

2.    Sephora

In-store services: Other than the typical beauty and salon services, Sephora stores also boast high tech features like iPad stations that offer beauty classes and virtual makeup try-ons

Omni-channel game: Launched the ability for customers to purchase Sephora online and pick up their order at a J.C. Penney store the same day, planning to introduce a new online feature that will enable customers to book a makeover with a Sephora beauty consultant.

Customers: Urban,  high-end

Site Requirements: 1,500 -2,600 SF (or up to 5,000SF)

Expansion Plans: Sephora inside J.C. Penney began in 2006 and after this expansion the company's makeup, fragrances, skin and haircare brands will be available in almost 650 J.C. Penney stores in 2017.

3.    Bluemercury

Description: Upscale, neighborhood alternative to department store beauty stands. Its focus lies in offering products with natural ingredients.

In-store service: Spa services include skincare treatments, esthetic treatments, and body care treatments. Bluemercury is also known to invest heavily in knowledgeable service staff. Employees develop expert product knowledge and are offered benefits for longer-term employment.

Current Locations: Dense urban areas, customers live within 5-mile radius/ 15 minute drive in the case of suburbs, co-location with take-out and fast-casual eateries and cafés

Customers: Broad array of customers – “50 percent of customers are coming for a solution to a problem or a product with a specific attribute.” However, product prices vary from mid to high and may appeal more to younger professional woman. Customer is also looking for a more relaxed environment than Ulta or Sephora

Site Requirements: 2,500 SF

Expansion Plans: Currently has 140 stores in the U.S., with 3 new stores opening every week – looking to expand up to 24 more bluemercury stores in 2016 and 18 bluemercury shops within Macy’s stores