The beauty industry has seen enormous innovation and entrepreneurship in the last several years. Countless new brands have been created and an endless array of new ingredients have been developed. But one thing that has changed in almost every other sector of retail has not yet disrupted the beauty industry: beauty products are still sold primarily as they always have been, in stores. Sure, there are replenishment sales on Amazon, and Glossier has an exceptional online business, and there are some other sites selling beauty direct-to-consumer as well. But for the most part, the traditional mode of going to a store to try out a product in order to learn about it still dominates. Unlike many other types of retail, online purchasing of new products has not caught on in the beauty business yet. Industry experts will tell you it’s because it’s hard to see if a product works for you without using it yourself first and that’s stores’ big advantage. Beauty products are particular to each user so it’s among the last industries to adapt to online.
That’s starting to change. The latest crop of new brands are taking a different approach to developing their businesses. They are focusing much more on selling direct-to-consumer and less on selling in retail stores. Although they haven’t eliminated traditional retail completely, they are doing it more strategically either to build awareness or to generate revenue to get to scale faster. What we’ve seen in other sectors of retail is that the companies that are founded to include selling direct-to-consumer in their structure, what’s now called “digitally native,” are the ones who are able to disrupt legacy retail store selling.
The development of these direct-to-consumer businesses are an important sign of change in retail for beauty and a challenge to established retail channels. Elizabeth Kopelman of Frisson Beauty points out that these changes are “powered by [artificial intelligence] which is driving personalization…[while] sampling, loyalty/rewards, cross- and up-selling [and] promotions are all key to successful direct-to-consumer [sales).
There are numerous challenges for a beauty brand to sell directly to consumers without involving a retailer. The biggest challenge is getting consumers to be aware of and interested in the brand without spending all your investors’ money. The way these new brands do it is by identifying a market that has been overlooked or taken for granted by larger, more established companies, targeting their promotion at consumers whose needs haven’t been addressed. Those consumers are very receptive to the brand’s entreaties because the messaging is focused on what they’ve been looking for.
The strategy has a number of advantages:
- It avoids sharing the profit with the retailer.
- It keeps customer acquisition costs on Facebook and Instagram low by targeting very specific consumers who are more likely to respond with less online messaging.
- It avoids being lost in the advertising clutter because the message is so focused.
- Selling direct-to-consumer enables two-way communication between the brand and the consumer, without interference from the retailer. That facilitates the development of a relationship with the consumer and ideally, loyalty that is based on that relationship and the opportunity to build a community of users with shared interests and needs. Kopelman calls this the “connective tissue” of a consumer community. Consumers feel empowered and become influencers in their own right to spread the word about the brands and products they love. The feedback and relationship with consumers enables organic innovation based on consumers’ input.