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Amazon's Latest Foray Into Beauty

posted by Professor Marie Driscoll, CFA

The beauty business, like most retail categories in department stores, has been in a state of disruption for most of the 21st century. As the department store channel consolidated and contracted, a process that began in the 1990s, beauty brands saw the writing on the wall and began opening branded storefronts. Estée Lauder’s distribution is a testament to the changing channels where cosmetic purchases occur. In 2000, the company had 240 company-operated stores and 21% of its total $4.4 billion in revenues were to Federated and The May Companies (today Macy’s). By 2016 more than 1260 stores were operating and Macy’s dropped to 9% of its $11.3 billion sales.

We’ve seen the success of Sephora and Ulta’s model change of self-service beauty shopping habits. Beauty vloggers have changed the way new products are introduced to the market. New specialty concepts such as Blue Mercury and Benefit offer shoppers a more personalized experience. Meanwhile, online beauty sales are growing at a double-digit pace and accounted for approximately 8% of total cosmetic sales in 2015. Euromonitor estimates the global beauty business approaching $385 billion in 2016 and according to 1010data, Amazon accounts for 21% of online beauty sales, but it has had a difficult time attracting premium and luxury cosmetic, skincare and fragrance lines.

Luxury brands have been reluctant to join Amazon for many reasons—from fear of product adjacencies and the potential brand damage that could ensue as consumers see fine fragrance alongside light bulbs, toilet paper and toothpaste; to a loss of control, and the selling ambiance of Amazon, a highly democratic platform that doesn't lend itself to the preciousness luxury brands demand in their selling venues.

 

Topics: amazon, Beauty, retail and merchandise management

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