THE BEAUTY INSIDER: The rise of small brands and how it happened
2020 . 07 . 10 |
Beauty is big business. Globally, the cosmetics product market was valued at $532 billion in 2017 and is expected to grow to over $800 billion by 2023. Of course, this is a comprehensive number including everything from hair care to oral care as well as color cosmetics, skincare and fragrances, with sales made everywhere from mass to class distribution.
What many people don’t realize is that almost 200 brands are owned and managed by 7 giant companies. What does that mean? Well a lot of things that are taken for granted:
- Probably that the mascara you buy from a major brand at Sephora shares research facilities with a sister company sold at your Walmart/Boots/Monoprix.
- The big guys leverage their multi-brand sales contribution to negotiate prime space and location in the cosmetics department.
- The best slots for advertising, promotion and media buys go to the powerful players.
An interesting phenomenon occurred about 20 years ago: Sephora came to the United States. This new player in beauty retail launched stores by following the French format which dedicated the bulk of the real estate to Fragrance. It didn’t take long before the organization realized the US consumer buys more makeup than perfume. Consequently, stores were rezoned to align space with sales, which opened opportunities for more color brands.
Surprisingly, this news wasn’t met with overwhelming zeal from the old guard. Many established brands, including Estee Lauder and Chanel, did not jump on the bandwagon. Citing existing partnerships, high margins and no dedicated staffing, they held back. Instead Sephora was obliged to seek out new brands, independents who were looking for a chance to shine.
Sephora had also taken the then unheard-of step of offering some brands “online only”. This was a way for a small guy to get his product in front of the consumer while taking little risk in terms of logistics and production before expanding distribution. Of course, experiencing a color brand in a virtual environment had its limitations which gave rise to selling aides such as color swatching on skin and video tutorials, all now considered basic practices.
As online shopping blossomed, it fostered the rise of direct-to-consumer and digital only brands, largely fueled by social media and influencers. Emily Weiss created Into the Gloss as a beauty website where readers could share their personal stories and their paths to beauty. It was only a matter of time before Weiss launched her own online brand, Glossier, which she has supported with occasional pop up shops. Industry sources indicate the brand grew by 69% in 2018 and has now opened distribution outside the US.
As a result of this new dynamic, mergers & acquisitions started to flourish. Suddenly, it was easier to acquire a cool brand than create one from the bottom up. Witness L’Oréal’s acquisition of Urban Decay while Estee Lauder bought Too Faced. The biggest story of 2019 was when Coty paid $600 million to acquire a majority stake in previously DTC brand Kylie.
Between emails, ecommerce, social media and even print, it should be no surprise that the consumer started to get fatigued and a little fed up with all the messages coming at them. Some influencers have been called out for unauthentic posts that amount to paid advertising. Consequently, the consumer is slowing turning towards brands who champion authenticity, honesty and direct communication. Consumers want both the freedom to express their own opinion and the acknowledgement of being heard, essential factors to build a relationship with the brand.
In addition. consumers do still find joy in discovery, in seeking new brands who are innovative while bringing unexpected and useful products to market. It’s these challengers who can take risks, who still don’t need to answer to shareholders and boards who demand ROI, that are on the customer radar. Once acquired, there is a trade-off between having independence and being funded. It’s great to have someone else take care of the finances and the logistics, which aren’t really “fun”, so the founder can be left to let the creative juices flow. It’s up to the brand to negotiate the level of freedom they will keep if they take on investors.
The bottom-line though is that the industry needs the indie brands and their entrepreneurial spirit to keep fueling the future. As long as the consumer appetite remains unsated; there will always be room for solutions-driven items, cool packaging and pure product lust.