In the first half of 2020, beauty sales declined by 10-30%, but the sector is recovering.1 This recovery can largely be attributed to the growth of online sales.
Precrisis, ecommerce accounted for 20% of the us beauty market; mckinsey estimates that penetration could accelerate to 35% in 2021.2
Beauty’s Digital Makeover in 2021
The global pandemic accelerated the beauty industry’s move to digital by “a decade in days” as brands recognized ecommerce as an essential channel.3 For many shoppers, the move online is a permanent one, with one-third of US consumers planning to permanently make ecommerce their primary purchase channel for beauty.4
In 2021, ambitious beauty brands and retailers are looking for a reasonable path to recovery that embraces this continuing shift and enables them to offer their over-the-counter services online. Brands who already had an ecommerce channel, or who set one up quickly in 2020, were better equipped to mitigate the effects of COVID on their business. So too were those with a geographically diverse offering. Many brands that embraced cross-border ecommerce saw impressive results as demand popped up in unexpected markets. Taking advantage of this momentum is imperative for brands to recover. The challenge for beauty brands, however, will be navigating the cost and complexity of these changes while maintaining brand standards and a high level of customer service. Brands need a solution that will enable rapid entrance to new markets, offering a domestic-equivalent experience that is personalized and friction-free. These brands will be in a better position to recover from 2020 and weather future economic uncertainty.
The Global Growth Opportunity
Cross-border growth has accelerated beyond all expectations.
Cross-border ecommerce was a $175 billion market in 2018 and was on track to grow to US$423 billion by 2023. It is now projected to make up 17% of ecommerce in 2023, with sales of US$736 billlion globally.5
McKinsey predicts that the ecommerce share of the global beauty market will effectively double from just over 10% in 2019 to almost 20% in 2021.7
That means, in an industry that now sees sales in excess of $500 billion, this year’s online beauty market could be worth over $100 billion.
CASE STUDY: A Global Beauty Brand Optimizes the Shopper Experience with ESW
This beauty brand was working to harness the potential that cross-border ecommerce held for their business. And while they had been meeting demand with a vendor that provided basic international shipping capabilities, the customer experience was sub-optimal and logistics inefficiencies were strangling growth. The brand partnered with cross-border ecommerce leader ESW to improve the shopper experience and focus on expanding their international footprint.
ESW worked to ensure their global shoppers would have a domestic-equivalent brand experience, localized to make both checkout and package delivery smooth and seamless. ESW’s check-out integration with Salesforce enabled the brand to offer localized pricing in all markets, eliminating surprise charges at checkout.
ESW’s global footprint meant they could satisfy the brand’s younger customers’ demand for installment payment solutions like Klarna and Afterpay in key markets. It also helped the brand to make shipping times more predictable and reliable by leveraging ESW’s direct relationships with networks of local carriers in tricky markets. This meant the brand could re-open previously closed countries like Mexico and Russia that had presented too much complexity, which restored $2-3Million in annual revenue for the brand. On the flip side, ESW also advised the brand to close other countries in which the volume of orders did not justify the investment. One of the biggest challenges for the brand came from their extremely popular mix and match sale. It required a high level of logistical expertise because it meant a potentially unique product package for each individual customer.
With the increase in available payment methods and better overall customer experience through ESW, their most popular sale generated 34% higher revenue in 2020 vs. 2019, and a 51% higher average order value (AOV).
Before their partnership with ESW, the brand’s customer service team was flooded with calls and emails with questions about duties and taxes, as well as customers checking on orders that were past their promised delivery dates. ESW’s order API enabled data flow between their system and the brand’s for order cancellations, returns, and replacements, which meant more accurate communications and quicker resolutions of shopper issues. Eighty-one percent of those inquiries are now resolved during the first touch. After ESW’s logistics optimization, estimated delivery dates became more predictable and accurate, which has reduced customer service inquiries to less than 1% of all orders.
2021 Beauty Ecommerce Trends
After a year of social distancing, consumers in all demographics have become more confident purchasing online, in many cases regardless of geography. In a December 2020 global survey, 68% of consumers had shopped cross-border in the past six months. More than half of those (52%) had made six or more purchases from a website outside their own country.8
Beauty brands can capitalize on this growth by building localized ecommerce experiences in key markets.
Without ready access to in-store shopping, and with the heightened need for contactless transactions, many consumer behavior trends that accelerated as a result of COVID are here to stay.
Click & Collect transactions represented 8.2% of ecommerce sales in 2020, up from 6.1% in 2019, and accounted for 20.4% of total US ecommerce growth.9
The retail industry is responding by shifting towards more holistic strategies that acknowledge consumer interactions across entire retail ecosystems, blending offline and online channels into an omnichannel strategy in which all consumer touchpoints hold equal weight. Stores will no longer serve solely as the end point in the supply chain, instead taking on roles as fulfillment and try-on centers.
Even if the final purchase is made in store, there is a high chance that consumers of all ages will browse or research their purchase online.
This is true for Millenials and Gen Z in particular with over 70% of consumers in each cohort stating that online channels would play a part in their purchase journey when buying cosmetics, either to browse or make the final purchase.10
The challenge will be to ensure that customers are getting the same level of service online that they have come to expect from brick-and-mortars. The most responsive retailers will adapt in-store shopping to meet changing consumer demands, while simultaneously embracing online to develop a smooth omnichannel experience for their customers that is consistent and personalized.
59% of us online shoppers think it’s important for a retailer to offer the ability to buy online and pick up instore.11
As shoppers are unable to consult with retail or beauty specialists face-to-face, they are seeking expertise from brands, influencers and their fellow consumers. Social feeds have replaced the “trip to the mall.12
Livestream shopping is becoming increasingly popular with both shoppers and brands, enabling consumers to purchase products directly from livestreams hosted on major social media platforms. Hugely popular in China, it is gaining traction worldwide, with global livestreamgenerated sales expected to double to $120 billion in 2021.13
Social commerce presents a significant opportunity for the beauty industry. Beauty brands have been among the earliest to embrace new social platforms, with some even investing in technologies to drive social commerce at scale.14
FLEXIBLE PAYMENT OPTIONS
Installment solutions are expected to triple over the next 2-3 years due to affordability and predictability.16 They are especially popular among Millennials and Gen Z, who are twice as likely as older generations to expect flexible payment methods.17
More than 3 in 5 consumers said sustainability was a factor in purchase decisions in a May 2020 McKinsey survey. The events of 2020 propelled the rise of the socially conscious shopper. Issues such as employee working conditions and a brand’s environmental impact became factors in the buying decision for many consumers. In addition to using clean ingredients and implementing ethical practices, retailers can work to reduce emissions through:
Working with an expert provider can ensure that you are able to meet global demand for your brand’s products while minimizing environmental impact.
CONTINUED CATEGORY SHIFTS
Demonstrating the industry’s resilience in tough economic times, demand for beauty products has not diminished entirely, but rather shifted to new categories.
As of May 2020, prestige brands were seeing declines of 55% to 75% in cosmetics and fragrance purchases.18 This is unsurprising given the nature of work from home, social distancing, and mask wearing, which is ongoing in most countries.
In contrast, sales of self-care products increased dramatically as consumers prioritized wellness. Anti-aging creams and products, one of the segments with continuous growth, is projected to record a 3.8% CAGR and reach $51.8 Billion by 2027.19
ESW’s recent survey supported these predictions with 74% of consumers purchasing skin care in the last six months, and only 61% of consumers buying cosmetics.20 With many consumers around the globe unable to access salons (or choosing not to visit because of safety concerns), DIY beauty products such as nail-care, hair color, and beauty and body products have also seen dramatic growth.21
SHOPPERS SWAP OUT HIGH MAINTENANCE BEAUTY FOR DIY PERSONAL CARE22
In an effort to personalize the online shopping experience, virtual sampling technologies are growing in popularity. Brands have seen usage of virtual tools like Perfect Corp. increase 32% since the start of the pandemic.23
Beauty brands are also seeing success by implementing what is effectively a virtual beauty counter. Live chat platforms such as Hero utilize the expertise of employees even during store closures by facilitating live virtual appointments for customers. In an industry that is all about personalization, online customers who shop via these platforms are up to 15 times more likely to make a purchase versus those who don’t.24
Millennials and Gen Z dominate online shopping for skin care and cosmetics. They are buying these products out of country as much as three times the rate of baby boomers.25 As these cohorts continue to grow in influence and reach higher levels of wealth, it will be even more critical that brands offer an engaging digital shopping experience.
Unlock Cross-Border Demand for Your Brand: A To-Do List
- Identify your most profitable markets and find a way to scale them. Can you optimize current markets, or are there regions where you are receiving web traffic but currently not set up for ecommerce?
- Look at your shopper experience in existing markets and identify ways to optimize it. Can you add more local payment options? Better local shipping carriers? A more transparent shopping experience that doesn’t surprise shoppers with duties or other fees at checkout?
- Build internal teams as well as partnerships with multiple vendors to handle cross-border complexities, including local demand generation, omnichannel, compliance, payment, returns, and customer service, while maintaining a consistent brand experience across markets.
Partnering With a Solution Provider is the Fastest, Most Cost-Effective Way to Achieve Your Goals of Cross-Border Expansion
ESW combines innovative technology, deep expertise, local knowledge, and global infrastructure to create frictionless shopping experiences in over 200 markets.
1, 2 McKinsey
4 Business of Fashion
6 ESW Data
8 ESW Global Voices Survey
13 National Retail Federation
16 Business of Fashion
20 ESW Global Voices Survey
23 Washington Post
25 ESW Global Voices Survey