- Pre-pandemic, stores such as Ulta and Sephora were taking beauty market share from department stores.
- As stores reopen, their capacity is restricted and people are unable to try out products.
- Beauty brands are switching to creating content online and smaller companies may start selling via Facebook Shops according to experts.
The beauty industry was in the midst of big changes before the coronavirus pandemic, with small brands using social media to challenge the bigger players and specialists like LVMH-owned Sephora taking market share from department stores.
Now the sector is also dealing with restrictions imposed after lockdowns, with customers unable to try out testers and limited numbers of people allowed in the stores that have been able to reopen.
"Buying skincare products is a very interactive process — our tiny shop is normally bustling with people trying, testing and smelling," said Bella Middleton, founder and creative director of U.K.-based Norfolk Natural Living, in an email to CNBC.
But when lockdowns were introduced in the U.K. in March, Middleton switched up the online experience, sending out free samples, re-writing product descriptions and improving images to encourage people to buy online. That got existing customers back to her website, and the brand saw an uptick in people buying her products as "missing you" gifts with people unable to see each other.
Middleton's store may be bijou, but it's part of an industry that made $500 billion in sales globally in 2019, according to McKinsey. Even during the last recession of 2008-9, sales went up 3.2%, but this downturn might be different: Although some beauty product sales are going online, it's unlikely the industry will be able to replace those lost in store due to the pandemic.
Beauty entrepreneur Rebecca Saunders sells products from more than 50 brands via her website Seekology and had to close her London store in March. "Seekology has gone from a 99% physical retail business to one that is 100% online," she told CNBC in an email, and this has meant a "significant" challenge to sales. The store was the brand's main marketing channel, where Saunders held events, and she doesn't expect to be able to reopen for a few months at least.
It's a trend that has also shown up in data from retail consultancy Stellar, which surveyed 300 U.K. consumers online in March and discovered that 85% would be "encouraged to buy a product" after an in-person demonstration. "Digital disruption has brought huge changes to the beauty industry, and with Covid-19 changing the retail landscape even further, nothing prepared beauty brands and retailers for an unprecedented metamorphosis of consumer habits," during the pandemic, according to Stellar founder Anna Brettle in an email to CNBC.
Without the in-store experience, she has seen beauty brands experiment with content such as Instagram Live videos and online masterclasses during the pandemic — methods that beauty writer and influencer Laura Pearson-Smith also advocates.
"I've been trying to create content that makes people's lives easier during lockdown and gives them something to watch," she told CNBC by phone. She has used IGTV, Instagram's video platform, to do skincare and makeup tutorials for do-it-yourself beauty treatments such as eyebrow "lamination," a process that can cost around £50 ($63.49) in a salon.
DIY beauty was also a trend during the last recession. Between 2001 and 2010, 18% of U.S. launches in the personal care category focused on professional-style beauty products people could use at home, according to data from IRI. For example, Olay's Professional Pro-X skincare product was one of the top launches of 2010 in the non-food category, selling nearly $50 million in its first year across U.S. retailers (IRI's data excluded Walmart sales).
One way that brands promote new products is to gift samples to influencers in the hope that they will feature them in their photos or videos, but that's slowed down significantly, Pearson-Smith said. That's partly due to supply chain issues, and a lack of goods to sell in the immediate term might mean a focus on closer relationships with consumers. "The only way they are going to recover from (the pandemic) is to continue to be really customer-focused … and allow customers to connect with the brands through things like (online) panel discussions and tutorials," Pearson-Smith stated.
Large businesses have also had to contend with a digital pivot, such as Ulta Beauty, which had to temporarily close its more than 1,200 stores to mitigate against the coronavirus outbreak in March. It launched curbside pickup for orders at more than 800 stores and when some of its outlets opened last month, masks were required, product testers were made unavailable and fewer people were allowed in, per a blog post by its CEO Mary Dillon. During the first quarter, however, net sales decreased 32.7%, due to the virus.
But there may be more positive news ahead. Analyst firm Piper Sandler was optimistic on Ulta, upgrading it to an overweight from a neutral in a note earlier this month — in part due to people spending more when they shop online. "We see green shoots for the industry (skincare, haircare) on the other side of CV-19 and see ULTA's digital ecosystem as fueling higher average spend per customer," it stated.
And the rise of online beauty — with brands like Estee Lauder's Bobbi Brown brand and L'Oreal-owned Lancome introducing virtual "try ons" for products — might be the start of an "exciting" future for brands, according to Lucy Hawkes, e-commerce director at consultancy OMG Transact. Businesses will rely less on grand department store beauty halls and more on their own websites and Hawkes cited Facebook Shops as a way for beauty brands to sell to people directly through their Facebook or Instagram accounts. "Social media channels will need to be an extension of a customer's buying experience, which can encourage seamless transaction journeys from 'like' to cart," she told CNBC by email.
—CNBC's Michael Bloom contributed to this report.