Indie Brands - Catalysts For Growth

April 09, 2017

Indie Brands - Catalysts For Growth

By Elisabeth King

The battle between beauty’s behemoths and niche players is coming to a rolling boil.

That was the first line of a Women’s Wear Daily article in 2006, and the comment was old hat then. Niche beauty brands have been spicing up shelf space in earnest since the mid-1990s for many of the same reasons retailers stock them today. To help differentiate product lineups from the competition, to target certain demographics and to supply higher profit margins. Ten years ago, the major multinationals were also snapping up smaller brands with a point-of-difference and continue to do so.

In 2007, 25 per cent of sales in the US prestige beauty market came from niche players. A statistic that also confirms that 75 per cent of prestige beauty sales were driven by mainstream brands. The beauty industry remains highly concentrated reports A.T. Kearney, the global management consultants. In both the mass and prestige segments, the top three multinationals account for a 40 to 50 per cent global market share in nearly all categories. The other half of the market is extremely fragmented, with a large number of brands. Even in Sephora, the poster retailer for nurturing niche brands, over 50 per cent of shelf space is filled with the beauty retailer’s private label products - a lineup of 700 SKUs - and brands belonging to its parent company, LVMH, the world’s largest luxury goods group.

Four Defining Factors

But the New Indies, as niche brands are frequently called today, are a different proposition from their predecessors. They remain top acquisition targets, such as the buyouts of Too Faced by Estée Lauder and IT Cosmetics by L’Oréal, for different reasons, too. A.T. Kearney defines New Indies by four key factors.

Focus: They don’t try to be all things to all consumers and cater to the specific needs of a niche audience.

Engagement: They attract consumers to the brand through innovative and authentic ways that allow them to drive and be part of the brand.

Purpose: Emphasising the core values of the target market from family or community to social and sustainability issues.

Channel To Market: Selling through speciality retailers or e-commerce. The last factor is blurry because department stores, mass retailers and drugstore and pharmacy chains worldwide have long been and continue to be major suppliers of niche and indie brands.

Social Media - The Key Game Changer

But the game-changing support for niche brands that wasn’t available 10 to 20 years ago is social media. Up until recently, it was tough for emerging brands to break through. They didn’t have the big ad budgets of the major beauty players. Instagram, Snapchat, YouTube and Pinterest enable small and niche brands to compete on a level playing field with their multinational counterparts.

Social media also allows consumers to see microtrends and buy online. A fast-track route that is helping niche brands hit the $100 million turnover market at a much faster rate than even a few years ago. The audience is also global. Beauty fans don’t have to wait until local legacy or social media tell them about a new product or brand. A trend that is an enormous help to retailers as well because they can track interest and demand in new brands.  According to US research, 52 per cent of heavy buyers of cosmetics use social media in making purchasing decisions.

Natural, Personalised and Independent

The rise of natural and organic beauty has benefited niche and indie brands on a large scale. Research shows that nearly 50 per cent of Millennials look for organic makeup, hair and skincare products. Many of the New Indies are concentrated in the natural sector.

The customisation trend has also given indie and niche brands a leg-up because they don’t have to manufacture on a huge scale. The personalised approach to beauty allows smaller brands to offer a particular - not generalised - expertise in eyebrows, foundation and more and still build a viable business.

Independent brands semaphore - “I’m different” - to Millennials and Gen Zers who want something unique, whether they are choosing a high-end brand like Urban Decay or a value-oriented one like e.l.f. The intriguing colours and names, out-of-the-box packaging and service of the New Indie brands have huge appeal to younger women.
Niche players can also react faster than the bigger companies. They can experiment in selected doors to come up with exciting promotions that have higher-than-average sell-through for SKUs.

Authentic and Multicultural Catalysts For Growth

Many niche and indie players fantasise about being acquired by a multinational or becoming a global sensation. But for every M.A.C, Bobbi Brown and NYX, there are dozens of brands that fail to make the grade. The global cosmetics industry is seeing a strong wave of acquisitions because major companies such as Estée Lauder and L’Oréal are looking for expansion in alternative channels and as a catalyst for growth because their core brands are mature. With consumers worldwide continuing to make a shift away from the department stores that haven’t created discovery zones, the multinationals are looking at brands that offer leverage through TV shopping channel, travel retail, e-commerce and speciality retailing.

One of the other reasons cited for the success of New Indie companies is that their storytelling is part of the brand. Again, nothing new here. Generations of women dreamed of being the next Elizabeth Arden, Estée Lauder or Helena Rubinstein. But their lives weren’t tracked on a daily or weekly basis. Many successful niche brands shine the spotlight on their founders, inviting consumers to explore the brand through social media and campaigns that offer authentic, two-way communication.

Tapping into specific demographics apart from Millennials has also been a major springboard for the New Indies. In the Third Annual Beauty Study by TABS Analytics in the US, Millennial and Hispanic women are the heaviest buyers of cosmetics and skincare. “Millennial and Hispanic women are the clear drivers in the beauty market and account for 60 per cent of all sales”, noted Kurt Jetta, TABS Founder and CEO. “Both groups are steered by social media. Even mass retailers such as Walmart and Target have boosted their already strong performance in cosmetics by the addition of mass niche brands that appeal to both groups”. A similar scenario is present in Australia with the impact of Asian buyers - locals and visitors - and other key ethnic groups across prestige and mass.
The rise of multicultural beauty has increased beauty sales globally because of the availability of wider shade ranges in nearly every colour cosmetic category. Nude no longer means just Caucasian skin. Different ethnicities prefer different skincare textures and many indie brands, notably from Korea and Japan, cater to these tastes.
Niche fragrances are also on a huge roll because they give men and women the opportunity to come back to traditional perfumery and wear a fragrance that nobody else has. Last year, approximately 41 per cent of global fragrance launches were classified as niche.

The explosive growth of speciality retailers such as Sephora, Ulta and Mecca Cosmetica is due to store layouts and brand assortments that are aligned to the tastes of their core customers. Millennials, in particular, approach buying beauty products as a journey of discovery. All three speciality retailers carry a selection of under-the-radar brands which bolster the popularity of New Indie brands with younger consumers. According to Karen Grant, global beauty analyst for the NPD Group, Sephora has been the fundamental change agent in the industry. “It shifted the dynamic from the traditional brands to kind of being a laboratory”.

Plenty of others have picked up the baton, including Target, Priceline, David Jones and Myer. Inexpensive niche brands such as BYS and e.l.f are far more numerous than they were a decade ago and allow mass retailers to get out of selling commodity products at discount prices.

While the New Indies have become a major catalyst for growth, they aren’t a licence to print money. According to Julie Tomasi, Senior Vice President of Ulta, the largest speciality beauty retailer in the US ahead of Sephora, the company doesn’t add a niche brand without ensuring it has a solid chance of success. “We don’t want brands that cannibalise existing business”, she adds. A salient point when there is so much duplication of trends and products among indie brands.

But even though it gets so much publicity - the hipster effect - where heavy cosmetic buyers avoid mainstream brands and outlets, is only a segment of the local and global beauty market. In another TABS survey, mainstream brands still have a colossal edge in brand awareness and are frequently viewed more favourably than indie brands. Loyalty for a niche brand is often based on product performance, not brand imagery, and that’s where social media delivers the message and the sales.

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