By Elisabeth King
Opening standalone stores is a well-worn path in the cosmetics industry that receives cyclical boosts of energy. The tactic doesn’t always work, though. In 2009, the CVS drugstore chain in the US announced the launch of separate-entry upscale beauty speciality stores called Beauty 360. Billed as a new concept that would redefine the beauty shopping experience by providing customers with access to prestige and lifestyle brands as well as an unparalleled level of service, the initial plan was to open 50 stores. Because of fierce competition from Sephora and Ulta, CVS had only debuted 25 before the chain shuttered the business three years later.
Kline & Co analyst, Ewa Grigar, warns that standalone beauty boutiques are not a ticket to immediate success. “Companies that cannot maintain a high level of innovation and keep up with the essential amounts of interactivity and overall exciting experience are doomed to lower engagement and sales”, she says.
She should know. Grigar recently guided the researcher’s new report - Boutique Beauty Retailers: Channel Analysis and Opportunities. Boutique beauty stores are set to continue a high growth trajectory is the major takeaway. Vertically-integrated speciality stores offering immersive single brand experiences with unique concepts, a fun environment and knowledgeable staff are strongly attracting Millennials and Gen Zers. “It’s almost like a cult”, says Kelly Alexandre, a key analyst for the report. “The followership is often buying into the exciting concepts of these stores more than the products themselves. The success of such stores depends on whether brands can keep up with the pace of younger consumers’ digital needs”.
A more commercial reason why many brands are opening standalone stores is to reduce their dependence on department stores, notes Euromonitor International. Brands that have become dependent on Sephora, the world’s largest speciality beauty retailer, also need to branch out. Over 50 per cent of Sephora’s shelf space is taken up by its private label brand and brands owned by its parent company LVMH, leaving hundreds of brands to battle it out for the other half.
E-commerce is one of the fastest-growing channels in beauty sales, but it has limitations. Buyers can’t access personal guidance or try on products, potentially reducing impulse buying. All the questionnaires in the world can’t make up for strong relationships with customers developed in bricks-and-mortar stores.
Many of the same reasons why freestanding stores, single brand boutiques and speciality chains like Sephora and Ulta successfully built on the groundwork laid by The Body Shop and Bath & Body Works in the late 90s, are also behind the latest boom. The most obvious pluses are total control over image, merchandising, service, increased visibility and brand awareness. Standalone stores also serve as a form of advertising for brands that don’t advertise or have small budgets. Inglot, the professional makeup brand from Poland that now has hundreds of concept stores worldwide, including Australia, is a classic case in point.
Another major benefit is that beauty boutiques reach out to a different type of customer than those who shop at department stores. A divide which has been around for about 20 years, but is more crucial today because of the different expectations of younger consumers. Freestanding stores are also invaluable to brands for road-testing new concepts, merchandise and products.
As CVS discovered with its ill-fated Beauty 360 concept, standalone beauty boutiques aren’t for every beauty player.
A brand needs a strong concept like L’Occitane, the French prestige brand, which chose to set up its own network because in the early days it was too small to access prime retail space in international department stores. Finding the right location with the right target demographic isn’t that easy, either. Standalone stores can take up to two years to make a profit. That’s not an issue for brands owned by large multinationals such as Estée Lauder and L’Oréal, but it can make or break smaller brands without the financial clout of a wealthy parent company.
The current strength of the beauty boutique segment is epitomised by NYX Cosmetics. When L’Oréal bought the brand in 2014, it was an online only company. Within a year, NYX opened 20 standalone stores, driving a sales increase of 400 per cent in 2016. “NYX is a fashion brand, sold in an entertaining retail environment equipped with digital screens and item scanners for product-engaging activities”, says Ewa Grigar. “This is very important for young consumers who are surrounded and very much influenced by the world of selfies and instant fame. NYX provides a space for those individuals where they can feel good about themselves. At the same time, affordable prices make the products even more attractive to a wider range of consumers. Feel good/look good is today’s Yin and Yang of the world of beauty”.
NYX also leads a growing trend for inexpensive beauty brands to set up shop. The Italian brand Kiko Milano and the US brand e.l.f are other value brands that have become hugely successful through launching standalone stores and boutiques. According to John Bailey, President and CFO of e.l.f – “Each new opening helps us fulfill our mission to make luxurious beauty accessible for all women to play beautifully”.
Estée Lauder has a strong track record in opening standalone stores for key brands in its stable, notably Origins, Jo Malone and M.A.C. But last November, the multinational debuted its first store for its core brand aimed at Millennials - the Estée Edit - in London’s Carnaby Street. Across the English Channel, the first L’Oréal Paris branded store opened its doors in the French capital in September. A tourist attraction in its own right, the glamorous space showcases the full collection of products and digital expertise of the French giant’s hero brand.
Chanel, Dior and Burberry are just three of the illustrious prestige names who have debuted high-tech beauty boutiques around the world. In late December, L’Occitane premiered the first of its new experiential boutiques in the Flatiron district in New York. The multi-sensory boutique is the first of such flagship stores and features the L’Occitane Smart Beauty Fitting Room, which allows customers to browse products from “a physical and sensorial product shopping experience”.
Many South Korean brands focus mainly on distribution through standalone beauty boutiques, notes Kline & Co, including The Face Shop, Innisfree and Skin Food. AmorePacific, the Southeast Asian country’s biggest beauty player, has opened 70 Aritaum stores in the US and Canada to introduce North Americans to its “champion” brands, including Laneige and Sulwhasoo. More boutique are in the pipeline to take advantage of global interest in K-beauty.
Even chains that already have huge market penetration such as Sephora, Bath & Body Works, Lush and Ulta, the number one specialist beauty retailer in the US, are rapidly expanding their networks at breakneck speed. Strategic growth strategies springboarded by new brand acquisitions, increased awareness, loyalty programs and a personal connection that buying online can’t deliver.
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