Frank Riva

Little more than a year ago, we issued a report based on our data showing that online beauty sales were up 51% from 2019 to 2020. Of course, this had everything to do with pandemic shutdowns, a rush to online shopping and retailers’ responsiveness to consumer needs. For many people, this time spelled the adoption of new approaches to wearing makeup that emphasized the eyes — the only feature fully visible when masking. For both beauty retailers and chain drug stores with strong online presence, this was good for online sales.
What a difference a year makes. Now, in our most recent 2022 Online Beauty Spotlight, we found that online sales have, if not fallen off the cliff, declined significantly. Our data showed a 14% year-over-year decline in online beauty sales across the major retailers we track on our panel, Nearly all categories saw online sales declines, many of them double-digit declines. However, in some categories and retailers there was actually a healthy uptick of in-store beauty sales.
And more good news for chain drug retailers: Despite recent pressures including supply chain challenges, tight labor markets and rising inflation, retailers are reporting continued growth in the beauty category. While we register a drop in online sales, given the overall positive increase in year-over-year earnings reported by retailers, we’re experiencing a movement from online to in-store beauty shopping.
In our own data, we also noted a market share shift away from specialty beauty retailers like Sephora and Ulta to general merchandise retailers such as Target and Walmart. Granted, some of that shift could well be shoppers buying beauty products from a Sephora in Kohl’s or an Ulta in Target. But either way, the significant online drop in prestige beauty shopping suggests that shoppers prefer the experience of purchasing makeup in-store rather than ordering online, which is spells an opportunity for brick-and-mortar retail drug chains. And no real surprise here. Most makeup users would rather experience — see, feel, smell — the actual product, versus seeing it pictured on a screen. In brick-and-mortar stores, consumers have more freedom to do color matching and testing.
Chain drug retailers have a great opportunity to get in the flow with this trend and further differentiate themselves by pairing beauty with health in the consumer’s mind — becoming the voice of healthy beauty. This can send the message to the evolving consumer that makeup is no longer about conforming, but about being the best person you can be. The decline in online can actually be turned into an on-ramp to physical store sales. How can pharmacy retailers do this?
Giving the physical store presence a makeover
There’s nowhere like the brick-and-mortar store to fully experience shopping for beauty products. Just think of the seemingly endless array of luxurious cosmetic counters that take up the ground level (or now at Saks’ flagship on Manhattan’s Fifth Avenue, the second floor) of high-end department stores. Here makeup shoppers can try a tester color for lipstick, eye pencil or shadow, or foundation; they can have a “makeover” by a makeup artist; or they can simply consult on the most appropriate products with cosmetic specialists who have been hired by the brands they represent.
While a chain drug store may not have the same floor space or classical fittings as Saks, there’s emerging evidence that a makeup counter could be an excellent way to gain more customers and increase sales. After all, even before the pandemic, pharmacies were instituting in-store mini-clinics for everything from administering shots to advising on routine health issues. Why couldn’t the same evolution occur around beauty?
Focusing particularly on healthier beauty products comprised of natural and/or organic ingredients could be drug stores’ line in to understanding the changing consumer. “Be the best of whatever you are, and fill your small job to overflowing,” wrote Douglas Malloch in 1902. One hundred twenty years later, this idea still resonates as young people wrestle with making their way onto the economic ladder and finding their identity. Cosmetics and makeup have always been a part of this identity — a part that some customers will change frequently and others will mold into a pattern that lasts a lifetime. Perhaps it’s time that the drug store soda counter transforms into the drug store healthy beauty counter.
Using online to get them to the counter
No matter what swings occur with online sales, there will always be a need for an online presence. As mentioned above, some consumers are so locked into their beauty product regimen that they don’t need to spend time in the store when they run out of something — ordering it online will always be an attractive option. And there are some categories, such as fragrance, where the issue of color testing doesn’t come into the purchase decision.
However, using the online presence as a way to entice people to come into the store will actually create more sales and cross-sales. Retailers can use their site or other online platform to clearly indicate what can be found in the store. They can link offerings to other new or complementary products, educating the consumer about available beauty products and their healthy, natural ingredients. They can offer livestreaming that is intended to be only educational or informational — a trend that’s gaining in global popularity, as a recent Coresight Research study suggests. They can put out online a makeover offer that’s only available in the store. In essence, it’s becoming a health influencer through the beauty counter, weaving health into beauty.
So the online presence becomes about much more than customers searching for and buying a product. It becomes an educational tool and, even better, a way to understand the customer. Before all that, however, online is the place where the shopper’s search starts. We’ve seen through our data that 80% of searches begin directly on a retailer’s website, for example Amazon’s or Walmart’s, replacing Google as a starting point for search.
This suggests a deepening customer loyalty to those retailers who get the search function of their sites right to discover what drives the customer to complete a purchase, and then build upon that a positive relationship. Getting out ahead of consumer trends by understanding search data can help a retailer anticipate and respond to the customer in a timely, appropriate and more personalized way. And what could be more personal than beauty products?
Getting the online content right is essential — and this is where the healthy beauty aspect can come in. Some industry data show that incomplete customer content can dissuade 98% of shoppers from completing a purchase. (Retailers can’t fully benefit from their search function if the content isn’t correct and complete.) Understanding the steps your customers take to get to the moment of purchase requires overlapping, up-to-date product information. What are they looking for? What are they responding to? As pharmacy retailers become more aware of the content customers respond best to, this will naturally expand the search function and personalize the search results, to everyone’s benefit.
Post-pandemic personalization of beauty shopping is on
By some estimates, roughly a third of chain drug store sales are in the beauty category. As online sales continue to dip, and in our estimation the sharp online growth rate seen during the pandemic is unlikely to be sustainable, pharmacy retailers are well positioned to take advantage of consumers’ return to in-store, personalized beauty shopping. It’s a beautiful, healthy moment for retailers to focus on their in-store presence and online education and marketing to meet their customers where they want to be.
Frank Riva is vice president of marketing at 1010data, a leader in analytical intelligence and provider of granular time-series data analytics and alternative data solutions for the retail, CPG and financial industries. He can be reached at [email protected].