The Supply Side: Battleground emerges for online beauty product sales

In January, market research firm NPD Group estimated the U.S. market for beauty sales rose $78 million from the prior year. But by March, as consumers began working from home and college campuses were vacated, the sector posted a sales decline of $1.4 billion by the end of April.

The high-margin beauty category has been one of the fastest-growing for online sales since the pandemic hit the U.S. in March.

NPD also found that beauty sales totaled $2.8 billion in the second quarter, down 36% from the year-ago period. But the category also recorded a 90% spike in online sales in the second quarter. Online sales made up about 61% of the total category sales in the period. As of the second quarter, NPD said online comprised 70% of the market share for the category.

While the online growth has exploded, the category overall experienced a 25% drop in sales over the first half of the year. Makeup sales sank, but body, skin and hair care products proved to be more resilient as consumers spent more time at home.

“Many bright spots remain despite the continued struggle in prestige beauty, which has been one of the hardest hit industries in 2020,” said Larissa Jensen, beauty industry adviser at NPD. “While online sales have been strong, the success of brick-and-mortar remains a key factor in the industry’s recovery. This channel dynamic is one to watch closely. Agility will be important in developing a winning strategy for the holidays, which may look very different this year.”

New data from e-commerce marketing firm PriceSpider found the health and beauty category easily beat all others for growth during the pandemic, with 173.5% year-over-year online growth in the third quarter.

PriceSpider reports Walmart is leading in the online beauty category over Amazon. The Bentonville-based retail giant lowered its prices to match those with Amazon over the past year. A separate report from Profitero found Walmart’s online beauty prices declined 8% from a year ago and were virtually dead-even with Amazon moving into the holiday season.

PriceSpider found Walmart took $36.7 billion in the category online and in-store in 2016, rising to $42.5 billion in 2019, which was 5.4% of total consumer spending. Amazon started from behind with $8.3 billion in beauty sales in 2016, but that grew to $19.4 billion by 2019 and was 2.5% of the category spend. This year the gap narrowed. Amazon posted $6.5 billion in beauty sales in the second quarter, up from $4.4 billion a year ago. Walmart had estimated beauty sales of $11.6 billion in the second quarter, up from $10.6 billion last year, and was 6.2% of the consumer spend in the category, according to PriceSpider reports.

Amazon’s strategy has been to sell higher-end products like Crest Whitestrips, which retail for $44.95, while Walmart.com is more focused on value-conscious shoppers featuring shampoos and conditioners under $10. Walmart’s best sellers online match up with what’s offered in stores as more consumers are making online orders that are picked up at stores. Amazon’s strategy seems to be a focus on higher-margin items to offset the cost of shipping.

Three years ago, Walmart reset its beauty department in around 4,700 U.S. stores. Jody Pinson, Walmart vice president of merchandising for beauty, said last year that in the first six months of 2019, the retailer added more than 1,000 new items to its beauty department. She said Walmart worked to bring brands to consumers in ways that are easier for them to shop. The revamp included creating more web content around beauty on Walmart.com. She said content creation is essential as the retailer does not employ consultants to work in its stores. Pinson also said consumers are shifting toward natural products, and that’s been a focus on new products.

The COVID-19 pandemic continues to reshape how consumers shop for everything, including beauty products. Ahead of the pandemic, in-store sales accounted for up to 85% of beauty product purchases. The savviest of consumers, such as Millennial and Generation Z shoppers (born between 1980 and 1996), still bought 60% of beauty products in stores ahead of the pandemic.

A report by management consulting firm McKinsey & Co. found that 30% of the beauty industry was shuttered this year amid the pandemic. Some stores will never reopen, given more business is now online.

Analysts with retail consultancy Kearny said just because consumers are stuck at home doesn’t mean they don’t care about looking their best from the waist up as they spend time in virtual meetings. Kearny analysts noted that as many non-essential beauty businesses and stores were shuttered, consumers turned to Walmart, Target and Walgreens for beauty items, picking them up in stores and ordering online.

Jensen said face masks have become a new normal in the U.S., which is also impacting beauty sales. She said 31% of consumers are planning to give masks as stocking stuffers this holiday season. She noted that protective face masks emphasize the wearer’s eyes by covering the nose and lips. Consequently, dollar sales of lip makeup declined faster than all other makeup products year-to-date through September versus last year. Under the mask, she said setting sprays, which may help consumers solve the problem of keeping makeup in place, grew by an average of 9% during the pandemic peak.

“While protective face masks focus attention on the eyes, we still want to keep the rest of our face looking good for when the mask comes off — not to mention keeping the mask itself free of smudges,” Jensen said. “Masks have elevated the categories that address the consumer’s new set of needs.”

EDITOR’S NOTE: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.