With more prestige beauty brands joining its ranks in recent months, Amazon has been leveling up in beauty in a big way and challenging established retail leaders Sephora, Ulta Beauty, Target and Walmart for customers’ dollars.
Estée Lauder Cos., a long-time Amazon naysayer, placed Clinique and Too Faced Cosmetics on the e-commerce giant this year shortly before L’Oreal-owned Kiehl’s launched on it. Chasing scale, the prestige brands are looking to draw customers increasingly searching for products on the platform, which is running its deal event Prime Day on Tuesday and Wednesday.
According to performance marketing agency Tinuiti, 37% of shoppers in the United States started their beauty product searches on Amazon in February last year, outperforming Walmart at 23% and other retailers’ websites at 9%. Last year, over 100 million customers visited Amazon each month, and it has over 230 million customers in the U.S.
Sephora and Ulta still reign supreme in brand curation and reputation, but Amazon’s prestige beauty moves are intensifying the race for dominance in the beauty retail sector. By next year, the e-tailer is forecast to become the largest U.S. beauty retailer, accounting for over 14% of beauty market share to Walmart’s 13%.
In a recent consumer survey conducted by investment bank TD Cowen, 34% consumers identified Amazon when asked where they’d purchased beauty products in the last 30 days, Combined, 36.8% responded they’d purchased beauty products at Sephora and Ulta during the same period.
While most beauty brands have concluded selling on Amazon is a necessary step, at the very least as a strategy to repel unauthorized sellers, retailers are fighting back from weaker positions. Sephora tries to hold brands off Amazon in its agreements with them, and retailers are leveraging exclusive products or bundles that brands don’t place on Amazon.
Amid Amazon’s beauty territory grab, we have been wondering what effects it may have on the beauty retail landscape. To dig into that topic, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked nine retail consultants, brand strategists, investors and brand founders the following questions: What does Amazon’s rise in beauty mean for the future of the industry, especially as prestige beauty brands continue to jump on it? If you were operating a beauty retailer, what would you do to fend off competition from Amazon?
-
Tina Bou-Saba Investor I agree that Amazon has gotten a lot stronger in the beauty category over the past couple of years. Premium beauty brands are launching on Amazon not only as a defensive move against unauthorized third-party sellers, but also as a way to expand consumer reach and boost convenience. Clinique's recent launch on Amazon's Premium Beauty store is a good example of this strategy.
I think that Amazon's growth in this category meaningfully impacts the competitive dynamic amongst beauty retailers. This is already a fiercely competitive and highly promotional space. Amazon may make it even more so.
If I were operating a beauty retailer today, I would be laser-focused on providing an outstanding in-store experience, including excellent customer service and potentially beauty services. Amazon can't compete with that.
I would ensure that my loyalty program was highly compelling in order to drive sales through my stores and website, especially for repeat purchases. I would also emphasize exclusive brands and products that are not available on Amazon. Customers love limited editions and cute bundles, for example.
We may see some retailers give preferential treatment such as marketing support or in-store placement to brands that are not selling on Amazon. I am not recommending this. Such a strategy would have significant trade-offs for both the retailer and the brand. But it is a competitive move that some retailers may pursue in order to more aggressively compete against Amazon.
- Cristina Nuñez Co-founder and General Partner, True Beauty Ventures
While we are still in the early stages of Amazon’s ascension in beauty, its significant market share gains in the category have certainly solidified Amazon’s position as a dominant player in the beauty industry. Known for convenience and value with a lucrative, higher income consumer with the propensity to spend in beauty, it is no surprise to see the growth in premium beauty marketplaces and indie beauty brands on the platform.
We have also observed in the last year the ability Amazon has to threaten the e-commerce businesses of beauty retailers such as Ulta and Sephora with the success of Amazon’s shopping events, where beauty is one of the top performers, and its dominant “convenient to purchase” power.
While there is no stopping the Amazon wave, beauty retailers can still find ways to win by leaning into their beauty specialty superpower. From brand curation to product discovery to premium and indie brand offerings, beauty retailers can leverage their omnichannel strategies as most beauty purchases still happen in store.
For example, Sephora and Ulta have the advantage of being able engage deeply with their millions of beauty loyalists and enthusiasts and better target messaging to their customers. There is also an opportunity to further elevate their customer experience online, from virtual try-ons, skin diagnostics, product education and more.
Time will tell who will win in this beauty battle, but one thing is for sure: The Amazon wave is not only coming, it’s already here.
- Joel Palix Founder, Palix Unlimited
Amazon is now a worldwide retail giant with the unfair advantage of having other more profitable activities such as Amazon Web Services. It is an illusion to believe you can compete on prices against such a player.
Amazon also dominates in logistics through volume and the Prime program which offers unique advantages to consumers, some of which have nothing to do with retail such as Prime Video.
Amazon was historically poor in its beauty range and merchandising, but has been making great efforts in better presenting its beauty offer and attracting prestige brands. The battle to win over large beauty groups is almost won, at least in the U.S. The recent involvement of Amazon in helping Saks buy Neiman Marcus is a strong strategic move to get easier access to the most exclusive fashion and beauty brands.
Until the Amazon empire is broken by regulators—it always happens at some point in all industries in the name of defending consumers rights—best bet for beauty retailers is to offer a well-oiled omnichannel journey, the way Sephora or Ulta do it, or play the hyper specialization à la Credo or Thirteen Lune.
I believe there is a lot more that can be done in helping consumers navigate the jungle of beauty products through a combined AI and human interface. Pure beauty retailers still have a better understanding of their consumers and can offer an unrivaled experience if they listen to the constantly changing needs of their consumers.
- Taylor Barry Co-Founder, Brand Uncover
The evolution of Amazon in the luxury beauty space has been interesting to follow. The inclusion of brands that fall under Estée Lauder Cos. and L'Oréal on this platform are a testament that these organizations are positioning themselves where the customer shops. Not only is it a replenishment tool for existing clientele, but when you think about the customer's journey in brand discovery, there are a multitude of ways to find new products.
Social commerce is an incredible tool, especially with the younger consumer. Resources like Amazon Live and TikTok Shop continue to gain tremendous momentum, creating opportunities for social selling to increase conversion for featured brands, including luxury. This personalized connection offers a high-touch digital experience that makes the path to conversion much easier, but that still does not imply that all luxury beauty brands belong on a platform like Amazon.
To maintain market share, beauty retailers should look at the conveniences that Amazon brings—a user-friendly website, fast shipping times, and now this personalized approach to social selling. At baseline, retailers should also work to accommodate these fast ship times and user-friendly experiences.
The differentiators can include their version of personalized customer experiences as well as assortment by the inclusion of premium and emerging brands that cannot be found on resources like Amazon.
- Susannah Dellinger Founder and CEO, Bright Beauty Collective
Beauty brands and retailers need to understand that omnichannel selling is the new reality, whether that is Amazon or the beauty brands’ own direct-to-consumer platform. But what retailers can provide that dot-com just can't is an engaging and memorable moment of true connection.
At Bright Beauty Collective, we know the power of personal connection and believe deeply that retail should be an experience, not just a shelf. Beauty retailers who can create experiences for consumers inside and outside of their shops are the ones who earn customer loyalty and will be able to compete with the growth of digital beauty shopping.
With remote work and hustle culture at a peak, it's no secret that our country is facing a loneliness epidemic. As much as we all love the convenience of online shopping, people are craving experiences, human engagement and simple joys.
Retailers that find ways to build community locally, give a moment of self care, and provide something more interesting than a standard wall of neatly merchandised product will not just survive but also thrive. Beauty shoppers want to learn, create, and above all else have a little fun.
Retailers that are open to and find innovative ways to engage customers with activations and animations and provide unique platforms for brand storytelling and education will see huge loyalty from both brands and customers. And let's be real, people who love beauty products want to be seen in real life wearing them.
It's just like fashion. Brick-and-mortar isn't dead. We all want to be seen out in the world. It's just constantly evolving.
- Aaron Chatterley Co-Founder, Indu and Feelunique
Even at my days with Feelunique I always felt there was a certain inevitability around Amazon’s place in the beauty retail landscape. For premium brands, while there’s clearly a strong focus on protection of brand equity and distribution by owning that environment within Amazon, it is also very clear that it’s a channel that many consumers are drawn to for ease of use, trust and virtually guaranteed service.
As history tells us, the beauty retail landscape always has and always will continue to evolve. We’ve seen that happen dramatically in the U.K. over the last few years with the closure and consolidation of department stores and the evolution of e-commerce retail, most notably with the hugely successful launch of Sephora UK as they acquired Feelunique, and the U.S. is certainly seeing similar change now.
I think the positive though is that consumers are very much in-store again despite pandemic scaremongering and multi-brand retailers that are truly omnichannel and have wide distribution are well placed to take the lion’s share of the beauty retail market as only they can provide the real theatre, environment, choice and education that customers need.
- Sarah Broyd Partner, Clarkson Consulting
Amazon is poised to take over Walmart as the leader in beauty sales in 2025 and become the No. 1 beauty retailer. While Walmart’s "every day low price" pricing strategy is a far cry from luxury goods, this show’s Amazon’s growth in the space and something that luxury brands should keep an eye on. Prestige products, beauty and otherwise, have trailed the rest of the industry in direct-to-consumer sales strategies and third-party marketplaces like Amazon.
Historically, luxury goods sell with a high touch approach, which equated to in person shopping. This, combined with the beauty counter experience, has created a lag in prestige beauty selling online. The pandemic forced a lot of companies to innovate and build direct relationships with consumers through their websites, which has helped beauty companies expand their omnichannel strategies.
As Amazon grows, I think prestige products will need to figure out if they want to be a leader or a follower, especially as consumers become more comfortable shopping online. Protecting your brand integrity and securing the supply chain should be at the forefront of how prestige products sell online, but they also need to meet their consumers where they are. And, sometimes a consumer may just need mascara or lipstick within a 2 day shipping window.
- Neil Saunders Managing Director, GlobalData
Amazon has always been a destination for beauty, but it has traditionally been most successful in the commodity and lower priced space. This is now changing, and Amazon is pushing into prestige and premium segments, especially as it attracts more brands to the platform. Essentially this means Amazon is now one of the start points for online beauty searches for a growing number of consumers.
However, it is not all bad news for premium brands that are not on Amazon. Most beauty enthusiasts use a variety of channels to find and discover new trends. These include destinations like Sephora, social media, and beauty magazines and blogs. There is still scope for brands to circumvent Amazon if they wish.
However, one thing Amazon does well is fast delivery. Brands will increasingly need to match these high service standards. They should also think about replicating Amazon features such as subscriptions for regularly purchased items.
- Karen Hayes Founder, Indie Global Strategies
Amazon has been able to attract an increasing number of premium brands, usually first as a defense tactic, to scrub the channel from grey market and to gain back control from unsanctioned discounting. But Amazon continues to innovate and give brands more compelling means for brand expression. The Outset’s virtual 3D pop-up is a great recent example of this.
What Amazon cannot offer consumers is an in-store experience. Post-pandemic, we have seen footfall traffic come back and so there seems to be a natural plateauing of online share of sales, and stores are still so important in our category. Many consumers still want to touch the product and see options IRL before buying, particularly for first time purchases, which brings us full circle back to an omni-strategy.
The fundamentals are still true: Retailers create a compelling experience through a beautiful store environment, presenting brands that excite the shopper, and retaining staff that is well-trained and knowledgeable about the range and are genuinely helpful. For all of the new and relevant technology we have, these basics are still the most important.
I would also argue that differentiated assortment is where the competitive advantage lies. Despite thousands of brands in the category, there's a lot of same same across all channels right now. Why should a consumer choose a department store or an independent shop over Amazon or Ulta for that matter?
Buyers should get back to finding and nurturing up-and-coming brands and, for their existing portfolios, work with brands to carry exclusive SKUs, not just limited editions, but core SKUs that are never available on Amazon. Brands in turn could limit their Amazon assortment to hero SKUs only.
I also see a huge opportunity at the higher end of the market. The traditional channels for luxury beauty continue to struggle, and while the major retailers carry the gamut from masstige to ultra luxury, affluent and high net worth consumers don’t love that experience. So, there is a window for someone to crack the code on luxury and ultra-luxury retail. We need to make the case to consumers that Amazon is not enough.
If you have a question you’d like Beauty Independent to ask retail consultants, brand strategists, investors and founders, please send it to editor@beautyindependent.com.
Leave a Reply
You must be logged in to post a comment.