Beauty brands face digital disruption as Covid-19 impacts in-store business

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For several years, the adoption of social media and a move towards digitalisation have had a strong influence on the beauty business. Covid-19 has exacerbated these issues further with customers being unable to try products in store for most of this year.

But this has not led to a fall-off in demand. In fact, quite the opposite. Fabrizio Freda, chief executive of Estee Lauder, believes the transition from ‘selfie generation’ to ‘Zoomie generation’ has perpetuated the need for make-up.

That has opened up an opportunity for digital retailers that have a strong online presence, and that can guarantee quality and reasonable prices for customers who still wish to wear make-up daily for online video calls.

One digital beauty retailer, ELF Beauty, has seen encouraging growth over the past year, driven by interest in its online platform as the Covid-19 crisis has hampered in-store sales. In its 2020 fiscal year, ELF saw double-digit growth in traffic to its online platform, including extensive social media engagement. It also produced $283min net sales. As a digital disruptor, it highlights the growing importance of online sales and online marketing for this industry.

ELF has built its brand online thanks to several beauty influencers and celebrities who feature its products on their make-up tutorials over social media platforms such as Instagram and YouTube.

The company’s effective use of social media is one of the key drivers of its success. It recently created one of the most viral trends on TikTok, contributing around five million user-generated videos. It was the fastest-ever TikTok campaign to reach one billion views.

This has notable implications for media exposure, as well as being able to directly reach the customer in an innovative and engaging manner. According to GlobalData’s 2019 Q3 Global Consumer Survey, 37% of respondents between the ages of 25-34 said that they actively buy products which are trending on social media.

A long-term characteristic of the beauty industry is that most product sales are made in stores. Purchasing an ineffective moisturiser or hair care product is both costly and a waste of time for the customer, and until recently, most consumers have preferred to handle products before buying them.

However, the rise in online purchases and social media advertising threatens to disrupt this traditional business model. Instagram estimates that by the end of 2020 there will be over 6 billion brand-sponsored posts. Being able to use these visual based platforms will be essential to beauty brands moving forward.

Digitalisation and tech innovation are therefore key for beauty brands. Estee Lauder reported a loss in sales in 2020 as a result of Covid-19 restrictions. However, investment in augmented reality beauty apps, such as ModiFace, allows for better customer engagement in the digital space, and is a more immersive experience for technology-literate younger consumers.

South Korean beauty brand Amorepacific also reported losses for Q1 of this year, with sales down 22%. It cites Covid-19 as the dominant factor and is focusing on increasing its digital presence in order to better compete with other brands on digital channels.

With Covid-19 regional lockdowns likely to prevent in-store engagement for up to six months, only beauty brands that are interactive and inclusive rather than exclusive will ultimately thrive in the cosmetics market. Conversely, those companies that fail to gain traction online through lack of engagement or who lack social media prowess risk being left behind.

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