The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Welcome to BoF's Beauty Newsletter, featuring members-only analysis and the week's top news from the front lines of the global beauty business. Subscribe here.
NEW YORK, United States — At a new store in New York City, the beauty department is pristine and organised, with wide aisles lit by a pleasing glow. There are inviting makeup testers and mirrors everywhere. The skin-care section is sprawling and there are shelves full of indie brands. A dedicated area for professional makeup application, hair styling and other services beckons. Brightly coloured hair brushes and beauty tools are sprinkled throughout. A makeup artist with a belt full of brushes wanders the aisles.
If this sounds like a description of the new Nordstrom flagship in New York City, it is. But it also applies to a CVS drugstore just ten blocks away. This week, CVS unveiled the expansion of its pilot Beauty IRL retail concept, rolling out to 50 of its 8,000 locations this year, with more to come. Walgreens has added some of the same features to about a third of its 9,500 stores.
The upgraded aisles are part of an attempt by the two chains to claw their way back into the beauty game after years of sliding sales and waning relevance. Drugstores were the top sellers of beauty and personal care products until just a few years ago, but now rank third behind specialty stores like Sephora and Ulta and, as of last year, online retailers, according to Euromonitor. Sales fell 1 percent between 2016 and 2018, to $12 billion, compared with a 17 percent increase at specialty stores, to $14.2 billion.
Reversing this trend will take some effort. Drugstores have traditionally relied on affordable mass brands like Covergirl to drive sales, but consumers increasingly prefer more niche products or brands fronted by influencers and celebrities. Sephora and Ulta, with their ever-changing assortments of new brands, good lighting and convenient testers everywhere are much more appealing to a beauty shopper than the cramped, messy drugstore aisles of yore.
We've not seen any decline, we've completely defied the trend.
The new drugstore formula involves leaning into indie brands, more aspirational products and features like testers and beauty services that are meant to enhance the shopping experience. And drugstores do have one key advantage: even in the age of e-commerce, most people still need to stop by their local CVS or Walgreens to pick up a prescription or stock up on toilet paper.
“People are already in there for mission-based trips, so they can take advantage of foot traffic and large presence,” said Alexis DeSalva, an analyst at Mintel.
At an upgraded CVS, customers can receive hairstyling and makeup services in-store via a partnership with Glamsquad, in which it is a minority investor, and ear piercing by Studex.
Walgreens also offers a larger selection of brands at about 3,000 stores, plus beauty advisors and makeup testers, though the changes aren’t as drastic as at the updated CVS stores. Instead, the chain is trying to outdo its competitor in the prestige category. Walgreens is a minority investor in Birchbox, and expanded a year-old partnership with the subscription box pioneer in August, installing shop-in-shops in 11 stores. It sells brands like Wander Beauty, whose best selling eye masks cost $25. Birchbox will add kiosks to 500 additional stores for holiday shopping.
Mainstays like Maybelline, Covergirl and L’Oreal are still the first brands shoppers encounter upon entering a CVS Beauty IRL section. Despite struggles at some mass makeup brands, CVS has seen cosmetics sales grow over the last two years, said Maly Bernstein, vice president of beauty and personal care at the chain.
“We’ve not seen any decline, we’ve completely defied the trend,” she said.
Bernstein said CVS is constantly refreshing its assortment to hold customer interest, introducing over 30 new beauty brands in the past year, including Essence and Karity. CVS also has a wall of travel-sized products and allows shoppers to build a sample bag. This concept will be expanded outside of Beauty IRL stores and positioned near checkouts, similar to grab and go concepts at Ulta and Sephora. Walgreens also plans to add more digitally native and indie brands in 2020, and customers can build sample boxes at the Birchbox stores.
There's such a big opportunity to compete with these major specialty beauty stores.
Indie brands seem to be more open to the drugstore opportunity than established brands, according to Birchbox founder and CEO Katia Beauchamp. Some brands Birchbox worked with declined to be included at Walgreens, but indie brands like Wander Beauty and Coola have performed well in the shop-in-shops, she said.
“There’s such a big opportunity to compete with these major specialty beauty stores,” Beauchamp said.
Drugstores have also hopped onto the skin-care trend, though they’ve lagged in the clean and natural space, as other retailers have added dedicated sections with rules about ingredients. Walgreens recently brought in Honest Beauty and is highlighting cruelty-free and vegan brands. CVS has a small section dedicated to the category, including brands like Weleda.
Then there are the private label exclusive store brands, which have popped up everywhere from Dollar General to Sephora. Walgreens' No. 7 range of skincare, brought over from sister chain Boots in the UK, has proven popular.
Walgreens rebranded its other homegrown label, Studio 35, as a different house brand, called “Corner W” internally, because of the Walgreens logo on the front. The products, sold in clean white packaging with colourful labels, have been a “phenomenal success,” said Lauren Brindley, vice president of beauty and personal care at Walgreens. These Corner W products cover every beauty category except colour cosmetics, with more on the way.
CVS created Joah, a K-beauty makeup brand, with Kiss. Glamsquad and CVS co-created the GSQ brand, a line of beauty tools, hair care products and hot tools, packaged in pops of neon reminiscent of Drunk Elephant.
Services like Glamsquad’s makeup applications, hair styling and Studex ear piercing services will encourage shoppers to stay in the section longer. Shoppers can book on a digital tablet for an immediate service or book in advance. Bernstein said that one of the challenges will be accelerating the expansion of Glamsquad services at CVS stores in markets where Glamsquad doesn’t currently have a presence.
Drugstores may never be destinations where shoppers go to buy beauty when they don’t need something else, like cough medicine or toilet paper, but that doesn’t mean they can’t sell a lot of beauty products.
“I don’t see them being an authority in beauty. But I do believe they can grow their share of wallet by targeting the consumer that’s already going into the stores,” said Patricia Hong, a consultant in A.T. Kearney’s retail practice and head of its beauty and luxury division.
There is some early evidence it’s working, at least at Walgreens. “The beauty sales in the Differentiation stores have performed well ahead of the beauty industry growth overall,” said Brindley.
Both stores see similar challenges ahead of them. Being part of a huge corporation with thousands of stores and logistical challenges is one of them.
“We can’t [expand] fast enough,” said CVS’ Bernstein. “We set this up as an environment where we really want to learn from the customer so that whenever we iterate the next version, we’ve incorporated the next round of feedback.”
THIS WEEK IN BEAUTY
Nordstrom's beauty department has it all. With 100 different brands and 110 services, Nordstrom is hoping its new New York City flagship can revitalise the department store beauty shopping experience.
The multi-level-marketing model in beauty is faltering a little in the US. Younique and Avon have had a rough go of it in the US, and the network marketing model (with its many questionable ethical practises) faces challenges.
After writing fake reviews, Sunday Riley is told by the FTC not to write any more fake reviews. The company has allegedly used VPN to hide its identity and post fake Sephora reviews of its own products for two years, but regulators did not fine or otherwise materially punish the company.
Coty is looking to offload its hair care and professional brands. The company announced it's looking for buyers for about a dozen of its brands including Wella, Clairol and OPI brands, which collectively account for about a third of its revenue.
Instagram bans plastic surgery effect filters. The platform will no longer allow effects that alter images to look like subjects have had cosmetic procedures.
L'Oreal invests in VC fund Cathay Innovation. The company will help beauty tech start-ups get off the ground, especially in China.
Women's shaving company Flamingo raises eyebrows with its new pubic mist product campaign. Flamingo's new Mons Mist, a skin and hair conditioning spray, comes with an ad campaign meant to mimic election campaign imagery, like "The Bush 2020."
Kylie Jenner trademarks "rise and shine," sells merch. After singing the phrase to her daughter during a video tour of her cosmetic company office and subsequently going viral on Tik Tok, Jenner trademarked the phrase - expect to see it on a palette soon.