Professional Beauty London and the International Manufacturers and Distributors Forum recently convened thousands of industry players to explore recent developments in the dynamic and innovative beauty sector. 

With a career spanning 20 years in retail, Rebecca Saunders, Director in Alvarez & Marsal’s Consumer & Retail Group in London, was invited to share her views on “physical retail” as part of a panel discussion at the event. 

Topics covered included the overall retail landscape, the reasons brands should play in physical retail as well as beauty product trends.

Q: How would you describe the current retail landscape overall?

RS: The economic landscape is changing by the week and consumer confidence remains low, so I would characterise the retail market as volatile. Consumers are still concerned about rising energy costs, inflation and an uncertain housing market. Retailers themselves face not only demand-side challenges but also cost of goods inflation, wage increases, rising costs of distribution and energy and higher business rates.

With high-street and mall footfall still down versus 2019 and e-commerce also challenged, retailers face a number of headwinds. Brands and retailers alike need flexibility in creating compelling product ranges that demonstrate value for money, as well as being present wherever customers are and addressing rising operating costs.

With this external volatility comes the chance for agile businesses with well-controlled costs to take advantage of market opportunities and grow share from companies who are backward-looking or distracted by internal issues.

Q: Who do you see as the major players in beauty retail and who will be taking market share?

RS: In the beauty market we have seen significant changes in recent years. Through the 2010s we experienced the rise of pureplay e-commerce players. More recently there has been consolidation in that space, with THG acquiring Cult Beauty and Sephora’s purchase of Feelunique leading their re-entry to the UK.

Alongside this, the main beauty players in physical retail have changed – particularly in the prestige beauty space. With 150 Debenhams stores exiting the high-street and other retailers closing stores including John Lewis, House of Fraser alongside many independents, brands are seeking alternative opportunities in physical retail.

Space NK are performing well at the premium end, and Boots – the market leader – have posted strong overall sales growth for two years, and are rolling out their store concept for premium beauty.

What’s interesting is that we are now seeing retailers such as Marks & Spencer, Next and Sainsburys, not historically associated with beauty, making inroads with brand acquisition and investing in stores. With Sephora opening in London this month, competition in the beauty market will increase as retailers fight to acquire and retain customers. We are also waiting to see if this period of economic uncertainty brings a “lipstick effect”.

Q: Why should brands sell via a physical store?

RS: There are numerous reasons why physical shops remain important; the five key ones brands must consider are as follows:

1. Inspiration: over 70% of retail sales still take place in physical stores, and customers still respond well to great store experiences, especially in a category like beauty where customers often want to smell, touch or see the colour of a product before buying.

2. Education: it’s often harder to get this across online. Brands that are less well known or have a complex offering will be able to connect with consumers that benefit from advisers in a store.

3. Discovery: if a consumer doesn’t quite know what they want, physical retail offers a great opportunity to spot things they might not have seen before.

4. Positioning: securing a relationship with a prestigious retailer can help a brand unlock PR whilst increasing exposure with other, more mass-market retailers and international accounts.

5. Scale: landing shelf space with a national retailer is often the quickest way to achieve scale and broad distribution of a brand.

Q: How do you see technology changing the beauty retail landscape?

RS: Technology can be a powerful tool to enhance customer experience. However, it must be used with caution in store to avoid investment in expensive gimmicks. An approach starting with the customer need or benefit, with appropriate testing and modelling of ROI, will ensure that technology innovations are more likely to succeed.   

In the near term, we will continue to see use of augmented reality in beauty, and use of technology tools for social selling. From a product perspective, technology can impact personalisation at scale, and lead to innovation in packaging (particularly related to sustainability).

Finally – and perhaps most importantly – technology will increasingly play an important part behind the scenes with newer, AI-based solutions to support stock optimisation, pricing and even copywriting going forward.

In conjunction with existing digital channels, thoughtful use of new technology will provide retailers with opportunities to leverage customer data and enhance their customer experience.

Q: What trends or sub-categories in beauty are you most excited about? 

RS: Beauty is an innovative sector and one where brands and retailers must continue to evolve. Over the next year I predict increased interest from customers in the following areas:

1. Brands designed for women to support through different life stages, e.g. menopause.
2. The marriage of products with scientifically proven benefits that are also based on natural ingredients – natural products alone are not enough.
3. Hair care products, particularly those that cater for women who have been historically under-represented by the global beauty industry.
4. Sustainability, especially in packaging innovation. However, to achieve scale this must not compromise cost to the customer.
5. Niche products that sell well through social channels, e.g. Korean-inspired pimple patches.
6. Beauty ingestibles that provide a holistic connection between beauty and overall well-being.