Tailwinds: What’s helping Amazon

Consumers’ willingness to buy anything and everything online was already evident pre-pandemic. Coronavirus lockdowns threw jet fuel on the online fire. Amazon will continue to benefit greatly from the growth in e-commerce transactions, as well as online beauty and personal care product sales. As fast-moving consumer goods, these items are some of the most-purchased commodities via online platforms. Reported in Women’s Wear Daily, as of the first quarter of this year, Amazon captures 32% of all beauty bought online, according to Rina Yashayeva, VP of marketplace strategy at marketing agency Stella Rising. Beauty, health and personal care sales amounted to $23 billion last year, an increase of 45% from last year.

Amazon can’t be ignored. “We see Amazon as a crucial channel in a brand’s overall distribution mix,” says Julian Reis, founder and CEO of SuperOrdinary, a global beauty distributor. “In my view, every brand should be on Amazon if even the intent is to just control their presence.” SuperOrdinary has recently begun to manage the Amazon presence of U.S. prestige beauty brands, including Joanna Vargas, Biossance and Dr. Brandt. SuperOrdinary aims to be a  full-service strategic selling partner for beauty brands on Amazon, offering services such as forecasting, reporting, customer review management, brand storefronts, advertising, demand planning, custom content and product fulfillment from new California headquarters.

The seamlessness of the Amazon shopping experience—packages can be at customers’ doors within hours of clicking “buy now”—hasn’t been beat. “Amazon may have historically been about finding cheap stuff. Today, Amazon is, to me as a consumer, about convenience, not about cheap,” says Sonya Brown, general partner at growth equity firm Norwest. Brown oversaw the launch of PCA Skin on the platform more than a decade ago, when clinical grade skincare brands generally steered clear of it. She says, “People will keep using it because of the convenience factor.”

Another critical aspect of convenience is one-stop-shopping, another phenomenon accelerated by COVID-19. Super-stores like Target became the darlings of lockdown shopping because customers could pick up items there, like skincare and color cosmetics, that they’d usually purchase at a retailer that might have been shuttered. In the online commerce landscape, there is no greater one-stop-shop than Amazon. Amid the pandemic, people shopped for beauty in new channels because they had to, and bought beauty items like hair dye and nail care items also out of necessity. That made the leap to buying beauty on Amazon easier for those who maybe never bought beauty on Amazon before. This led consumers to become more acclimated to one-stop shopping, a behavior many will keep even as the world opens back up again.

Prime membership, which gives shoppers free shipping after paying $12.99 a month or $119 a year, amplifies Amazon’s convenience proposition. In the U.S. alone, there are 147 million prime members—that’s more than one for every household. Globally, Prime has reached 200 million members. “It has become abundantly clear that we are a culture of convenience, and we don’t see that changing,” says Reis. “With 200 million prime shoppers, the thesis that the Amazon consumer is different than the beauty consumer no longer holds true.”

PCA Skin may have been the first cosmeceutical range to officially partner with Amazon, but such an occurrence is no longer rare. When Amazon launched its Luxury Stores last year, it debuted with uber-luxe beauty brand RéVive. Shiseido-owned prestige color and skincare specialist Clé de Peau, which has facial creams and serums ranging from $150 to $1000, soon followed. Indeed, the stigma of being on Amazon for luxury brands has been receding, though in Beauty Independent’s 2019 and 2020 surveys of beauty brands, the platform not having the right image and a fear of erosion of brand equity remained leading reasons for not selling on the e-tailer.

To retain exclusivity while having a presence on Amazon, luxury beauty brands cherry-pick the stockkeeping units they sell on the platform. In the case of Clé de Peau, for instance, the $1,000 product Synactif Cream is not available on Amazon. “You don’t have to have your whole set of SKUs there. I don’t think you have to have your hero SKU there,” says Brown. “But, if you’re not present as a brand, you may lose out on that opportunity to acquire a customer in a channel that I think is still relatively approachable on the cost.”

Many emerging beauty brands feel bewildered trying to navigate Amazon’s labyrinthian backend, especially given the platform’s hands off-the-wheel approach to seller support. The concern over what it would take to thrive on the marketplace not only keeps brands from ever selling on Amazon, but has driven brands off of Amazon. Across our 2019 and 2020 surveys, approximately 80% of brands cited service issues as a major or moderate factor in decisions to leave Amazon.

Wherever there’s a pain point, there’s a potential market, and a group of intermediaries have cropped up to work with brands selling on Amazon. Companies like beBOLD, Fortress Brands, Carbon Beauty and Stella Rising leverage years of Amazon expertise to assist beauty brands in a myriad of ways, including setting up and managing brands’ Amazon storefronts, brand pages and product descriptions and paid advertising strategies. For brands that have the means, these partners can handle the necessary but often confusing and time consuming work it takes to move product on Amazon. SuperOrdinary is the latest addition to this cohort and comes to the table with bona fides it earned in the Chinese market with the country’s formidable digital platforms like Tmall.

“We see a shift towards platforms happening all around the world, first in China with Tmall and now in the U.S. with Amazon,” says Reis. “Why wouldn’t we want to purchase our skincare products in the same place we are getting groceries and other household goods, all in one click with two-day delivery and free returns? No matter how established the retailer, it’s getting increasingly difficult to compete with the streamlined experience that Amazon provides.” SuperOrdinary views Amazon as the largest, yet most overlooked opportunity for beauty sales growth. It claims its brand clients can expect 40% growth in year one on Amazon.

Headwinds: THreats To Amazon’s Domination

Amazon may offer consumers unparalleled convenience and sellers an unmatched number of eyeballs, but the platform isn’t built for a customary beauty shopping experience. Amazon’s many beauty initiatives over the years shows its commitment to being a legitimate beauty destination. Still, it hasn’t completely cracked that nut.

“I definitely think there’s opportunity on the Amazon side to continue to make product discovery easier and, frankly, more interesting,” says Brown. “Today, a lot of the products that they may be showing you because of a search feed isn’t well merchandised. It’s definitely more computer-generated, missing the human touch, the curation.”

Until Amazon can recreate the playful sense of discovery, storytelling and luxury feel that beauty specialty players like Sephora, Ulta Beauty, Goop and Violet Grey excel at, it will always be a nonstarter for certain beauty shoppers and brands. The curation chink in Amazon’s armor leaves a gap that can be exploited by competitors.

Online lifestyle platform Verishop is an up-and-comer that presents itself as an alternative to Amazon. The premium marketplace-cum-social shopping app doesn’t play in all the categories Amazon does, but beauty and wellness are two of its main focuses. Alex Barinka, Verishop’s head of external affairs, shares Verishop’s marketplace features over 2,000 skincare brands, which it asserts is more than any other beauty e-commerce website, and Verishop’s beauty business grew over 200% last year.

“We’re differentiating from other marketplaces by building tools that drive better discovery,” says Imran Khan, a former Snap executive who founded Verishop in the summer of 2019. “That’s why we created [the in-app feature the] feed. That’s why our PLP [product listing page] and PDP [product detail page] are recommendation engines. All these things we’re building help beauty brands to tell their story better, to share content, all of which will help drive better discovery.”

Even if Amazon dramatically elevates its user interface and customer experience, the digital and logistics giant will likely never be the beauty brand builder that Sephora and Ulta Beauty are. The opportunity to be championed by beauty’s best merchandisers drives fledgling brands to give up significant margin to sit on those retailers’ storied shelves.

“The advantage that Ulta and Sephora have is their brand building and their curation,” says Brown. “The email marketing comes from Sephora is very different than email marketing from Amazon. Will Amazon ever catch up to that in the category? I don’t know.”

Beyond Sephora, Ulta and Verishop, Amazon may lose beauty market share to European digital players like The Hut Group (THG) and Farfetch, which have recently made moves into the U.S. beauty market. Earlier this year, Farfetch announced its intention to enter the luxury beauty category in 2022.

In late December, THG acquired Dermstore after the expansive online beauty retailer from  Target for $350 million in cash. In September, it bought prestige skincare and nutrition specialist Perricone MD for $60 million in cash and, earlier this month, it revealed plans to acquire Perricone MD manufacturer Bentley Laboratories for $255 million. Reis contends there’s room for all. “We have immense respect for what THG is building, and we believe that the beauty pie is large enough for players like us to coexist,” he says. “At the end of the day, we are extremely focused on being everywhere our customers are, especially for their second and third purchases, and we believe Amazon is the primary channel for those repeat conversions.”

As the cost of digital ads have skyrocketed in the past few years, many beauty brand founders and managers saw Amazon as a more cost-effective way to acquire customers. But price of success there is on the rise, too, and independent brands have been feeling the pinch. On a recent Beauty Independent In Conversation webinar, Laura Meyer, a former Amazon employee and founder of Amazon consultancy Envision Horizons, said that Amazon is a pay-to-play environment, and brands need to always be advertising on it to succeed.

The ad bill builds up: On average, Envision Horizons’ beauty clients are doing up to $10 million in online sales and reinvesting around 9% of revenues back into advertising. Meyer mentioned brands looking to aggressively increase market share will reinvest as much as 35% of their revenue back into ads. In our surveys, 67% and 63% of 2019 and 2020 brands, respectively, worry about the high costs in time and resources required to run a profitable Amazon business, with several founders specifically calling out a lack of affordable marketing options for small brands.

Many brands bring in an outside agency like Envision Horizons or Carbon Beauty, but, while these partners usually increase Amazon revenue for the brands they work with, they are also taking a cut of sales and sometimes charging a retainer as well, all of which eat away at a brand’s margins, making profitability only possible at very large volumes. “I would consider finding a partner or an agency to help at the beginning, if it does not make sense revenue wise to have your own in-house Amazon person,” Brown advises. “There are some really great firms out there that will take it over for you, they’re thinking about how to make sure you show up in the search, how to show up in the buy box, and have skills that you could have as an individual brand if you hired a full-time Amazon person.”

conclusion

The current wisdom is that every beauty brand should have an Amazon strategy and some kind of presence on the platform. But, for independent brands that can’t project millions in sales in their first year or beyond on Amazon, a nuanced approach must be considered that can capitalize on the acquisition opportunity of the platform without brands spending more in support and advertising than they are generating in sales.

“It’s up to the brand to determine where along the growth spectrum it wants to play on Amazon, i.e. Control only?  Some growth but no aggressive marketing? Or all in and leverage all the tools available?” says Reis. “I think it’s important to visualize where the market will be in 2, 5, 10 years out and ask yourself, ‘Where will this channel be, and why?’ We may very well live in a world where you get your products in an hour of ordering them, and who will be most likely to provide that service? Amazon.”

Still, there are prestige independent brands that are saying no to Amazon altogether—for now at least. Vitamin C specialist Common Heir launched earlier this year after going through clean beauty retailer Credo’s accelerator for women of color owned brands, Credo for Change.

On why she’s choosing not to take her single SKU brand onto Amazon, founder Cary Lin says, “We want to really control that customer experience from the get-go. We want to make it something really beautiful. We want to own that relationship to start. Down the road, we’ll probably have to answer that question, but for us right now, we can guarantee the quality and the sustainability of our supply chain and that’s how we’re doing it.”

Read the rest of our Beauty On Amazon series for stories on Amazon’s beauty push in Part 1, the interfaces brands use to sell on Amazon in Part 2, advertising options on the platform in Part 3, and our deep dive into the working relationships between beauty brands and Amazon in Parts 4A, 4B and 4C.