“Brands want long-lasting relationships with their customers, not one-night stands”
Said Brendan Teer, Global Store Design Director at Jo Malone, who kick-started our most recent breakfast discussion.
We, at HVO Search, brought together some of the most interesting beauty founders, senior leaders and investors to discuss how changing shopping habits and expectations are causing brands to modify their in-store and online shopping experience.
What Impact are Changing Shopping Habits Having on the Beauty Industry as a Whole?
eCommerce is playing a key role in catering for customers’ developing and demanding buying habits. With 95% of retail purchases expected to be facilitated by eCommerce by 2040, brands need to take advantage of these opportunities to increase conversion rates and grow customer loyalty.
Beauty tech start-ups alone have raised over $1.7 billion in aggregate to offer new beauty and grooming products and services. Much of the investment has focused on eCommerce platforms, subscription boxes, booking platforms, multi-category cosmetics, on-demand services and salon and stylist aids. When shopping online, customers have all the relevant product information at their fingertips and can quickly and easily execute transactions.
As Joel Palix, CEO at Feelunique, explained:
“Younger customers prefer to shop online as they find physical stores intimidating and too sales oriented. They feel the psychological pressure of having to buy something.”
However, eCommerce brands can have their own pitfalls. As Harry Richards, Associate at Manzanita Capital posed:
“How can niche brands with a limited scope for investment grow their platforms online?”
Purchases online are in fact discovery and NOT replenishment, so online brands that play to this fun/trial approach will be more likely to capitalise. This means young customers want to buy, but don’t know who to buy from, so getting customers to try your new product in the first place can be hard. Enter tech solutions.
"Customers often don't have confidence when buying makeup online. New virtual technology (AR) provides a unique experience enabling them to try on colour makeup products virtually using their digital devices, share with friends, and decide what looks best on them."
Said Linda Peters, Senior Advisor Fashion and Beauty at illume Advisory. With so much choice out there, customers are also relying more on trusted influencers to try new products and less on the advice of sales associates with an apparent agenda.
So where does this leave physical stores?
Physical stores are having to redefine their strategic purpose in order to stay one step ahead. Despite falling footfall, bricks and mortar stores are still unrivalled as a way to fully immerse oneself in the brand experience. However, in order to achieve this, customers want to be empowered and interact with the brand in new ways.
Today’s customers want:
Products that enhance their lives
New ways to sample makeup and cosmetics
To shop for multi-brand beauty products by usage, not by brand counter
To not spend a lot of time in-store deliberating on a purchase
To interact with brands in-store through their own phones, not go to another screen
An integrated online and offline shopping experience
To immerse themselves in an experience
“Millennials have the tech and know-how so don’t need to be told what they need”
Emphasised Jessica Blacker, Founder of Jecca Blac.
How Should Heritage Brands Respond to These Changing Customer Needs?
The simple answer is that it depends on the brand. Multi-brand and single brand stores and marketing strategies are, quite rightly, completely different.
Customers want to ‘experience’ the brand in-store, not a commercially driven experience. But there is a total disconnect between physical stores focused on knowledge/experience and those focused on money in the till.
“People don’t want tills in their new stores but 95% of stores still have them. We talk about adding and integration of high technology but brands struggle to implement basic changes such as wireless and/or invisible tills”
Said Daphne Dutilleux, Retail Design and Visual Merchandising Director at L’Oreal. So, should stores no longer be about commercial viability? If so, how can we justify huge sales counters and stores financially?
As Zia Paul-Birabi, HR & Commercial Director at HVO Search queried:
“Do investors accept the shift from sales to knowledge and experience KPIs?”
Certainly, new concepts need to be trialled to demonstrate viability, but where? If you trial in a prime location there’s a greater risk if it fails; if you trial in a lower tier location then the store might be on a different scale and the results less relevant.
Either way, customer's knowledge is the key to gaining competitive advantage which is something online brands have in spades - leaving heritage brands playing catch-up.
The universal challenge, as Chris Filer, Group COO & CFO at Foam & Substance highlighted, is that:
“Customers shop to continually try new things which makes them unpredictable.”
Tech is certainly likely to play a part in any solution but brands need to find the right tech for the problem and their customer – not just introduce tech for the sake of tech. Indeed, older customers may actually be turned off by too much digital wizardry.
For example, as Tariq Khan, VP Consumer Experience at Beamly (Coty’s digital agency) underlines:
“There is a need to avoid the app graveyard. People won’t download an app unless they already have a strong relationship with the brand.”
Heritage brands whose customers only purchase from them once or twice a year will have limited demand for an app so investment should be carefully considered.
Similarly, facial recognition might work from a tech point of view in-store, and gather lots of info, but customers might find it creepy.
So, how might brands fit the digital experience within a physical store? What are the customer's unmet needs?
How Should Heritage Brands Redefine Success?
This depends on the customer each brand is trying to target. To begin with, heritage brands need to invest heavily in data insights such as geospatial analytics and understanding their customer’s behaviour across a number of different channels e.g. cloud-based technologies, AI, machine learning etc. This is crucial to ensure different channels are being used effectively to enhance the product offering in unique ways – not just regurgitate the same message multiple times.
As Maria Hvorostovsky, Founder of HVO Search noted:
“Storytelling and authenticity should drive new brand innovations.”
The whole structure of the brand may need to change as a result. There is a need to redefine “assets” across the board – not just for the Marketing and Sales team to imbibe, but also for investors and finance colleagues to understand.
Physical stores need to tell a story, and not just sell a product. They are no longer warehouses of stock – they are now places to experience the brand. Brands need to look not just at the products, but also at the total customer experience.
So instead of sales per square foot, KPIs must include the number of clicks, sign-ups, profiles generated, number of hashtags on Instagram, the number of people who see and ‘Like’ a particular ad campaign etc.
And it seems investors have accepted this sea-change.
“Equity value creation is now a lot about long-term community building”
Acknowledged Tracey Huggett, MD at NEO Investment Partners.
But how can digital integration of offline and online channels be achieved? From a tech point of view:
“The experiential should guide us to a digital solution”
Said Brendan McGuirk, Founder & Director of Skimono.
Ginny Hershey-Lambert, Founder & President of MineMine Kids agrees, and says there is a need to:
“Build a digital beauty wardrobe around the needs of the customer, in the same way the fashion industry already does.”
This has powerful implications for the way retail staff should be trained; shifting away from sales and towards education. Such a model can be seen at disrupters such as Glossier, where the sales assistants are more like friends than sales reps.
“Brands want long-lasting relationships with their customers, not one-night stands”
Here are some key takeaways from the discussion:
Differentiation is key - no one size fits all
Business models need to be pivoted in line with the new strategic direction
Customers want to be part of something bigger than just the product
Data rules – you can’t understand your customer adequately without it or secure their trust
Customer insights should lead all new product development
The opportunities lie in the age and stage of the customer - younger customers want beauty, older customers are more interested in skincare and are more brand loyal
Need to build aspirational beauty – people want to know where things come from and what they’re associating themselves with
Beauty is fashion – using digital to put it altogether in a beauty wardrobe. Build the wardrobe around the individual customer
Test and learn on different scales – meet the needs of the customer at a particular moment in time and determine whether or not a new concept is profitable
Don’t be afraid to fail – important learning comes from this
No mega solutions – need to break down and tackle individual challenges
Need to be nimbler and act immediately on recognised opportunities
Different teams need to talk to each other in the same language, using the same KPIs
These brands were referenced by the group as some of the most innovative in terms of merging digital and in-store experiences, customer service and store design: