Daniel: Hi, I’m Daniel Torres Dwyer and welcome to LS Internationals career success podcast. Coty merging with P&G Prestige, Revlon with Elizabeth Arden, L’Oreal acquiring NYX. Beauty is one of the most dynamic industries out there today, clearly. To learn more about it, we have the pleasure to have Gianni Pieraccioni with us today. He’s a board level executive that’s worked with global companies like Revlon, Alitalia J&J, and PepsiCo and the reason why we have invited him today is to understand more about the beauty consumer, its distribution and how it will evolve during the coming years.
Hi Gianni, thanks for joining us today. How are you?
Gianni: Very good Daniel. Thank you very much for hosting me.
Daniel: So, today, as mentioned before, we’re going to speak about the beauty market, how it’s changed. Obviously you know a little bit about this with your experience. So, I wanted to ask you first; the beauty market’s in turmoil with new consumer behaviors and technology being the major disruptive forces of this, can you shed some light on for me and the listeners about what’s going on first with the consumer, the beauty consumer, and then with the actual technology?
Gianni: Yes, of course Daniel. I think first of all, I want to place upon you that the beauty market and particularly colour cosmetics within is a great category to be it. It’s really large categories, very fast-growing worldwide and it’s clearly growing in every single country around the world. And so it’s great for companies to be in but at the same time as you correctly pointed out; there are major disrupting forces right now that are generating a major upheaval. And just to summarize this and I will dwell on the specific points afterwards I would say that the traditional business models are currently challenged by some fond desire of customization personalization and innovation by the consumers who, as never before, are now extremely engaged in this category. In second , technology, in particular digitalization, is changing the structure of the industry.
So let me stay on the consumer for effect you know everything start with the consumer and they call the color cosmetic consumer is a bit difficult because it’s a really barely active one. These are women who actively seek to improve their look and image in order to either gain self-confidence or be appreciated by other people, and it is important to say that these are people that seek the products. They’re not passive consumers that get intercepted by the companies but they are really looking for the products. These are women from all ages; from puberty to grave, all ethnicities, all social classes, urban and rural, working and not working, and North and South of the world. So in the penetration of our cosmetics and beauty products in general, is really very high in Western countries; it gets up to 81% for categories like eye colours or 74% for lip one and it’s growing really really very fast in less developed areas and the most important one I want to mention is China. The daily consumption also is really multiple as multiple applications for makeup.
So, we have an ideal cocktail that says, “High consumer penetration , multiple frequent usage whose spectrum of engaged consumers, so who spend from enthusiastic early adopters to the loyal routine followers”; everything looks perfect and the reality it’s not perfect, why? Because currently the market is different from the market of the past. In the past baby boomers and Generation X. made up the market.
Gianni: These are peopling who loved brands, particularly when the friends chose them also because it was a kind of sense of belonging to a group. Cool brand made your cool. So, these were loyal to this brands and they were about to very much engage with them in two moments; traditional TV or print advertising and purchases in brick-and-mortar stores. Today’s consumers are completely different. These are millennial and generation Z. These are people who either reject or do not know the brands of their mothers. They want different looks multiple times, after all they are the selfie generation, and these are people who really are very much individualistic consumers. They do not like to use clothes that are used by other people, they want the full customization and personalization. They don’t look for brands, they look … the loyalty to brands is rapidly decreasing. In fact, they see products rather than brands and jump from one to another in a perennial search for their own.
If you think about this; this is a dramatic implication for the industry.
Daniel: Yes, absolutely.
Gianni: First, there is a spasmodic effort to multiply innovation. So the old concept that the companies used to apply of fewer bigger better innovation doesn’t apply anymore here and this has consequences in terms of missed economies of scale, shorter product life cycles, higher returns and markdowns and unfortunately, the successful companies are the ones that really need to abide to the to the two new rules and the new rules are basically spasmodic research for innovation. Secondly, there is also proliferation of new brands because if the consumers look for the next new thing and they are not really caring for traditional brands and iconic brands, there is space for independent brands, so-called the indie brands. They are often small niche and are much easier to develop a market in today’s world. And here comes the concept of innovation as a disruptive element. In fact, these new brands are significantly eating market shares of the big brands and what is enabling them to be present in the marketplace is really technology.
In fact, if you think about it, in the past in order to be successful in beauty or in color cosmetics; you needed to have the big manufacturing plants, you need to have your own very expensive R&D; you need to have expensive traditional advertising, you need to have own distribution contracts with the trade middlemen. So, all things that today really you can you can overcome because today, you can launch your own colour cosmetic brand from a manufacturer standpoint for instance. Here is a plenty of capacity available in Asia in third party plants in China and Korea.
And also in the Western world, if you go to Italy or to the United States; there’s really plenty of capacity. And you don’t need R&D anymore, there are third-party manufacturers that do it on your behalf and allow you to picture your innovation from the catalog which is an ever-growing catalogue. And if you think about advertising well with the social media, smartphones and iPads and emergence of internet bloggers and inferences. Traditional advertising has become almost obsolete ;certainly not the primary marketing tool anymore. So finally, the direct to consumer sales online is set aside the need for what is an affordable and accessible brick and mortar retailer.
Gianni: And the same applies for distribution fulfillment. Everybody can do this with many online providers. So, you see, there is a major disruption because all the entry barriers of this category have gone down. So, let me say also something else about digitalization. The digitalization and availability of accessing manufacturing, as I said before, are enabling these new brands to become viable players but digital is also changing the way consumers engage and shop for the products and this is a process which will accelerate even more in the very moment in which in the Western world; we are going to have the convergence between social media and online shopping. Go to a social media, you can go to Instagram; you cannot buy a product; you need to do several steps in terms of clicks before buying the product. In China today, if you go to social media you can buy a product.
Daniel: Oh wow!
Gianni: In fact in China, more than 40% of beauty market is purchased online so it’s really already number one channel in the world.
Daniel: With all these change that consumer changing through technology as well, how do you see the distribution panorama transforming?
Gianni: Well, it is dramatically changing as well. You know that everybody speaks about this brick & Mortar retail crisis.
Daniel: Yeah, of course,
Gianni: And consumers go on line now. I believe that brick and mortar yes, they are is a crisis but they have the possibility of fighting back. In fact there are some significant winners also between brick and mortar retailers; those who offer also services like Sephora, Ulta in the United States.
Gianni: So, there are some retailers that are doing well and I think that if the very moment Brick & Mortar retailers will understand that not only they have to play online but they also have the possibility of fighting against online on different turfs, they will become successful again and let me explain what I mean. They can offer convergence of channels. For instance in the United States, there is a chain called Ulta which offers the total convergence of all channels. So, you enter a store and you have mass-market product, prestige products, professional products and the reason why they can offer the three products and basically overcome the idiosyncrasies of the channels and the exclusivity of the channels is because they are offering also services in store. They offer skin care services, makeup services and a full salon for hair color, hair care. So, by doing this, they are basically creating an experience for the consumer, which the consumer is allowed to have access to every kind of product from every kind of channel in one only place . A point that the retailer suits to do is really capitalize on the possibility they have. They can give the whole brand experience in terms of assortment and communication to the consumers.
Third, I think they can also provide services in terms of learning, tutorial courses. All things that online, we haven’t seen very much developed particularly on the sides that are selling today. And finally, the retail space can become an entertainment space; so the more you make events, the more you attract consumers to your store the better. This is to me my personal recipe but I think many bright retailers are thinking about it but I haven’t seen the food recipe applied yet.
Daniel: Yeah because it also depends if it’s like a more specialized and focused store, like the examples that you were saying like Sephora and Ulta or something that’s more like generalistic like a Wal-Mart or any other supermarket where you have like a beauty category within the supermarket, right?
Gianni: That’s right; your point is out very correctly. In those stores and what is going on right now is that there is a spasmodic effort to elevate beauty, to elevate the section of beauty in terms of look, merchandising, appearance so that consumers don’t find them in really in the food store but when they get into this section, they find themselves like they were in specialist store.
Daniel: So, we’ve talked a lot about the consumer, also the retailers transforming. How do you see the big beauty companies, which have experimented a big number of M&As in the last few years? How do you see them reacting and planning the future?
Gianni: Okay. First of all, they’re trying to adapt fast to this new environment and I think they were caught a little bit off guard by the phenomenon of the indie brands and naturally, they lost market share see anything as we could be independent of place and probably in the future they will never go back to the same level of market share they had before, so the new future probably is going to be a combination of big brands and big companies, big iconic brands or together with small brands and relational mushrooming of a little brands altogether.
Now, how are these big players is reacting? First of all, they are expanding innovation, so they are investing on creating more innovation in that which means at the same time, which means not only more new things but also shorter timing to market, which would make them a little bit more competitive than before. And the second, that they are creating some more personalized experience by using the technology and Big Data. And third, some of them are purchasing these indie brands. You see the experience of both L’Oreal and Estee Lauder; they have made significant acquisitions in this space of independent brands that have been very successful and they have taken them to a further level by leveraging their distribution capabilities and also their marketing muscle. So, this is also a very successful as strategy; not all the companies are doing it but the ones have been doing it up to now have been pretty successful.
And fourth, they are trying to get directly to the consumers much more than before and this idea of getting directly to the consumer encompasses many, many channels and not only online but also television sales. Also, new sales models like subscriptions or the distributor sales, also the older multi pyramid scheme, which now is enabled by technology, by social media, by online. So, you see some of these companies are trying to experiment in the space; for instance, let me mention Coty with the Unique brand.. They purchased this brand, which is called “Unique”, which is sold online on social media through a multi pyramid scheme, through what we call distributor sales. So, you can be a consumer and at the same time you can be a distributor of the brand by yourself by building your own little website on the brand.
So, these are new experiments and the big companies are very much interested in this. Not all the companies are enjoying the same level of development in terms of responding to the challenges of the market place. Some of them are much more traditional, some of them are much more in entrenched in defending their icon brands; the big old icon brands, some others are much more leaning towards acquiring the indie brands and some others are much more into experimenting new distribution models. So, I don’t know who’s going to win, but I tell you that there is a lot of awareness of the elements that are disrupting the marketplace right now and I’m sure, a hundred percent, that in the boardrooms of these big companies, there are lots of people working right now on how to solve the puzzle and how to react and how to redesign the future for their companies.
Daniel: I’m sure they are. I mean clearly… it is an industry, which is transforming very quick, so, thanks a lot Gianni for providing your insight. I think that our listeners won’t be able to claim that they don’t know anything about beauty after listening to this I think.
Gianni: Thank you very much for giving me the opportunity of expressing some thoughts on this market, which is really very interesting, very appealing and as I said at the beginning of our conversation, it is very large, growing and enjoying a vibrancy that probably it never enjoyed in the past.
Daniel: Yeah, absolutely. Well, I would like to thank you again Gianni and thanks to our listeners for joining us and look forward to seeing you again in the next podcast. Look forward as well to hearing your feedback, which is ,as you know, very welcome. Have a great day.
Gianni: You too, thank you very much.