Beauty at a discount

Will online sales kill the traditional brick-and-mortar retail channel for cosmetics? The trade associations believe, they will eliminate the small retailer but many industry observers think otherwise. Examine the role of online commerce in cosmetics industry and its impact on the traditional physical retail companies in this article.

Veni, vidi, vici…. This Latin phrase popularly attributed to Julius Caesar seems to be applicable to one modern phenomenon in business: online commerce. During the past few years, India has witnessed an exponential growth of online portals which emerged as a dominant sector contributing to India’s consumer sales.

The latest report by software industry lobby group Nasscom and consulting firm PwC India states that India’s e-commerce market can potentially grow to $150 billion by 2022 from its 2017 estimates of $36 billion, a massive more than fourfold jump. This growth will be largely fuelled by rising incomes and a surge in internet users, where the report estimates the size of India’s middle-class to swell to 540 million from 380 million in 2017.

For the past two decades a growing Indian middle class has had a very powerful impact on the cosmetics industry. Improved purchasing power, extremely well-travelled and informed customers, rising awareness of beauty products, increasing premium on personal grooming, changes in consumption patterns and lifestyles has led to many women flocking the premium cosmetic stores. Social media has also played an important role in creating awareness and acts as an influential catalyst for cosmetics consumers.

The market size

Consulting firm Redseer estimates that the overall Indian cosmetics market which currently stands at USD 6.5 billion is expected to grow to ~ USD 20bn by 2025 with a CAGR of 25 per cent. In comparison, the global cosmetics market is growing steadily at 4.3 per cent CAGR and will reach ~USD 450 billion 2025. This means that by 2025, India will constitute 5 per cent of the total global cosmetics market and become one of the top five global markets by revenue.

The online cosmetics market, valued at $50 million, is two per cent of the total Indian cosmetics market. This category has attracted a few vertical specialists like Nykaa, Purplle, etc. who are riding on increasing e-tailing growth and vying for a significant pie in online cosmetics space. Nykaa, a vertical online market place started in 2012, offers more than 600 brands in both offline and online stores. It recorded a total sale of $43 million in 2016.

Special interest commerce

A trend that became visible during the past few years in the online retail space has been the emergence of cosmetics and personal care focused e-commerce portals. These sites, with their broad domestic and global brand baskets, are making waves in the Indian consumer space. A few of the prominent portals in this class are FeelUnique, GloBox, JoyByNature, NaturalMantra, NewU, Nykaa, Purplle, ShopMissa , and TheSkinStore.

According to Sandeep Chauhan, Manager – Operations, Volamena Organics Lab, the rise of special interest websites indicates the growing importance of online. “The working class women with growing disposable incomes is a major target of these online cosmetics players,” he says, indicating the reason why popularity of online has been on the rise in the recent past.

In addition to special interest ecommerce, cosmetic brands are also exploring the use of social media platforms to push their brands in the Indian market today. According to a research report by Paypal, about 52 per cent the total consumer demand on social networks is contributed by cosmetics, followed by online supermarket and groceries (44 per cent).

Monstrous discounts, these! 

With Amazon and Flipkart leading the pack, online stores have been able to offer deep discounts on products and consumers of beauty and grooming products are spoilt for choice with an array of international and domestic beauty products at prices that don’t burn a hole in their pocket. Take, for example, the price comparison of Maybelline New York Color Sensational Creamy Matte lipstick – Amazon and Flipkart offered it for Rs 299 each. It was available on Nykaa along with a Baby Lips Color Balm for Rs 438 till recently (the price on Nykaa is now Rs 474)

Offline retailers are feeling the heat of this makeover of the Indian consumer. Terming it as ‘predatory pricing’, the Confederation of All India Traders (CAIT) has been urging the Union Commerce Minister Suresh Prabhu to restrict preferred sellers of e-commerce companies to sell products on e-commerce portals and make it a level-playing field. Under this policy, the plan is to include multiple aspects in the legislation — from FDI, local storage of data, protecting micro small and medium enterprises to consumer protection and grievance redressal.

A key element of the draft policy that will affect consumers is the plan to check discounts, something that offline retail lobbies have been pitching for. The retailers’ grouse is that the discounts are not entirely from the sellers but from online stores themselves who infuse massive amount of cash to offer discounts. The apex body of traders in India even staged a nationwide mobile protest through a Rath Yatra to create awareness about the ill-effects of online commerce on retail trade.

It’s not just about buying

While the e-commerce channel is both sizeable and growing quickly, online shopping for beauty products is about more than just making a purchase: it is disproportionately about browsing and research products. There is another psychological factor that plays while buying beauty products online – Consumers need to visualise the colour against their skin tone, feel the texture and smell the fragrance to suit their tastes; all of which is virtually impossible!

Comments Sakina Jamnagarwalaa, Business Development Manager, Global Merchants, “The online sales channel has been growing across personal care categories. However, it cannot eliminate offline sales due to certain inherent advantages of offline. People like to touch and feel their products before buying.” Global Merchants has introduced a series of Ayurveda based products for which it is targeting the traditional retail sector by tying up with offline retail showrooms.

Volamena’s Sandeep believes that both, offline as well as online would survive and even complement each other in the near future. There are takers of this argument in the brand community as well. Volamena has its brand presence through offline retail channel in Western, Eastern and Central India. The company is now looking at expanding its market presence to South and Northern parts of India as well.

Listing out the advantages of offline retail, Yashu Jain, managing director, MATTLOOK Cosmetics observes: “We are moving to a time wherein there is a perfect working balance between online and retail sales, and both will co-exist. Retail outlets give the consumer the liberty to feel the product, enquire about the product in a very personal manner. All this is not possible on an eCommerce site. Also, when you purchase online, there are many instances wherein you are dispatched a wrong or a damaged product.” MATTLOOK Cosmetics focusses heavily on its offline retail channel. It has a strong network of 5,000 retail showroom partners and more than 300 distributors in India. 

Down to brick-and-mortar

The intrinsic benefits of offline probably are drawing some of India’s top online beauty retailers are choosing the traditional offline model for customers to try and test their products. The first among them to bite the bullet was Nykaa which, earlier this year,  raised $24.45 Mn (INR 165 crore) in a Series D funding round to fuel its plans to expand its offline presence from 17 stores currently to about 55 stores by FY19-end. Nykaa’s offline stores contributed 5 per cent of its total sale in 2016. According to a media interview, founder and CEO, Falguni Nayar, offering omnichannel to consumers is part of Nykaa’s strategy.

Hot on the heels is Myntra Beauty, which has announced plans to open offline stores that will be modelled on the LVMH-owned global chain, Sephora, and will have stores with 3,000-4,000 square feet of space each. The beauty marketplace sells more than 100 beauty and cosmetics brands, including MAC, Clinique, Bobbi Brown, and Estee Lauder, on its platform. With an aim to strengthen its footprint in the omnichannel segment, it also recently acquired Mumbai-based end-to-end omni-channel platform for retail, Pretr. 

The road ahead

Beauty product is a repeat business, and consumers after having tried and tested the products are more likely to purchase it online from these channels. Ms. Sargam Dhawan, Director, Paul Penders Cosmetics concludes: “Both these segments, online as well as offline retail have important roles to play in today’s market. We might see the online commerce gradually moving ahead of the traditional brick-and-mortar retail, but this change will never completely kill the traditional retail sales channels. Though there is an increase in the number of consumers in the market who prefer to shop online due to its ease, there are also some consumers who still prefer to experience the product before they go ahead with completing the purchase. This actual experience can only be offered by brick-and-mortar stores.”