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Going 'Rouge': How Beauty Brands Are Winning at E-Commerce

Cosmetics are taking off online, and it's a fascinating phenomenon.
Image: File of lipstick displayed in the M.A.C flaghip store in Paris
It began with BB creams. Now a full-fledged Korean beauty invasion is underway in America.PHILIPPE WOJAZER / Reuters

Maybe she's born with it, maybe it's Maybelline, or maybe it's a product she discovered in a sponsored post on Instagram. Cosmetics are taking off online, and it's a fascinating phenomenon. This is stuff that by its very nature seems necessary to try on (or at least look at) in store, but consumer trends indicate otherwise.

A recent study by Fung Global Retail & Tech found that in 2015, the industry saw $6.2 billion (nearly 8 percent) of its sales occur online. The global cosmetics market is anticipated to grow annually by 4.3 percent to reach $429.8 billion by 2022 — and at the rate these online brands are going, we can expect e-commerce sales to make up a nice piece of the pie.

A Flawless Education

One of the greatest advantages online has over in-store when it comes to makeup is the ability to educate consumers on how products work. Often, brands will craft a short video ad that demonstrates use and effect of a product. They're more like YouTube tutorials than traditional television commercials, but they're quicker and more hypnotic than either.

Take Glossier, for example. The brand (which recently opened a showroom in NYC, but otherwise sells solely online) uses video ads on social media to show how a product is applied and what it looks like on a variety of skin tones. There is a sense of transparency and of being down to earth and "real" about what makes makeup fun and appealing. You see the entire process of say, the "Boy Brow" being applied to the eyebrows, even if the footage is slightly sped up. For the viewer, it's a luminous rush of information.

"It's almost formulaic in that it really boils down to imagery and education," said Elaine Kwon, CEO and founder of the e-commerce consultancy Kwontified. "There is beautiful, professional videography that shows you the product, and then there is the educational [aspect]. Information is given in an intelligent yet down-to-earth voice."

Related: Do Shoppers Prefer Brick-and-Mortar to Online Stores?

Plus, our brains are now trained to get information from the Internet. We can quickly click off the sponsored post and onto another page to read product reviews or other insights about a certain product or brand.

"There is so much information available online that helps consumers understand more about beauty products," noted Kwon. "Even as few as five years ago, people felt they had to go to a department store to understand what cosmetics were available to buy. But online has become a space where they can learn and where there are fewer barriers to entry."

The Social Media Persuasion

And online is of course, the home of social media — which Jennifer Gerard, owner of Gerard Cosmetics, finds is "tailor-made" for the marketing of beauty products.

"Some of these girls and boys on YouTube do the most beautiful things with makeup and it makes you want to buy everything," said Gerard, who adds that the brand focuses on building relationships with social media influencers and YouTube personalities to market its products.

"There are a lot of different ways to grow a brand, but I would rather invest in young people trying to start a business with their YouTube channels," said Gerard. "That's a closer connection than giving to conglomerates, and it reflects our aesthetic, personality, and promotes engagement with our audience."

Lisa James-King, founder of b-glowing, finds that social media fosters the sharing new items. That’s pretty helpful for an industry like cosmetics, which is somewhat manically introducing new products.

“Sharing with the customer how a product works and what results they may get is very powerful,” said James-King. “Tutorials and personal experiences are critical. In some ways B-glowing is part beauty editor and part therapist.”

And the pricing of social media advertising just can't be beat. Gerard says she turned to it back in 2011 with her other cosmetics company Whitening Lightning. "I started that company with $3,000 and I couldn't afford advertising, so I built relationships with YouTube channels."

Gerard has since embraced Instagram, where some beauty brands see their strongest return on investment.

"Instagram is "where it's at" still, in my opinion; even though we rely so heavily on SEO," said Laura Byington, CEO and co-founder of Omiana, a web-based natural makeup company. “Instagram is still the chosen social platform for several reasons: authentic displays of cosmetics being applied and worn; clout from the comments; and especially reinforcement from influencers."

Online or Bust

While some beauty brands are born online, others have blossomed into the space. Celebrity makeup artist LeDiedra Baldwin, owner of the makeup line LMB says she was "almost forced" to take her business to the internet just to feed the fans she'd generated from appearing on morning TV shows.

"I was getting requests from all over the country for my make-up and skin care line," Baldwin told NBC News. "In addition to sharing videos on Facebook, I heavily rely on Instagram to advertise. My Instagram followers, who purchase online, have shared that it’s the 'no filter' pictures that make them want to buy my products without having first tried them."

And then there are brands like H2O+ Beauty, which has moved the majority of its operations online.

H2O+ Beauty’s chairman and CEO, Joy Chen, said the move to shut down most of the company’s brick-and-mortar stores may have saved the brand, which was struggling when Chen came aboard two years ago.

"Having closely monitored trends in the beauty industries for years, I knew that H2O+ Beauty could not return to relevance without a focus on e-commerce," said Chen. "We completely overhauled our business model to prioritize e-commerce — from our website and social media channels, to our products and packaging. Our website now serves as our flagship store, and is optimized for mobile use so we ensure that customers can seamlessly engage with the brand no matter where they are."

Since shifting from offline to online and revamping its social media presence, H2O+ Beauty has enjoyed a 25 percent revenue growth and a 70 percent increase in profitability, a spokesperson for the brand confirmed.

Will Brick-and-Mortar Be Phased Out?

In a variety of retail categories, the question always comes up: "Is brick-and-mortar going to be phased out?" And hearing stories like Chen's makes one wonder if we shouldn't be asking the same question about the cosmetics industry — especially as more companies offer their products on Amazon, and also enable free returns and exchanges.

Kwon is of the opinion that brick-and-mortar stores of every shade "should and do feel threatened by the rise of e-commerce, especially when understanding that by 2021 Amazon will have 60 percent of all sales in the U.S." — but the beauty industry is one that probably doesn't have to worry as much as other sectors. Even with the growth spurt in e-commerce, the majority of cosmetics are still sold in store.

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"I don't subscribe to the theory that brick-and-mortar is dying when it comes to makeup," said Gerard. "People still want to go and try on a product. While we loved being just e-commerce, the company grew and it became necessary to [implement] brick-and-mortar placement, which is really picking up for us now. I feel we have done a good job of giving the gist of what our brand is about and how are products will relate to consumers online, but there's no substitute for testing the product in person."

Furthermore, there are still challenges that exist in the e-commerce beauty world. For instance, it’s very easy to get someone to watch a sponsored post on Instagram; but to get them to then complete the shift to the brand’s website, where they can actually shop the products, can be irritating: The site may be slow to load. You may be asked to log in to a site you don’t have an account with, or you may have to dig through the site to find the product you just saw an ad for.

"Some brands are making it possible to buy from the social media platform, but the code has not been cracked when it comes to buying from Instagram or Pinterest," said Keith Anderson, SVP of strategy and insights at e-commerce analytics company Profitero. "The challenge is in that transition from the ad to the website, from the consuming of content to the decision to purchase."

But it won't be a hurdle for long, Anderson predicts.

"Within a couple years the basic infrastructure will be established and people will understand how they can buy from distributed touch points with trust," said. "But right now, that is the challenge."