The US beauty market is continuing its streak of annual glow-ups—that is, year over year dollar sales boosts—and e-commerce sales may be stealing some of brick-and-mortar retailers’ sparkle.
Composed of hair, skin, cosmetics, and nail products, the market is on a five-year growth streak, with overall beauty sales rising over 6% last year to $107.5 billion, according to a new State of Beauty report from NielsenIQ. Last year, e-commerce sales increased 11.1% to $45.7 billion, while in-store sales rose 2.8% to $61.8 billion.
Online’s share of the total US beauty market has now reached 43%, up two percentage points YoY. In the next three to five years, that number is likely to blossom to 50%, Anna Mayo, VP of NIQ’s beauty vertical, told Retail Brew.
“We’re definitely seeing this transition to a digital-first industry,” she said, a move which has impacted not only where consumers shop, like Amazon and TikTok, but also how they shop, what they buy, and how loyal they are to brands.
Eye catching: Growth in e-commerce over the last five years has been driven by innovation in the channel, Mayo noted, with the advent of options like click and collect, social selling on platforms like TikTok, and the expansion of Amazon’s beauty assortment.
Amazon gained 2.1 points of retail beauty share YoY, and 7.3 points in share since 2021. Of that growth, 64.1% has come from Amazon shoppers buying more beauty products, 30.9% from consumers shifting from beauty specialty stores (like Sephora or Ulta) and mass (like Target or Walmart) to Amazon, and 5% are new buyers. Meanwhile, beauty specialty remained flat, mass retail lost 0.2 points of share, and DTC lost a point of share.
Consumers have been turning to Amazon for beauty product replenishment, shifting purchases from a retailer like Target or Sephora, Mayo said. Amazon has also been able to get consumers to grow their cart size (“which generally means they’re shifting a purchase away from somewhere else,” she added). That’s led the e-comm giant to grow double-digits among nearly all beauty and personal care categories NielsenIQ tracks, Mayo said.
Alternatively, on social commerce sites, 68% of purchases are made on impulse, per NIQ. TikTok Shop is “the fastest growing beauty retailer that we’ve ever seen,” and now the eighth-ranked US beauty and health e-commerce retailer, Mayo said. And more innovation in the social selling space, including shopping capabilities through YouTube and Snap, could drive further growth, especially as the future of TikTok is still unknown, she said.
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Off brand: Over the past two years, beauty brand loyalty has dropped by 20%, largely a result of this rise in e-commerce. While in-store beauty shopping tends to be more brand-based, as consumers have become more educated about the ingredients they’re looking for, like hyaluronic acid or retinol, they’ve turned to online shopping to seek out products using those key words, Mayo said.
“It’s almost commoditized these products a little bit,” she said.
On Amazon, 90% of CPG searches are unbranded, according to NIQ. Across all beauty categories, 76% of deodorant searchers had a brand in mind, followed by 72% of shampoo and conditioner searches, and 71% of hair color searchers. Those categories are more “tried and true,” Mayo noted; consumers might not want to mess up their hair color or, well, smell bad. The lowest end of the spectrum was the more experimental categories of cosmetics and nail, at 58%.
That doesn’t mean that private brands are necessarily a notable threat, however. While private label accounts for a significant portion of other CPG categories like grocery (with about 23%, per Circana), private label is just 5% of total beauty sales, NIQ found. Deodorant, again, reigns supreme, with 99.9% sales coming from a national brand, followed by fragrance at 98.9%. Even the category with most private label penetration, bath/shower, was still made up of 92.1% national brand sales.
But there’s still opportunity for private brands to grow those margins. “There’s certainly room for retailers to evolve on this and do even better than we’re seeing right now,” she said.
Makeover montage: The in-store experience, meanwhile, has largely been stagnant. And some stores have been putting items on their shelves behind lock and key to prevent theft, ultimately pushing more consumers to shop online, Mayo noted. Beauty retailers will need to return to their roots around brand discovery and exclusivity, and leverage the “secret sauce” of their loyalty programs, to keep customers coming back to their stores, she said.
“If Amazon’s got the same selection at the same price, it’s taking away a lot of the incentive to go to these beauty specialty or mass retailers,” she said. “And if TikTok made it more fun, it pulls at both ends of the spectrum.”