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Decoding the Changing Face of North American Beauty

Published May 7, 2024
Published May 7, 2024
Joshua Hoehne via Unsplash

A common language makes North America an enticing prospect for British beauty brands. However, moving across the pond can be tricky as revealed last week at the latest seminar from BeautyMatter and the British Beauty Council (BBC).

In a series exploring key global regions, the event dissected beauty in North America. It took place in one of London’s most prestigious hotels, Claridge’s in Mayfair, at the end of April in front of a packed house.

Titled Decoding the Changing Face of North American Beauty, the seminar follows related events in London covering the Middle East in September 2023 and the China beauty market in February 2023.

First on stage was BBC’s Chairperson Meribeth Parker who set the scene. At $93 billion, the US beauty market is the second biggest in the world behind China, she said. Management consultancy McKinsey forecasts that the US market will become more important over the next few years due to increased local competition and slowing growth in China.

“The US has become a hotbed for British brands as they search for trading locations further afield as a result of Brexit,” said Parker. “The British Beauty Council has been working with the government to ensure trading routes with North America remain open and red tape is reduced.” 

Specifically, the association has pushed for Britain to reinstate its US retail team after it was disbanded in April 2022. This will help smooth trading in the wake of new MoCRA rules reforming the US cosmetics industry.

Next up, BeautyMatter’s CEO and founder Kelly Kovack offered deep data insights in a session called "Understanding the North American Consumer." Circana data shows that the region’s beauty business grew by 15% last year, but Kovak noted there was also good growth in Canada and interest in Mexico—markets that often get ignored in the stampede for a US presence. 

Quoting the McKinsey forecast, Kovack noted the US will become the biggest market for beauty by 2027, reaching $114 billion versus China’s $96 billion. “Increased competition from really fantastic domestic brands in China has made the market incredibly competitive and much more expensive,” she said.

No Longer a Playbook in the Market

There is therefore renewed focus on the US to fuel growth. “There’s been a real consolidation of retail in the US market—essentially you have four retailers to choose from: Walmart Target, Sephora, and Ulta if want to get scale. This makes it an expensive proposition to launch,” said Kovack.

With department stores yet to reinvent themselves, the CEO said it was hard for brands to use this route to build a presence. Grocery is now carrying more beauty, but Kovack said that Amazon is “the big story”, growing last year at 26.7%, faster than any other channel. “If you don’t have an Amazon strategy for the US, someone will have it for you, so you need to know how you’re going to engage with Amazon when entering the market,” she warned.

Beauty speciality stores are also key, the chief protagonists being Ulta and Sephora. With consolidation came strategic partnerships: Ulta in Target and Sephora in Kohl’s, usually in strip malls. There is also SpaceNK in Walmart bringing consumers a more elevated beauty offering.

In the crowded prestige segment, Kovack noted a third year of double-digit growth to $31.7 billion annually. Prestige has been growing faster than mass, and part of the reason is mass channels in the US have become an elevated proposition. “So you have drug stores in Walmart and Target selling products that are also on the shelves of Sephora and Ulta,” she said. “There is no longer a playbook in the market. There are no rules.”

For example, beauty brand Bubble launched exclusively with Walmart and only then launched into Ulta. “I can’t remember a time that that has ever happened. You have to be where your consumer is, and if there is demand for your brand a retailer will take it.”

She noted too that retail theft was affecting many channels, but particularly drugstores. Sales were being hit because products were being placed behind glass, diminishing the consumer experience and reducing footfall.

The operational model has also changed, with distributors gradually becoming a thing of the past. Brands are often going direct or using an agent or consultant, which means taking on the costly burden of warehousing, logistics, and other back office elements.

On Canada and Mexico, Kovack noted that Canadian beauty grew 18% last year. Shoppers Drug Mart is a leader there through which Sephora has had a big push. Sephora has also been in Mexico for a number of years where the beauty market is expected to top $11 billon this year. Ulta recently announced its intention to enter the market, which will sharpen up competition.

Back in the US, the professional channel (salons, spas, and medi-spas) appears to be an untapped opportunity. “It could be a new distribution channel especially for skincare brands. There is also a lot of interest from private equity firms in consolidating this very fragmented market,” said Kovack.

Working the Distribution Channels

In the next segment, "The New American Marketplace," co-founder and President of BeautyMatter, John Cafarelli, moderated a panel that included Anna Teal, CEO of Grown Alchemist; Jessica Matlin, Director of Beauty and Home at Moda Operandi; and Akash Mehta, co-founder and CEO of Fable & Mane. They explored the North American distribution landscape.

Mehta explained how he took Fable & Mane’s India-inspired products into the Sephora ecosystem. An email with a six-page PDF (and no samples) was enough to get a foot in the door and into Sephora’s "kitchen," where new brands are nutured.

“They basically guide you to the best recipe for success. You'd be a fool not to take that opportunity because they are the market leader when it comes to knowing the trends, who the consumer is, and what they want. But it’s really important to make sure you are in the driving seat,” advised Mehta.

He added, “Work closely with your merchant ahead of time so you know what is planned for the next year and keep a budget for it. That’s really critical so you are not scrambling at the last minute.” 

Grown Alchemist, which uses biotech ingredients in its skincare, has focused more on specialty retail and professional channels to grow in the US because the brand also has a services component. CEO Anna Teal said, “For those channels, what’s important is storytelling, authenticity, and expertise. They have really helped to seed our brick-and-mortar distribution because we can incorporate hands-on services so people get to experience how our products work.”

She added that in professional salons you can engage with consumers one-on-one. “Stores effectively become a mouthpiece for your brand by building out a more holistic experience,” she said. Grown Alchemist has also developed a relationship with consumers through luxury hotels, resorts, and spas, where the experience, not a product sale, is paramount. It acts as a driver to purchase in retail afterwards.

For Moda Operandi, a luxury (chiefly fashion) online platform, Jessica Matlin was clear the site did not want "me too" beauty. “We have a very edited selection of brands. They don’t have to be first in the game, but neither should they be chasing a trend,” she said.

She also hinted at some level of exclusivity. “It can’t be something I know is launching with three different competitors the same day.” She name-dropped brands like The Beauty Sandwich, Westman Atelier, and Violette_FR “that come from an emotional place” and “feel like luxury.”

While it’s an online platform, Moda Operandi also has high-touch services for beauty. Private clients spending over $50,000 a year can have access to brand teams via Zoom calls or at special events.

How is the Online Market Doing?

During the Covid crisis, US online sales rocketed but in-store shopping is now back. In the "Breaking Through the Digital Noise" session, Kovack moderated a panel discussing where the potential lies in e-commerce, the DTC marketplace, and social commerce.

Joining her were Lee Yates, Strategy and M&A Director at eComplete, an eCommerce partner and investor; Charles Tellier, CEO of D2E-Labs, a services provider for marketplaces; and Kimberly Carney, founder and CEO of GlossWire, an online home for nearly 360 independent beauty brands.

UK-based Tellier began with a warning: “It’s complicated to play in the US. Each day I get tax invoices from different states. There is a cost of operation that everyone needs to be aware of simply to be compliant and to perform effectively. It's a vast market but it costs to perform well in it.”

Refering to Amazon, which Tellier knows inside out, he explained that the platform accounted for a staggering 55% of US e-commerce beauty sales in 2022, based on Euromonitor data, but has since risen to 65% as the platform rolls out ever-more-helpful tools to the consumer. This level of dominance is not as high in Europe.

Some prejudices from UK players also needed to be debunked. For example, that the Amazon customer might be price and promotion driven. He cited the Ralph Lauren fragrances page where the consumer experience “completely matches the one you could expect on its DTC website.” He added, “Yes, promotion is important but it’s not the only driver.”

Amazon is about convenience (two-thirds of US households have Prime accounts), so consumers may look at beauty products in-store but often buy online. “It means you should have all the tools in the box to perform effectively on Amazon to deliver the right consumer experience because it is very competitive,” said Tellier. It’s worth it because online revenue in the US can be 10 times more than in the UK if brands execute well.

Yates, at eComplete, reiterated how much more competitive the US market is versus the UK, and a lack of financial planning can be damaging. He said taking the profits out to the UK business to pay for American expansion is not a smart move. “People don't realize that they could be putting their UK business at risk.” Optimizing P&L is one way to make the transatlantic investment, and state- by-state targeting is also worth doing because they can perform very differently.

GlossWire’s Carney pointed out that emerging brands don't really have the infrastructure—or can’t afford the infrastructure—for e-commerce. “We have an immersive platform with data and insights that help brands make better product and strategic decisions. On the consumer side, they can also give feedback directly to the brands.”

“It’s complicated to play in the US. Each day I get tax invoices from different states. There is a cost of operation that everyone needs to be aware of simply to be compliant and to perform effectively. It's a vast market but it costs to perform well in it.”
By Charles Tellier, CEO, D2E-Labs

Scaling on TikTok

Carney added that GlossWire showcases the stories behind the brand founders through social channels and encourages purchase directly on the brand sites. Skincare, makeup, and men’s grooming are the platform’s top three sales categories, with consistent growth since launching in 2021.

Social media is a useful traffic builder, particularly for Gen Z, and TikTok is one of the big drivers. For example, Mielle Organics, ranked second on Amazon in Q1 2024, benefited from “huge social marketing interest, TikTok, in particular, over the past couple of years,” according to Tellier.

This is an open door for new brands. “There is probably a universe of 800 brands generating at least $100,000 per month (GMP) so over $1 million per year. That gives you an idea of the possibilities in this market,” Tellier added. Kovack noted that sometimes it is the third party sellers that may be making the most of the opportunity when it comes to smaller brands. “There is a lot of revenue at stake,” she said.

Yates said that more consumers were engaging with TikTok Shop even if they weren’t necessarily purchasing just yet. “So being a part of that digital touchpoint will help to amplify your overall proposition and how you're interacting with consumer.”

Right now TikTok Shop is “significantly less competitive,” according to Yates and offered a real way of breaking through the digital noise. “It's a new platform and brands haven't cracked it yet. And these platforms don't come around too often,” he suggested.

Untying the Legal Knots

On the very complex topic of beauty regulation the "Regulatory and Legal Considerations" session dealt with a number of issues related to MoCRA and the more general legal requirements to launch and scale up in the US market.

At software firm EcoMundo, whose modular solutions offer regulatory support in placing cosmetic in different markets, CEO Alexandre Detre said that the European Union was regarded as the gold standard with the Americans “starting to catch up,” a reference to the MoCRA legislation which has been a long time coming (running into decades).

He delved into the product technicalities of what the changes would bring such as banned ingredients, color additives, labeling, and sustainability—all the way up to processes like adverse events reporting, using US agents and facilities registration, and specific manufacturing practices.

From a legal perspective, Sarah Talland, Partner and Chartered Trademark Attorney at Potter Clarkson LLP, talked about the IP side, where the benchmarks are remarkably similar on both sides of the Atlantic. The main difference is that costly litigation in the US can happen far more often than in Europe, and it is something to avoid.

Talland’s top tips were to begin with clearance searches and protect IP right as soon as possible and well before a market entry, register copyright in the US (which you don’t have to do in the UK), keep good records of your trademarks and how you use them, and do not overlook of local/state laws when it comes to licensing and regulatory requirements.

Localizing and Going One-to-One

The final session of the day was a panel discussion titled "The Drive to Thrive in the North American Market." Moderated by BeautyMatter Editor Carla Seipp, it included Colette Laxton, co-founder of The INKEY List; Annabelle Baker, Global Brand Director at Lush; and Carrie Gross, Chief Creative Officer at Dr. Dennis Gross Skincare.

Laxton, in lively form, was quick to point out her brand resonates very differently state by state and that her number one door is Puerto Rico, not a US state but an unincorporated territory. “It’s been a learning. Even the difference between the US and Canadian consumer is massive. Canadians are very much like Brits; friendly and polite, while the US consumer is like, bang ... hit me with it.”

The INKEY List over-indexes in Canada where it is a top five skincare brand in Sephora according to Laxton. However she noted that average spend is higher in the US. “They love consumerism. So if you can sell them something, they want to buy it, which is always helpful. But trying to get US shoppers to keep coming back can be tough,” she added, suggesting that loyalty is a much trickier proposition than in the UK.

Lush, a UK company, benefits to some degree, from being thought of as Canadian because it set up manufacturing in Vancouver in 1996, a year after it was founded. US entry followed in 2002, and it now has about 250 stores in North America.

Baker described Lush’s business as “hyperlocalized” including advocacy and campaigns that can be high-profile. “Connecting this way was always part of our way of doing business. It has really resonated in both Canadian and US markets.”

The brand has been an activist from the outset, tending to look at what’s been reverberating at the local level, be it gay rights, palm oil use, fox hunting, or trans rights. The company takes a lead from groups on the ground when it comes to campaigning, and this has enhanced loyalty to the brand.

As a New York-based doctor brand sitting in regular retail and professional channels, Dr. Dennis Gross Skincare appeals to consumers with a problem-solution mindset, according to Carrie Gross. “We’re very high touch; we build relationships and we have incredible brand loyalty." 

She describes the professional channel as “very bespoke,” covering clinics, resorts, and wellness properties. “But it's always about relationships whether it's Sephora or these other partners.” Services are tailored by location (education, eventing, teaching techniques, etc.) meaning a sell-in and sell-through concept, location by location “and it’s very rewarding.”

All three brands use pop-up opportunities to drive consumer connections, though where these are placed varies. In the US, The INKEY List has found hypermarkets work much better for hard sales than a trendy location in New York’s SoHo, for example. Lush is more focused on brand awareness and thought leadership and is plugged into the festival circuit to get its messaging out.


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