When consumer spending is low, cosmetics sales rise. Known as “the lipstick effect”, this cosmetics sales boom kicks in when the stock markets start to fall. While holding back on big ticket purchases, shoppers can’t resist indulging in a little bit of luxury. It’s at this point when lipstick and fragrance brands can enjoy a sales boost. Agile brands with lean processes can also look forward to profitability increases. If there was ever a moment for “the lipstick effect” to kick in, surely it’s now. Yet only last week we saw the 90 year old iconic brand Revlon file for bankruptcy protection in the US as it tries to figure out how to repay mounting debts. While the court has authorized the cosmetics giant to borrow $375 million to sort out supply chain problems in time for Christmas, is this the only problem Revlon needs to solve?
Why is Revlon in the red?
News reports on the recent Revlon story cite ongoing supply chain problems and the cost of sourcing materials as the company’s key challenges, but competition from challenger brands is another problem Revlon has failed to address. It seems COTY-owned Kylie Cosmetics, backed by Kylie Jenner, and Rihanna’s Fenty are stealing market share. Both these brands are leveraging everything that social media and ecommerce has to offer when it comes to appealing to younger shoppers.
Does e-commerce growth mean slimmer margins?
McKinsey surveyed 50 ecommerce executives from CPG brands and they didn’t seem to think so. Economies of scale have a major impact on profitability, even on Amazon where margins are thinnest
Combining data from Forrester’s Ecommerce Penetration statistics, McKinsey’s report reveals another interesting fact: the health and beauty category is highly advanced in e-commerce maturity. Out of all the categories included, it is also third when it comes to ecommerce profitability. So the opportunity for profitable ecommerce growth is high. Why isn’t Revlon succeeding?
The report adds, “But the most crucial success factor is a company’s ability to optimize, in a precise and data-driven manner, the three main profit-and-loss (P&L) drivers: marketing investment, costs associated with revenue-growth management (such as trade and promotional spending), and supply-chain costs.”
It concludes that one of the top three priorities for margin improvement is e-commerce marketing investment, and I can’t help thinking that Revlon allowed itself to get left behind.
The hard truth is that Revlon has failed to tune in to today’s beauty shopper, especially in understanding where and how they shop. It would seem they have also underinvested in digital transformation and the tools that will help them execute a profitable ecommerce growth strategy.
While Revlon files for bankruptcy protection, challengers are enjoying the cosmetics sales boom driven by ecommerce and social media influencers. And it is the smart brands with frameworks in place for monitoring the category and adjusting their e-merchandising strategies to optimize this sales boost who will increase profitability.
How can iconic brands reclaim share from challengers?
While it seems Revlon is slow to adapt to this shift in buyer behavior, we are hoping it can turn the tide and reclaim its share of US sales. After all, leadership strategies are in Revlon’s DNA. For example, its 1940’s Lips and Tips campaign was the first to introduce the concept of matching lipstick and nail polish, and in the 70s, Revlon ran the first advertising campaign featuring a black model. So where are these first mover strategies today?
Before Revlon can begin to win on the digital shelf, it will need to invest in a digital-led, omnichannel strategy and invest in the tools to measure and refine it. Understanding how to win on the digital shelf will be key to Revlon’s future, however it unfolds, both in the US or in its international operations. Today’s beauty shoppers have moved online and Revlon’s rival brands are, wisely, investing heavily in their ecommerce business.
Before today’s shopper chooses a beauty product online they can check availability, explore customer reviews, use advanced search to find products that suit their lifestyle choices like “vegan friendly” or “cruelty-free”. They can also compare prices, find promotions and enjoy an enriched shopping experience fuelled by an engaging and highly creative content strategy. Why hit the high street?
If you want to find out a little more about how beauty icons are reclaiming share using digital shelf analytics, you can tune in to hear our Insights leader, Shazia Amin on How Beauty Brands Can Challenge a Challenger over here.
Or get in touch to find out more about how digital shelf analytics tools can help you increase share and sales in your category.