Here’s Why Leading Beauty Companies Might Reduce Their Dependence On Departmental Stores For Sales

Departmental and beauty retail chain stores might be featuring less products in the future from leading beauty companies such as L’Oreal and Estee Lauder. Along with selling their in-house brand of products, thereby offering lesser shelf space to the beauty companies, these stores are also showing a declining trend in sales that is discouraging the beauty companies. Hence the trend of beauty companies, such as Estee Lauder and L’Oreal, opening standalone stores, especially for their luxury brands, might keep growing in the future.

Dearth In Shelf Space

According to a report by the Wall Street Journal (WSJ), it seems that products from cosmetics giants like L’Oreal and Estee Lauder are facing the threat of being sidelined from the shelves of the luxury beauty retailer, Sephora. Along with the rise of Sephora’s own private label brands coupled with its parent company, LVMH’s launching of multiple beauty brands, the shelf-space allotted to the likes of L’Oreal and Estee Lauder might keep diminishing. According to the WSJ, the fifteen beauty brands of LVMH take up almost half of the shelf space in Sephora’s makeup section, consequently making the 185 other available brands fight it out for the remaining space.

Millennial Attraction

There has been a rising trend among beauty retailers to open their own standalone stores. Last November, Estee Lauder opened its first standalone store with the Estee Edit line in London. A major reason for the growth of such stores is to attract the millennial clientele who love visiting shiny and sleek outlets with digital facilities and glamorous events involving celebrities resulting in social media worthy pictures.

Departmental Stores Are So Yesterday!

Another big reason for the rise of these standalone outlets is that departmental store sales are currently on a downhill trend reaching from around $87 billion in 2005 to around $61 billion in 2015. In fact, in its Q1 FY 2017 earnings call, Estee Lauder’s management did mention that the persistent setbacks in the U.S. mid-tier department stores due to low traffic was one of the main reasons for the company’s slow growth.

Brand Awareness

The standalone stores give all the focus to one brand itself thereby helping create more awareness and hence a loyal user base for the brand. In a departmental format, there’s always competition with the rival beauty brands also fighting out for the customer’s attention along with shelf space. Customers can buy all their beauty needs from the same brand in a standalone store thereby eliminating the threat of rivals. It increases the chances of a loyal fan following among users as well as the users praising the products on social media thereby increasing the chances of more potential loyal buyers. Estee Lauder’s MAC brand received significant success by this standalone format.

It is no surprise then that the leading beauty companies are trying to focus on other channels such as standalone, travel retail, and digital to increase and grow their sales. If we consider only makeup and skincare, the top two global beauty players, L’Oreal and Estee Lauder, currently enjoy around 30% of the world’s ~$65 billion makeup market and 20% of the ~$128 billion skincare market. With such a powerful influence over the beauty world, it will not be a surprise if they keep gaining in presence through independent stores.