{"id":3367,"date":"2018-08-16T20:35:50","date_gmt":"2018-08-16T15:05:50","guid":{"rendered":"http:\/\/www.intelligencenode.com\/blog\/?p=3367"},"modified":"2025-06-23T15:59:44","modified_gmt":"2025-06-23T10:29:44","slug":"can-the-beauty-industry-survive-an-amazon-onslaught","status":"publish","type":"post","link":"https:\/\/preprod_www.intelligencenode.com\/blog\/can-the-beauty-industry-survive-an-amazon-onslaught\/","title":{"rendered":"Can the Beauty Industry Survive an Amazon Onslaught?"},"content":{"rendered":"

Decades-old retailers with valuation in the billions are quaking in their boots, afraid of one name above all others: Amazon. The Seattle-based titan of eCommerce looms over the entire retail economy and is expanding to more and more verticals with each passing quarter.<\/span><\/p>\n

It\u2019s only a matter of time until incumbents in the beauty industry find themselves putting out wildfires with a thimble of water. Before it\u2019s too late, beauty retailers must implement retail analytics<\/a> and smart eCommerce practices and evaluate factors such as minimum advertised pricing<\/a>, product positioning, and assortment optimization<\/a> processes if they hope to stand a chance.<\/span><\/p>\n

Bottom of the Barrel<\/span><\/h2>\n

Whenever you check out of an online store and purchase the items in your cart, you may end up paying less than you thought, less than the price that was advertised. These savings come from an industry-wide principle known as <\/span>minimum advertised pricing<\/span><\/a>, or MAP.<\/span><\/p>\n

MAP is an agreement between retailers and manufacturers that retailers won\u2019t broadcast or post the price of a product below a certain threshold to ensure the manufacturer receives its desired profit margins and to protect its brand from maligned perceptions. This doesn\u2019t determine the final price customers pay in the end, but it does guide purchasing behaviors and relations between retailers and manufacturers.<\/span><\/p>\n

Beauty retailers will find themselves constricted by MAP and brand compliance with manufacturers when going head-to-head with Amazon, which isn\u2019t bound by such agreements and frequently defies manufacturer\u2019s wishes as it pushes prices to the bottom.<\/span><\/p>\n

In order to keep a healthy sales pace, beauty retailers need to employ analytics software and processes akin to Amazon\u2019s, so it can scan Amazon and other competitors\u2019 sites for prices and make them competitive, either as advertised or sold.<\/span><\/p>\n

No One Really Wins Price Wars<\/span><\/h2>\n

When Amazon enters a new market, it plays to win. It algorithmically drops prices to the levels lower than everyone else\u2019s, focusing less on profitability and more on becoming the destination for all shopping.<\/span><\/p>\n

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Affected retailers feel they can respond by lowering their prices to compete and maintain sales, which undercuts their profit margins and enrages their manufacturing partners. Unfortunately, Amazon\u2019s prices are governed by algorithms that perpetually push its prices below other competitors\u2019, turning it into a race to the bottom. And when a market reaches the bottom, victory goes to whoever has the most scale, which will forever more be Amazon.<\/span><\/p>\n

Look at the consumer packaged goods (CPG) and electronics markets for a history lesson that will absolutely repeat itself.<\/span><\/p>\n

Big brands owned by huge conglomerates like Colgate-Palmolive, Kimberly-Clark, Nestl\u00e9, and Procter & Gamble are getting squeezed in the <\/span>CPG price wars<\/span><\/a>. Consumers are shifting their habits and opt for cheaper goods. Brand loyalty is quickly becoming a thing of the past, as these aging giants are discovering.<\/span><\/p>\n

The dust may have settled in the electronics market, but its lessons still have immense value today. Amazon started selling electronics in 1999, focusing on items like remotes and headphones. This approach shattered electronics retailers\u2019 margins, <\/span>bankrupting Circuit City<\/span><\/a> in 2008 and sending Best Buy on a years-long downward spiral.<\/span><\/p>\n

Best Buy survives today purely because it scaled back operations and shifted its sales focus onto services, a much more expensive process than running an online marketplace. As well, Best Buy practically bent the knee to Amazon because it now sells Amazon\u2019s Fire TVs.<\/span><\/p>\n

So how has the beauty market lasted this long and what will it look like when Amazon comes knocking?<\/span><\/p>\n

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Source : LSN Global<\/figcaption><\/figure>\n

Beauty products are best tested in person, no doubt. Even augmented reality can\u2019t simulate the texture of a new lipstick or the scent of a skin cream, which means brick-and-mortar remains an essential component to this industry.<\/span><\/p>\n

Social media and community engagement<\/span><\/a> have proven to be powerful drivers for sales growth for beauty brands and retailers alike. Sephora\u2019s Beauty Insiders Community, which functions like an internal social network and rewards program, is sure to keep customer loyalty strong.<\/span><\/p>\n

When Amazon starts building a beauty recommendations program like its <\/span>personal stylist feature<\/span><\/a>, that\u2019ll be a huge signal fire for the beauty industry. Not much later, Amazon will start selling white-label products for much cheaper than industry incumbents can sustain.<\/span><\/p>\n

Next from Amazon\u2019s playbook will be the partnerships. Amazon will find some smaller beauty brands hungry for increased sales and offer a sweetheart deal they\u2019d be stupid to refuse. As retailers begin to feel a chill in the air, Amazon will swoop in and partner with one to start stocking and recommending its white-label products, be it Sephora or Ulta or a handful of smaller retailers.<\/span><\/p>\n

The sheer scale and opportunity Amazon offers will be too lucrative to resist, especially for the first movers.<\/span><\/p>\n

Preventive Measures<\/span><\/h2>\n

So if that\u2019s what the problem looks like, beginning, middle, and end, what can beauty retailers do to shore up their position?<\/span><\/p>\n

First, they should keep employing similar innovations like Sephora\u2019s Beauty Insiders program and leveraging social media. That\u2019s a strong defensive moat and will certainly cost Amazon a lot of resources and time to replicate.<\/span><\/p>\n

Next, beauty retailers need to start using some of Amazon\u2019s tactics against it. Deploying onsite user analytics is the first step, but the technology necessary to compete will go far beyond abandoned cart reports. Amazon has tracked user behavior for over a decade and built a recommendations engine from all that data that feels personalized to each and every user.<\/span><\/p>\n

Beauty retailers need to analyze user behaviour at scale and start running experiments with product positioning and assortment optimization. They need to answer questions like:<\/span><\/p>\n