In 1955, Walgreens distributed a black-and-white flier in Albany, N.Y., that read, “Fine Toiletries, Moderately Priced.” Over the years, Walgreens and other drug chains became leaders in affordable beauty products. With department stores controlling beauty’s upper tier, they were convenient destinations for young women. Beauty brands aggressively targeted these shoppers through TV and glossy magazine ads.
The 21st century dramatically changed everything. Department stores declined while other retailers gained prominence. Today, Sephora, Ulta, Target and Walmart are formidable drug store beauty competitors. Instead of TV and fashion magazines, Gen Y and Gen Z women get beauty tips from social media and online influencers. And rather than mega brands, they often embrace entrepreneurial “indie” and the other unique, environmentally conscious brands these retailers offer.
“In the Sephora era, we started seeing a shift away from department store beauty with retailers like Target building it out,” said Katie Thomas, who leads the Kearney Consumer Institute. “Walmart and Target have done a great job experimenting with brands, keeping beauty exciting. Drug stores haven’t evolved this way.”
Online beauty sales also continue to rise. According to macarta.com, U.S. online beauty should grow 48% by 2023. E-commerce helps women find unique items and is convenient. “There’s higher expectations,” said Alison Schilling, managing director, L.E.K. Consulting. “Younger generations want new products as trends change. Amazing search functions let you find very specific things. [Amazon] Prime has changed the game for everyone.”
Drug chain hurdles
Drug chains face unique challenges when it comes to reimagining a category: They often have smaller stores, cannot carry upscale brands and focus heavily on pharmacy. And they are not usually first to market.
“Drug stores are more followers than leaders, not the tip of the spear for entrepreneurs,” said Andrew Csicsila, Americas leader of Alix Partners’ consumer products practice. “Introducing indie brands is a big investment. I haven’t seen drug getting behind them like Target and Ulta, which are destinations.”
Entrepreneurial “indie” brands represent 1.7% of beauty sales, said Nielsen’s Indie Brands Intelligence report, but they are impactful and growing. Sometimes, indies are nurtured and adopted by mainstream retailers, for which they help differentiate offerings. But speed is essential when introducing them, since young women constantly seek new items. According to Nielsen, indie brands cut the innovation cycle from 18 to 24 months to less than 20 weeks. Can drug chains keep pace?
“Younger beauty consumers move faster than any other generation,” said Sonika Malhotra, CMO U.S. hair care, Unilever, and co-founder of all-natural hair and skin care brand Love, Beauty and Planet. “The cycle is shorter. Retailers and manufacturers must keep up with innovation. It’s moving faster than their insights. Target has really stepped up its game. Walmart has a huge platform and Amazon is trying to do so. Reacting quickly isn’t a choice. Somebody will do it faster.”
In recent years, drug stores’ priorities have revolved around expanding pharmacy services and adding produce and prepared food. “Drug real estate has been changing a lot, with pharmacy and fresh and on-the-go foods,” Schilling said. “Beauty hasn’t changed as much. They haven’t pushed the envelope like Target. In beauty, balance of shelf must change.”
Drug chains’ strategies also involve having multiple smaller stores per market; other channels erect one large store per market. “How many CVS’s are there per square mile compared to a Target?” Csicsila said. Beauty’s position near drug stores’ entrances, however, is an advantage. “It’s very prominent.”
Winning Retail Concepts
Online, mass and specialty channels are posing a bigger competitive threat to drug chains when it comes to targeting young women in beauty by offering innovative products, creative merchandising and on-trend marketing. Here is a brief look at what some competitors are doing:
UB Media, launched in May, allows brands to utilize digital ads to target rewards members, thus personalizing engagement.
MUSE Accelerator (September) supports early-stage BIPOC brands to launch and thrive at retail. Support includes financial support to foster development.
Introduced in June 2020 in select stores via a partnership with Credo Beauty, an exclusive clean beauty collection offers “unparalleled transparency” in sourcing, fragrance and ingredients.
Conscious Beauty, launched in October 2020, indicates which brands are cruelty free, vegan, utilize sustainable packaging and/or contain clean ingredients.
Ulta offers several exclusive brands, including Kylie Cosmetics, Kylie Jenner’s label.
Ulta stores feature in-house hair styling and makeup services, making them destinations.
The retailer does separate merchandising for natural beauty products.
Trial sizes let shoppers try pricey items with minimal investment.
In August, Ulta Beauty sections were launched at 100-plus stores.
In February 2022, Target added almost 40 new beauty brands, including “clean” and black-owned labels. Most items are $10 or less.
In March 2022, Target held the sixth cohort of its Target Takeoff program, which provides mentorship and a customized curriculum for new beauty brands.
Target offers exclusive beauty brands PIXI by Petra and Sonia Kashi.
Walmart launched five indie brands in 2021: Bubble (skin care); Uoma by Sharon C. (cosmetics); Monday Haircare; Health by Habit (supplements); and Luna Magic (cosmetics).
In August, five up-and-coming beauty companies were selected to participate in an accelerator program titled Walmart Start. The brands get the chance to introduce products at Walmart.
In October, the retailer implemented Walmart Creator. Online Creators who sign up get to review tens of thousands of products while earning commission on sales they refer. Platform users can share product links to any social platform, receive product recommendations based on interests and affinities and collect valuable performance data to help grow their community and followings.
The supplier side
“Indie” companies are not the only ones attracting the coveted young female segment. Several huge corporations have either purchased smaller brands or developed trend-right products themselves. This lets retailers obtain desired merchandise from companies with the bandwidth, experience and technology to service myriad stores.
Colgate-Palmolive purchased natural toothpaste brand Tom’s of Maine in 2006. In 2007, Clorox bought Burt’s Bees, a maker of natural lip balms and other products. CPG giant Unilever also has been aggressive, launching Love, Beauty and Planet in 2017 and purchasing Schmidt’s Naturals (soap, toothpaste and shampoo) in 2018.
Historically, labels were primarily offered in natural products stores. But changing demand has brought them mainstream. “Socially conscious brands are no longer on the fringes,” said Sonika Malhotra, CMO U.S. hair care, Unilever, and co-founder of Love, Beauty and Planet. “They’ve come to the center of the plate.”
Fifteen years ago, 90% of Dr. Bronner’s business came from natural products stores. Today, 80% is with big chains, said Mike Bronner, president. “Today’s consumers seek different reasons for believing in products than earlier generations. They don’t take brand claims at face value. They look behind slick salesmanship and marketing campaigns and want authenticity.” Dr. Bronner’s has manufactured natural, sustainably produced soaps since its inception in 1940.
Changes prompted Dr. Bronner’s to update its marketing. “Until recently, we never did traditional advertising,” Bronner said. “Money went for cause marketing. It was, ‘This is who we are and what we believe in.’” One third of company profits go to charity.
To keep the brand authentic, Dr. Bronner’s relies more on blogs, video and social media influencers. They discuss ethical ingredient sourcing, fair trade and other social issues. Media features real families using products. “We’re focused on storytelling and what happens behind the scenes beyond enriching stakeholders,” Bronner said.
Influencers are often self-appointed, independent experts. Some companies have recruited them as spokespeople. “Brands that harness the power of social commerce by influencers and other means become more important,” said Mark Hosbein, head of Magid’s Consumer & Commercial Brands practice. “It gives manufacturers and retailers major insights into consumers’ habits.”
Among Gen Y and Gen Z women, 44% are swayed by social media influencers compared to 29% of combined age groups, said Magid’s 2022 study, “Status of the U.S. Consumer,” Social media and podcast ads influence 27% of young women versus 23% of other groups. Just 17% of Gen Y and Gen Z respond to traditional advertising.
Unilever markets brands via social media, too. Love, Beauty and Planet influencers have discussed everything from littering to creating “beach” hair looks. Dove’s social media campaign talks about young girls and self-esteem.
Unilever’s TIGI Professional brand Keep it Casual flexible hairspray was a big Instagram hit. Introduced under the Bed Head label in 2022, it was the first item to come close to “breaking the top 10 products since the brand’s 1996 inception,” said Nataly Avila, head of TIGI Professional, Americas.
“Manufacturers must adopt these shifts into brand and innovation planning,” she added. “Traditional brands are still very relevant. It’s about positioning yourself as authentically as possible to that person when they need and want you most.”
An older product, the Bed Head Stick, went viral on TikTok in March after influencers discovered it. “This wasn’t a ploy by the brand,” Avila said. “It was the first product marketed by Bed Head. It’s now the go-to item for the slick bun look.”