In July 2021, Sephora purchased Feelunique, one of Europe’s largest online beauty retailers, in a bid to enter the UK market and strengthen LVMH’s beauty ecommerce strategy. The Hut Group, owner of Lookfantastic, Cult Beauty, and Dermstore, also recently announced a plan to spin out and float the beauty division in 2022. THG Beauty is currently the largest online speciality retailer globally and expects to grow sales over 50% year-on-year to £1bn in FY21. We interviewed the Founder of Feelunique to explore how pure-play retailers work with suppliers and the opportunity for a global ecommerce beauty retailer.
There are some attractive attributes to selling beauty products online:
Beauty products are typically small products with a high-value-to-weight ratio which makes delivery cheaper and more efficient relative to general merchandise categories. Most beauty retailers only accept returns if the product hasn’t been opened; once a mascara or moisturizer has been used once, it cannot be returned. This reduces the fulfilment expense per unit below other online categories such as fashion which typically has a return rate over 25%. The combination of attractive product dimensions and low returns leads to a fulfilment expense as a percentage of revenue 5-10% lower than companies such as Asos or Boohoo.
The perishable nature of beauty products leads to a natural replenishment cycle which drives higher order frequency and repeat purchasing. The fact customers apply the product to their skin also lends itself to higher loyalty than other categories. Adore Beauty, the Australian-listed beauty ecommerce retailer, retains 61% of customers and has an average order frequency of 2.1x per year which increases to over 4x in year 5. Beauty almost takes the best characteristics of a category like food (perishable, high frequency, intimate and brand loyalty) but without the logistical challenges.
One other unique aspect of beauty as an online category is how it lends itself to community-based marketing techniques - as the Co-Founder of Feelunique put it:
with relation to beauty, there is a real community and an opportunity to create a narrative and story. It is one of the things that separates fashion and beauty from being under such an obvious threat from the likes of Amazon and some of the other more mass retail environments that exist, such as Alibaba and eBay. Beauty and fashion is, often, a very narrative and experiential purchase, so I think that gave us a bit of an edge. There are very few businesses that I would want to start in ecommerce nowadays because of the dominance of Amazon and others. It is easy to replicate straightforward retail but with luxury, fashion and beauty there is a real defensibility around the fact that it is part of the retail experiences that is the special nature of what you are buying. - Cofounder of Feelunique
An online community of 18-50 year old women interested in beauty products is a very different environment than a platform like Facebook or Twitter. This reminds us of an interview we hosted last year with the executive who built Sephora’s online community:
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