IADS Press Release: In Beauty, department stores go full speed in Wellness, Niche and Loyalty programs

The feel-good factor: to thrive in an ultra-competitive market, department stores go beyond leveraging niche fragrances and make-up, and heavily invest in wellness, backed by revamped loyalty programs and social media on steroids. 

The pandemic has radically transformed the beauty and cosmetics category, a historical pillar for department stores. Big brands went direct-to-customer and challenged their relationship with stores. In parallel, customers’ expectations and tastes shifted, leading to a turnaround of the market, with big names being challenged and newcomers or niche brands taking the lead. To adapt, department stores adjusted their strategy and successfully invested in niche fragrances and new make-up brands. However, they also went beyond simple adjustments by entering a new market, wellness, to remain connected with customer demand. 

The Cosmetics & Beauty business grew on average +1% from ‘21 to ’22 for IADS members, to almost recover to its pre-pandemic level. But the fundamentals changed as Covid-19 shook the category in different ways: 

After a nose-dive in 2020 and 2021 due to the various lockdowns cancelling the need for such products, Perfume and Make-up categories grew again in 2022, benefitting from life returning to normal, and contributed to the overall growth of the department, 

The sanitary crisis fuelled a new customer obsession with self-care, favouring a new category which ramped up very rapidly: wellness-related products, which are now increasingly considered a standard part of the beauty offering in department stores, 

Brands went direct during the pandemic, new names appeared, and speciality stores deployed aggressive commercial strategies, forcing department stores to review their options to keep their customers captive, through new services, dedicated loyalty programmes and new social media approaches. 

Interestingly, these evolutions forced department stores to adapt their offer, but not their price structure: in ’22, segmentation remained stable compared to ’21, with luxury products representing 47% of the business, premium products 24% and prestige products 10%. The only notable evolution comes from the mass-market segment decreasing to 8% and benefiting the ultra-accessible business (7%), which had already been increasing before inflation hit. 

Good-looking and smelling nice: niche fragrance brands help differentiate while makeup makes a comeback 

Perfume is by far the first category for department stores, with an average of 36% of the category business. Sales are supported by niche fragrances, which are increasingly attractive to customers. IADS members mentioned brands such as Creed, Maison Francis Kurkdjian, Jo Malone, Byredo, By Kilian, Les Eaux Primordiales, Montale, Ex Nihilo, Mancera or Le Labo, as true success stories. El Palacio de Hierro and Breuninger in particular are pursuing a strategy which aims to become leaders and recognized experts in Mexico and Germany respectively.  

Accounting for 20% of the business in 2022, the Makeup category made a comeback with brands such as Mac back in full force. While it has a long way to recover to 2019 levels after Covid slowed down sales, in-store events represent great opportunities to redevelop the business, on top of sourcing and adding exclusive, new and trendy brands. This is why NellyRodi, a partner of the IADS, presented its exclusive scouting of up-and-coming brands made specifically for the Association’s members:  

Skincare: Topicals, Dieux, Cosmoss, Haeckels, Earth Library, Herbar,  

Makeup: Stryx, Isamay Beauty, Youthforia, Eclo Beauty, 19/99,  

Hair care: Fur, Oway, La Bonne Brosse, Make My Mask, Everist,  

Perfume: Non Fiction, The Nue Co, Costa Brazil, Les Eaux Primordiales, Aer,  

Other categories: V Vardis, Sentara Holistic, Miyé, Geske.  

The skincare category represented on average 34% of the business in ’20-’22 and was fuelled by demand for wellness-related and ‘green’ (or ‘clean’) beauty products. Many department stores reacted quickly with new spaces and services:  

Galeries Lafayette opened their “Wellness Galerie”, a world premiere, with the clear ambition to take the lead and make the trend accessible to a large portion of consumers. By combining a gym studio, fitness products, beauty and health-related services, with a care-oriented beauty store (heavily leaning towards ‘green’ beauty), the new space proved successful with all customer profiles, including GenZ and male customers.  

El Palacio de Hierro launched “Origen”, a new multi-brand space dedicated to wellness and ‘green’ beauty. Here also, there is no specific customer profile attached to such spaces which cater to different consumer groups and position the retailer as an expert in the category. 

Manor addresses such trends and demand for clean products by giving them more visibility in-store and online, thanks to dedicated events, podiums, and beauty advisor support.  

So far, Sogo in Hong Kong has relied on existing products. But their new Kai Tak store (opening end of 2023) targets younger customers, and they will start allocating space to wellness and ‘green’ brands.  

Whether they are run by brands or directly, beauty services are performing well and tend to expand in all department stores. At Manor, Clinique Matignon (a local partner offering peelings, laser treatments…) offers light procedures and the business is growing. At El Corte Inglés and Sogo, beauty cabins are managed by stores and ‘rented’ by brands with excellent performance. Nails, brow and lash extension services provided by partners are doing great at Manor and Galeries Lafayette. Initiatives such as temporary or permanent tattoo parlours worked their magic in terms of traffic at Manor and El Palacio de Hierro. 

Muscling the product offer should not be overlooked when it comes to growing the Wellness business: 

Sexual wellness represents a promising category at Galeries Lafayette with brands like Womanizer and My Lubie, which are slated to be expanded in several stores. Manor is considering sexual wellness as well.  

‘Tech beauty’ should rapidly develop in the future. At El Palacio de Hierro, Galeries Lafayette and El Corte Inglès, brands such as Foreo, Unicskin and Tripollar are working well, especially LED masks. Such products being technical, events demonstrating products truly generate sales.  

Building a captive customer base is critical in the beauty market. To compete with retailers such as Sephora, developing a loyalty programme dedicated to beauty (a sort of ‘beauty club’) could make a difference. Those that already have a beauty-specific loyalty programme note that customers are buying way more than the regular ones.  

Starting beauty-dedicated social media accounts also proved to be an efficient strategy. El Palacio de Hierro has an Instagram account dedicated to beauty: posts on this account truly support sales and brands are interested in partnerships. Also, TikTok has become a must-have: Manor and Galeries Lafayette recently launched their accounts and noted that posts about beauty draw a significant number of customers and increase sales.  

Post-Covid consumer aspirations are an opportunity for the Cosmetics, Beauty & Wellness business. Perfume and Makeup benefit from life getting back to normal, and the Covid-induced ‘Care’ trend remains strong, especially with wellness supported by new services and the rise of ‘green’ beauty. To further differentiate, department stores use dedicated loyalty programmes and social media as additional ways to consolidate captive customer bases.  

Read the full press release below:

Read the full press release, in French, below: