Beauty Boxes: All the Rage

I recently wrote about Birchbox as an awesome KIO program, as I am sure you all read, but now they are facing some serious competition. 

POPSUGAR and Pinterest competitor The Fancy have released their own beauty box services. POPSUGAR is called a monthly must have- it is $35 for full-sized products and premium items work $100. This differs from the $10 Birchbox that only offers sample sizes.

 The Fancy is becoming well known as the Pinterest for shopping. For $30/month subscribers are promised $60 worth of goods in a category of their choice (men, women, gadget, kid, home, media, etc). The bonus of The Fancy is that they let you customize the box and are broadening out of the beauty space. 

Why are these boxes popping up everywhere? It works. Bottom line: its not just a bunch of crap in a box, its discovery commerce & marketing that women actually pay for. It makes money thought selling of actual goods, and is awesome marketing because it has a seamless transition from trying to buying. Plus, its analytics show its seriously targeted. Really, Birchbox has figured out a way to get women to pay home to be marketed to. To prove its loyalty to its 400 partner brands the Brichbox company actually buys inventory wholesale and operates it own shipping department. 

These subscription services are not just a fad, but something consumers and brands alike should pay attention to. 

Ecommerce Rewrites Luxury and Beauty Market

Undoubtedly, e-commerce increases in importance for all industries - from power tools to books, medical supplies to toys, e-commerce is a source of sales like never before. With advancements in technology, proliferation of portable internet devices and increased functionality of social networks, it is safe to assume this retail channel will continue to grow with force.

But two of the most important spaces for online retail are beauty and luxury. Take Estee Lauder Companies for example. In 2012 web sales increased worldwide, reporting 20% growth in the US, 34% in the UK, 40% in China and a whopping 55% in Germany. They've cultivated about 340 marketing and e-commerce sites in 50 countries since 2001. Total sales climbing 10.2% to $9.7 billion earned them the No. 58 spot on Top 500 list of internet retailers. Where those numbers only make up 5% of their total sales for the year, there is no question that web presence is becoming continually important for the sector.

This focus on e-commerce, however, could mean something quite different for luxury clothing brands. Online retail funding for custom-made clothes doubled last year to $328.7 million. Why are venture capitalists investing so much in this market? Because its booming. Custom clothing startups like J.Hilburn Inc., American Giant and Bonobos Inc. are gaining share in the US e-commerce market- winning customers because cutting stores from the supply chain allows for lower price points than department stores who often marked up 3x from factory to store. Putting it in perspective: a men's dress shirt from J.Hilburn sells around $125, the same shirt from Zegna on Neiman Marcus website sells for $325-$435, even though the fabric is sourced from the same Italian mill.

Lesson: Zegna and other lux brands need to differentiate themselves from this market to give (particularly Millennials) consumers a reason to spend the extra money since they are providing extremely similar services at fractions of the price. I say this is important particularly for the Millennial audience because, where they may be in school debt, they are the largest group purchasing apparel, spending 8% more than those ages 35-44. Millennials are willing to spend, sure, but are also aware of their debt and happy to find a deal, which is why sites like Gilt and Rue la la are so popular with this demographic.

Additionally, online sales are not limited to a computer. 41% of Millennials have made a purchase using their smartphone. We are seeing an influx of purchasing from tablets and smartphones across all demographics, and if companies aren't optimizing they are losing sales. And this is not just in the US- growing mobile device usage in emerging markets like China, India and South Africa create excellent opportunities for cutting edge luxury and beauty brands to increase sales and develop prefernce from Millennials, a fiercely loyal group.

South Korean Beauty Boom

Cultural values of beauty, constantly improving domestic manufacturers and recession repercussions have made South Korea one of the most important beauty trendsetters and booming markets not only in Asia, but the world.

In 2011 the professional skin care products market grew by 5.3%, driven by strong showings in China, growing by 9.3%, and South Korea, growing. Amore Pacific data concludes that the cosmetics market in South Korea is steadily climbing from 7.9 trillion in 2009, to 8.9 trillion in 2010 and 9.7 trillion in 2011. The boom in South Korea is largely attributed to a regulatory change that drove investment in beauty industries as well as greater consumer spending on domestic products. Furthermore, internet and home shopping channels grew by nearly 18% as domestic brands developed e-commerce channels contributing to larger online shopping channels.

All and all the digital sector plays a major role in South Korean beauty, with blogs and social media creating extremely savvy customers and e-commerce not only allowing for more purchases in-country but also from outside as well. If Chinese travelers are driving luxury sales in Europe, they are doing the same for beauty in South Korea. Cosmetic companies in the country have benefitted from the steady increase of Chinese and Japanese visitors and internet customers purchasing beauty products produced in South Korea.

The main reason for the boom, though, is the cultural significane of skincare and beauty in South Korea. Their shoppers are extremely beauty savvy, are knowledgeable about products and take their skincare seriously. They are unique in that 64% of the beauty and cosmetics market is comprised solely of skincare and makeup. South Korean women cherish flawless skin, leading to skincare occupying about 49% of their market. Between the facial skincare, makeup and night routine it is estimated that South Korean women use around 17 products daily.

Foreign beauty brands are recognizing the importance of South Korea, yet their sales are struggling. Beauty giant Estee Lauder is extending their portfolio to include a new DayWear creme in Asian retail stores, as well as adding a trio of Optimizer Intensive Boosting Lotions on-counter this month. L'Oreal also develops unique formulas and patents for its Korean market, citing the climate and lifestyle differences that must be taken into account for skincare. Regardless of tailoring their products, Estee Lauder reported an 11% decrease in sales from the first half of 2012 as compared to 2011, and Lancome posted a 17% fall in sales over the same period.

Decisions to purchase domestic products are supported by a variety of factors.
1) South Korean manufacturers have produced at a much higher quality over the last decade.
2) Aggressive marketing of "one brand shops"over the past few years, and their opening locations in major shopping districts, hypermarkets, malls and even residential areas.
3) Foreign cosmetic companies primarily sell at department stores, which customers have been avoiding during the recession.
4) Domestic products are significantly cheaper than foreign brands.

Foreign beauty brands should continue making products especially formulated for South Korean skin and environment, but they also need to look at their marketing and product placement. Using a KIO program to partner with bloggers to promote their products would be beneficial in gaining the trust integral to recruiting new customers would be key. Focused sampling plays, trial events and discounts could assuage the fear to spend during the recession.

Perhaps more importantly, recognizing the cultural differences in approach to skincare: South Korean women treat their skincare as a medical necessity, not superficial fun. Placing products in pharmacies and promoting a message of scientific benefit would be more in line with South Korean perceptions of beauty. Finally, creating one brand shops of their own, or partnering with domestic companies to get shelf space out of the department store could be a crucial win for foreign competitors.

The Next Big Beauty KIO Program: Birchbox

I've been hearing a lot of buzz about Birchbox lately, the web-based product sampling service. With the launch of Birchbox Man in April it seems popularity for the service has reached critical mass that any successful web venture needs. It is currently exploding in female demographics and poised to take over the male lifestyle category as well. For beauty, fragrance and haircare brands I believe Birchbox and Birchbox Man will become one of the most useful tools for key influencer outreach there is in the digital space. 

My conclusions are based on the following:

Sampling focus

Innovation and Competition

Pinterest integration 

Social media activity

Sampling Focus

Male and female interest in trying lifestyle products before they purchase them pairs perfectly with the mission of Birchbox, providing high end beauty and hair care samples to subscribers. Sampling has been an integral part in the success of brands like Aveda, Bumble and bumble and Sephora. Some big beauty families have not yet overtaken Birchbox sampling, so it is also an opportunity for young, small or up-and-coming brands to get in the game. For example, currently only two Estee Lauder family brands, Origins and Smashbox, are partnered with Birchbox. So the opportunity to be on the cutting edge of this service is still available for both big and small.

Innovation and Competiton

Brand space is filling up in the Birchbox lineup. Particularly for natural and organic beauty, there are several brands already using Birchbox, most notably Kiehl’s which is not only partnered with Birchbox but was recently featured in a promotion on the Birchbox Facebook page. Partnership with Birchbox could not only give beauty brands klout within the digital space, but stay in step with key competitors.

Pinterest Integration

Pinterest offers a huge area of opportunity to connect with KIOs, new customers and express brand loyalty. Birchbox has a solid 23,433 (and counting) base of followers. They have boards specific to the hair and beauty category where they feature partner’s products. Birchbox may offer an alternative avenue for brands who are not yet on the Pinterest bandwagon to participate in the Pinterest beauty movement.

Social Media Activity

Birchbox has an incredible engagement rate on its social media properties. To take an example, over the past month highly successful beauty brand (and one of my personal favorites), Aveda, has had a 1.3% engagement rate vs. 6.2% for Birchbox on Facebook. To put this in context, if 5% more Aveda fans were talking about Aveda on Facebook that would equate to roughly 25,063 more people chatting about their brand, leading to countless impressions and word-of-mouth worth. Birchbox fans social activity also translates to Instagram where they have 1.8x more followers than Aveda and an astounding 383,106 more Twitter followers than Aveda. 

It is always a good time for samples, but Birchbox has the opportunity to be a key ally to lifestyle brands when launching new products or invigorating old ones. All in all Birchbox is pioneering in the beauty space for both male and female demographics, and brands should take notice if they want to stay on the cutting edge. 

How the International Political Economy Impacts Beauty and Luxury Brands

As the economies of China, Brazil, India and Russia have increasingly become more prominent players in international finance, so have their citizens enjoyed their rising affluence. The Brazilian middle class comprised 54% of the population as of 2011, which makes it the largest of all five official classes and has allowed for a 4.4% increase in purchasing power between February and March 2012. This is nowhere as prominent in China, where the average disposable income per capital of China's middle class rose $2,240. Since 1980 Chinese yearly earnings have multiplied 10 fold. The Brazilian middle class comprised 54% of the population as of 2011, which makes it the largest of all five official classes. 


This rise in disposable income enables people to spend more on leisure activities than ever before. One such activity that is on the rise is travel and tourism. When passenger volumes increase, like those we are seeing in emerging markets, travel retail grows. As of 2011 the largest airport retail market was located in Europe, but some estimate that the Asia-Pacific retail market could grow as much as 75% by 2015.


The global travel market as a whole is fastest growing retail channel for beauty, fashion and accessories. It is projected to grow 60% to $45 bilion by 2015, and beauty sales, in particular, will likely grow more than 80% over the next five years. As travel and spending from these regions increase, so do companies investment in airport stores. For example, Estee Lauder already has nearly 1,000 airport stores, featuring such respected brands as Aveda, Clinique and Bobbi Brown. Estee Lauder Companies are looking to add additional stores in domestic airports in China and Brazil. To stay ahead of the curve, they are currently scoping out locations that could one day become vacation hot spots in China. 


Sales are not only rising in airport retail locations, but also in destinations as well. For example, tourism in Italy rose by 22% and and their spending increased by 24%. It seems that the Euro's devaluation is the tourist's gain. The Chinese Yuan, for example, rose 17% against the Euro last year, often making it less expensive to purchase luxury goods abroad in Europe rather than in their home country. Overall luxury sales could also grow by 15% over the next five years, mostly in travel retail outlets, and luxury retailers are taking notice. High end fabric and suiting brand Ermenegildo Zegna is spending aggressively on marketing to tourists by working with tour operators to inform them of Zegna outlet locations, hiring multilingual staff and adjusting the sizes and products featured in store. Zegna believes they could see a 10% growth in store as a result. Cheif Executive Officer Patrizio Bertelli of Prada and Chief Financial Officer of PPR SA (PP) and French owner of Louis Vuitton both contributed first quarter growth to the contribution of tourist purchases. 


Luxury and beauty brands must understand the shifts in the world market to stay relevant to their clientele. There is no doubt that the international beauty and luxury market should value and cater to tourists from emerging countries to ensure their brand's stability and growth as former powerhouses continue to rebuild their economies. 

Tablets in the Beauty Sector

Just wanted to bring attention to a hot technology trend in beauty: tablets. Tablets and screens are playing a bigger role in the beauty industry, which allows digital agencies to bring some really innovative ideas to our beauty clients.

IN-STORE: Clinique has handed out iPads for client consultations. Sephora uses iPads for make-up consultations, beauty services availability, and product reviews & info. Sephora is also testing the iTouch as a way to check customers out. Aveda has even partnered with ArmorActive to develop custom iPad stand (called Gravity Charge) with enclosed battery backup that are now being sold to the public. 

PRODUCTS: Makeup brands are actually making their products more high tech. Urban Decay's Book of Shadows Volume IV eye shadow palette doubles as a portable speaker and offers make-up tutorials with a scan of QR codes. 

EXPERIENTIAL: Glamour magazine set up in New York City during Fashion Week a temporary, shoppable wall stocked with beauty products. Leveraging SpyderLynk’s Snap-to-Buy technology, beauty mavens scanned 2-D bar codes with an app on their smartphone to instantly buy the product for home delivery. During that same week Glamour also outfitted 50 NYC cabs with technology allowing passengers to purchase luxury beauty products by swiping their smart phones over special tags inside the cab, dubbed "mobile taxi shops". 

With more big brands embracing technology both in-store and online as valuable to their sales it is an exciting time for digital advertising in the the beauty industry!