Hey Siri, make me beautiful!

Efficiently bypassing traditional channels, they are embracing new, widely available technologies that allow brands to directly reach their customers, whether they are traditional consumers or B2B buyers. The easier entry into new markets is leading brand owners to realize the importance of how changes in demographics, technology, and the overall community are reshaping the cosmetics industry. As in most retail categories, these changes are felt, but due to its discretionary nature, the cosmetics industry is more affected than others.

This same routine has been happening throughout modern history. Whenever we needed a new lipstick or a more moisturizing cream, we would visit our favourite store, whether it's a high-end niche cosmetics shop downtown, the nearest Sephora, or a drugstore. With the rise of e-commerce, it seemed like we could finally purchase makeup and skincare products with ease, with just a few clicks. However, it quickly became clear that this newfound flexibility came with necessary shopping experiences, and all that was needed was a digital mindset to streamline traditionally manual processes. It's up to the cosmetics industry to boldly transform its business to embrace automation and growth through digital transformation.

As digital transformation continues to evolve, beauty brands are primarily turning to two technologies: artificial intelligence (AI) and augmented reality (AR). Digital innovations have quietly disrupted the beauty industry for years. In response to these industry trends, cosmetic and beauty brands are focused on creating future plans, and big names are still hungry to make significant moves despite the risks of the times. However, to get closer and more personal with their customers, brands of all sizes are embracing changes in digital technologies.

For instance, as augmented reality has become a crucial part of the beauty industry, L'Oreal, one of the leading companies transforming into a digital beauty company, acquired ModiFace in 2018, a leading AR makeup provider. ModiFace is a cosmetic company specializing in artificial intelligence and augmented reality, digitally mapping an individual's face and then virtually applying products. ModiFace supports the revival of the beauty experience around innovative services to help customers discover and select products that best suit their needs. Pushing technological boundaries only works when there's a purpose, not just for the sake of technology. Established brands are learning from new market entrants and building new partnerships to reach their customers and remain relevant. Elizabeth Arden, in partnership with YouCam Makeup, offers a virtual makeup app that allows consumers to "try on" products through a virtual interface before purchasing directly from the company's website. Ophelia Ceradini, Deputy Chief Digital Officer and Technology Officer at Estée Lauder mentioned the use of online tutorials, helping launch a new skincare range. In addition to tutorials showing users how to apply eye cream and use a massaging applicator, the American company has developed a Facebook Messenger chatbot that assists customers in selecting products, including live consultations with skincare experts. However, maximizing digital channels presents several challenges. For example, a report on digital beauty branding states that 65% of women felt overwhelmed by options, considering the influence and number of influencers, media, and celebrities.

Digital Shades of Success

The beauty industry, growing from $483 billion in 2020 to $511 billion in 2021, with an annual compound growth rate of 4.75% worldwide, is expected to surpass $716 billion by 2025 and reach $784.6 billion by 2027. On most major beauty marketplaces, up to 85% of cosmetic product sales took place in stores before the COVID-19 crisis. With the closure of high-end cosmetic retail outlets due to the pandemic, approximately 30% of the cosmetics market shifted to online shopping. An interesting fact resulting from COVID-19 is the rise of "above-the-mask" beauty, where eye makeup sales increased by 204% in mid-2020 compared to the same period in 2019, while lipsticks were an early casualty of the pandemic, with sales on Amazon falling by 15%, and prices dropping by 28%.

Digital transformation is bringing about a new revolution in the cosmetics industry, where content related to fashion and beauty, such as makeup and skincare guides and product recommendations, are among the most popular content on YouTube. The most popular beauty and makeup YouTubers have millions of followers. For example, in April 2020, Mexican beauty vlogger Yuya was the second most popular beauty content creator on the video platform, with 24.6 million subscribers to her channel.

Therefore, it's not surprising that leading beauty brands are investing more and more in digital channels. In general, traditional cosmetics companies are making progress in using social media influencers and digital channels. Artificial intelligence, augmented reality, and digital technologies will become increasingly important tools for both established and new beauty brands.

Other major players like P&G, Johnson & Johnson, and Shiseido have introduced their technology-enabled systems. For example, Shiseido's Optune, a skincare system with IoT (Internet of Things) capabilities launched in mid-2019, integrates a mobile app that uses artificial intelligence to detect users' skin conditions and then delivers a personalized serum formula tailored to the changing skin conditions and environments of individual users. Optune is capable of delivering over 80,000 possible combinations.

Experience and Adaptation

As part of the new era of beauty retail, customers expect in-store tutorials that are increasingly becoming digital playgrounds, such as speciality stores. Some of them, like LVMH's Sephora with its Color IQ system and L'Oreal Makeup Genius, enable customers to virtually apply looks using customization concepts.

Digital technologies are not only transforming online experiences but also physical ones. A significant trend, already popular in consumer electronics, is Unboxing videos. Users can combine cosmetic subscription services like Birchbox with influential monthly Unboxing videos, creating a perfect blend of personalized, engaging, commitment-generating content, which is not just virtual but also physical user experience.

What lies ahead in the future? Brands should increasingly invest in their data analytics teams because these insights drive all new product development, purchasing, and marketing decisions. In the current times, this comes as a gift. This practically means that brands, to provide the best possible shopping experience, base their development and business on consumer habits, primarily on qualitative and quantitative information obtained from their customers.

With the development of digital technologies, beauty devices have become part of daily rituals as they become more accessible over time. However, beauty brands in the cosmetics industry should consider the existence of real consumer needs for such systems and whether they could perpetuate unrealistic beauty ideals.