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Major Companies Look to Younger Generation

WWD’s executive editor of beauty, Pete Born, analyzes how some of the industry’s leading thinkers are not just keeping up with the pace of change — they’re surpassing it.

OK. The revolution is here and good times are back —at least in makeup. So now what?

The U.S. prestige beauty business came roaring out of 2015 with a strong overall sales gain of 7 percent, and the digital revolution has firmly taken hold, transforming the entire dynamic of an industry once ruled by Boomers and now obsessed with Millennials.

As more major companies turn to the younger generation, capped by Estée Lauder’s planned launch of the Estée Edit, tremors can be felt across the market. It is logical to ask what challenges managers see on this year’s horizon.

There is plenty of optimism for the new digital order. Jane Hertzmark Hudis, group president at the Estée Lauder Cos., sees “not a challenge, but incredible opportunity.”

“It’s about the velocity of growth because the beauty business is thriving,” she says. “It’s about the velocity of change and disruption because the business is changing at the speed of light and it’s also about the velocity of opportunity.

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“Makeup is on fire globally,” she continues. “There is velocity in change in terms of the consumer looking for not just products but experiences,” she says, adding that the media scene has also been disrupted. “We [once] lived in a land of TV and print and now we live in a land of influencers. Some of the fastest-growing brands in prestige beauty have no advertising whatsoever.”

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Thanks to the power of social media, the playing field has been leveled, she maintains, noting that “Indie players have low barriers to entry and can be as compelling as the bigger players, all based on imagination and creativity.

“What 2016 is about is who leads the change,” Hertzmark Hudis says. “It’s about the velocity at which everybody changes their strategies, evolves them and creates a new path.”

While innovation and transformation are imperatives of the moment, there also seems to be an undercurrent of caution, particularly when it comes to guarding hard-won brand equity.

Carol Hamilton, group president of L’Oréal Luxe USA, asserts that the mushrooming growth of online shopping has reached “a critical point” and the brick-and-mortar business, the bedrock of beauty marketing, needs to be reinforced so that both sides of the brand experience—online and in-store—remain viable and balanced. “I’m not gloom and doom,” she says. “It’s a wake-up call to just make sure that we ratchet up and elevate one more time the overall experience for the consumer—making sure that our service is really great—beauty advisers, or any kind of service you can provide—is better than going online. We are not competing against each other, but we need to complement each other more.”

JuE Wong, president of the Elizabeth Arden brand, advocates making shopping less confusing and helping consumers make choices more easily—guide her through “the paradox of choices”—principally with the help of technology, like virtual makeup apps.

“When you have too many decisions to make you end up being very flustered,” Wong says.

Hamilton also reiterates her earlier concern over the erosion of skin-care growth. “Makeup grew 13 points last year,” she points out. “Skin care grew only 2.4 percent.” She, among others, agrees with an observation made by Karen Grant, global industry analyst at the NPD Group, that part of the explosive growth in makeup is attributable to women using cosmetics to achieve skin-care effects such as countouring, making themselves look younger. While Hamilton argues that these are shortcuts and an added benefit, at best, that cannot replace an actual skin-care product, she nevertheless is concerned: “Rebuilding the consumer trust in that area is something that keeps me up at night.”

Marc Rey, the recently named chief executive officer of Shiseido Americas, says he senses three factors continuing to worsen. With the explosion of media, consumers experience a plethora of touch points with a brand and its message, making it “even more challenging than before to be relevant and above all to be consistent.”

Another factor is the obsession with value, as seen in the proliferation of off-price outlet stores, gift-with-purchase deals piling up and the ubiquity of promotional offerings. “I know it is prestige beauty, but it is starting to give the feeling of a market that is trading down,” Rey says. The third factor is a concern shared by Jill Scalamandre, senior vice president of Philosophy and Coty Prestige Skin Care, who asks how to feed retailers’ appetite for innovation with successive product launches from one year to the next, while also achieving incremental growth and minimizing cannibalization during the anniversary process. “The race for new launches does not allow you to establish solid pillars,” Rey says, underscoring the danger of simply substituting one product with another.

“You have to have programs that build the core, so you do not launch and leave,” adds Scalamandre. Instead of resorting to the unprofitable practice of resorting to promotion, companies “have to find new ways of engaging the consumer with media.”

One challenge that has caught the eye of retail guru Paco Underhill is the competitive threat from Korean brands, which have excelled with a deeper understanding of beauty, well below the “peaches and cream” issues of complexion.

“It’s a recognition of where’s the new money in the world,” he says. “It is looking at skin lighteners. . . at women whose diets are different than ours. [It is] that synergy between looking good and feeling good.