PARIS — What is key for beauty brands building a business today? Having their own physical stores, according to a study by Oliver Wyman.

In a market abuzz about e-commerce, Millennials’ quest for personal experiences requires a different focus on the D2C model.

“Their expectations go beyond product features, and they are looking to buy related services that cannot be delivered solely online,” the report, titled “Building a $15 Billion Beauty Brand Through Boutiques,” said.

“In the context of the experience economy, physical retail will remain — and even develop — as an instrumental vector for growth for the beauty players,” Celia Friedman, a partner at the global management consulting firm, told WWD.

She drew a parallel with the sportswear segment, which went through a similar transformation. “Own retail is a key element of success for a brand purpose, of course, but for boosting sales, as well,” explained Friedman, citing the example of Nike, which doubled its sales.

In addition, indie cosmetics — such as NYX Professional Makeup — have excelled through their multichannel retail approach, allowing them to post double-digit revenue growth in recent years even as industry giants saw business remain flat.

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If flagship brands from behemoths such as the Estée Lauder Cos. Inc., LVMH Moët Hennessy Louis Vuitton and L’Oréal “adopt the new paradigm of a close, direct relationship with customers, we think they have an exceptional growth opportunity,” the study said.

Direct-to-consumer is paramount in a market whose sales have been growing on average by 0.2 percent annually between 2011 and 2016. “Our belief is that what’s going to build superbrands is the combination of online and brick-and-mortar distribution,” said Friedman. “It’s really the combination of both and the ability to combine the expertise from both channels.”

Oliver Wyman outlines six principles needed for beauty brands to develop their own retail networks, including providing a memorable in-store experience; delivering unrivaled value; knowing one’s customer; setting up an innovation lab that can quickly create, test and launch new products; being effective and efficient, and using both bricks and clicks.

Physical selling spaces can be difficult to run profitably in the beauty arena due to numerous factors, including the cost of leases in Europe and North America. Yet it is possible for them to be a nondilutive business.

“It’s a winning strategy, but only if you do it well, because it can also be risky as you will increase your assets, invest a lot,” said Stephan Picard, a principal at Oliver Wyman. “So if you don’t do it properly, then it can become dangerous or you will stop very quickly after a few stores because you think it’s too expensive.”

It is important, he said, to pick the right retail locations and develop a concept that will be economically viable. The same store clusters shouldn’t be everywhere, “but depending on your [economic] traction, you can get in a given city or a given neighborhood,” he continued.

Going direct-to-consumer off-line cuts out the wholesaler, allows brands to have better control of how they are experienced and takes them out of a multibrand environment that can reduce their impact, according to Friedman. The brick-and-mortar connection allows for consumers to touch products, as well.

“At the end of the day, it’s beauty. It remains very sensorial,” she said. “You need to feel it, to touch it, to try it on.”

“Own-brand retail networks have the potential to turn the beauty industry upside-down,” the report said. “If global beauty brands do not act swiftly, they might find themselves overtaken by the trend, which will be more than a passing fad.”

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