October 01, 2010
by Michael Rice, Ivy Carter and Rebecca Larson
Click here to order the Direct Selling News issue in which this article appeared.
Beauty and personal care products remain a cornerstone of the direct selling industry.
If the average consumer looks in their medicine cabinet, on their bathroom counter or in a drawer, they are bound to see at least one beauty or personal- care product. Regardless of how the consumer may attempt to scale back on their spending habits of nonessential items, basic hygiene, such as looking and smelling good, is a necessity. Thus, consumers prefer to scale back on higher-end brands for beauty and personal care rather than forgo the expense entirely. These cutbacks on higher-end branded beauty and personal care products have thrust direct selling beauty companies into the spotlight, capturing more than $10 billion in yearly sales in the beauty care industry.
In June 2010, Direct Selling News captured the DSN Global 100, which represented the top direct selling companies in the world, and of the top 20, almost all have strong beauty and personal care product lines. The global revenue representation of direct selling markets reveals some important truths about consumerism in times of economic uncertainty. Direct selling companies have been integral to the beauty industry for more than 100 years.
The global financial crisis has, undoubtedly, taken its toll on the Beauty and Personal Care (BPC) industry. According to Euromonitor International, a global market research company, a poor performance in U.S. (the world’s largest market) retail BPC led to a 1 percent drop in the North American market for 2008–09, and those numbers threaten to remain stagnant for the next five years. The second-largest global market, Japan, also failed to impress. And a surprisingly lackluster performance in the Russian market put the brakes on the hopes for Eastern Europe, slowing growth to just 4 percent in 2008–09, down from 11 percent the previous year.
But the news from around the globe wasn’t all bad. Brazil showed a growth of 15 percent for 2009, and China’s beauty industry grew by US$1.7 billion overall. Moreover, while retail outlets and department store sales slumped, the direct selling industry showed positive growth in spite of the global economy.
Of the top 20 companies in the DSN Global 100, all but four have a hand in the beauty industry. Some may surprise you:
1. Avon Products Inc.
Analysts agree that there are two main factors that have kept BPC lines at the top of the direct selling market. First is the notion that personal care products are not an option, but a human necessity. Certain segments of the beauty and personal care market have historically been impervious to the ebb and flow of the economy. However, consumers aren’t likely to give up basics.
“For men and women the beauty industry offers a means for building self-esteem, and together with its direct link to fashion, contributes to boosting one’s self-image and self-esteem,” says Janice Jackson, Senior Vice President and Chief Marketing Officer at JAFRA Cosmetics International.
The second factor is that while beauty is good for direct selling, it turns out that direct selling is also good for the beauty industry.
“Direct selling has a number of advantages which has supported its historic growth and will also benefit it in the future,” says Irina Barbalova, Industry Manager for Beauty & Personal Care at Euromonitor. “In addition to the ease of setup and the ability to quickly adapt to market conditions, direct selling offers close contact between distributors and consumers.”
The optimism of continued growth in the direct selling companies that prominently position beauty and personal care products resonates throughout the industry, thanks to the one-two combination direct selling companies offer consumers—intimate personal connections and high-quality products. While the pairing of beauty and personal care products with direct selling has deep roots, there is new thinking regarding how that relationship will develop in the future.
The financial crisis gives us all a chance to reconsider our markets, products and practices,” says Mauricio Bellora, CEO of Natura International. “It has provided a great opportunity now, like a reset button.”
“The financial crisis gives us all a chance to reconsider our markets, products and practices. It has provided a great opportunity now, like a reset button.”
—Mauricio Bellora, CEO of Natura International
The New Face of Beauty
The direct selling companies’ beauty and personal care products, once a hidden gem only offered through face-to-face interactions, are emerging from the darkness. Consumers are more aware of the quality products direct selling companies offer, and this awareness continually increases, as companies such as Avon, Amway and Mary Kay—in the top five on the DSN Global 100 list—go beyond the traditional personal contacts to promote their beauty and personal care products.
The push for increased awareness helps the industry deal with a new breed of consumer; one who is not just concerned with being thrifty. Today’s consumer is a wiser, savvier, more socially aware individual who has been empowered by the Internet and new media technologies. This consumer is cost-conscious but not unwilling to pay a premium for the right product. And what constitutes the right product extends beyond the image of the brand to encompass that of the company and its management policies.
“Many companies have now shown greater creativity and flexibility in how they position and develop a new product, by borrowing from the high-tech R&D expertise of their premium lines and transferring this to new and more affordable ranges,” Barbalova says.
That kind of innovation is not limited to the design of new products but also applies to manufacturing, distribution and marketing. As consumers seek to learn more about not only what they buy but also who they buy it from, direct selling companies are better equipped to step to the forefront of the beauty and personal care industry. Televised ad campaigns, social media sites, blogs and other effective marketing tools are constantly being used by direct selling companies to increase consumer awareness on beauty and personal care products.
These campaigns capture the attention of teens, younger and mature women, as well as men who seek to maintain their appearances. Rodan + Fields has become a staple in more than 30 mainstream and high-fashion magazines, such as Allure and Marie Claire. Artistry by Amway is also highly visible and well-recognized, particularly since it became the official sponsor of the Miss America pageant. Highly viewed fashion magazines, such as Lucky and Self, discuss direct selling companies’ beauty and personal care products within their pages.
The Missing Ingredient: Personal Connection
It is evident that beauty and personal care products are everywhere, from the corner drugstore to high-end retail and department stores, yet overall beauty and personal care product sales through traditional retail channels has decreased. Why? Some claim this is caused by the lack of a personal connection. Consumers can visit any major retail or department chain to purchase beauty and personal care products, but if the need to have questions answered arises, the consumer is usually left with unanswered questions or a despondent salesperson looking for an “actual” buyer.
Direct selling stands its ground to be the safety net for consumers who want to know the ins and outs of a particular beauty or personal care product. In markets where retail distribution channels have been historically underdeveloped, direct sellers are making analysts very optimistic. Daniel Latev, Non-Store Retail Research Manager at Euromonitor International, echoes this sentiment, pointing out that direct sellers accounted for almost 18 percent of skincare product sales, or more than US$14 billion in 2009. Overall, global beauty and personal care was worth US$40 billion, or around 11 percent of total sales.
“Direct selling was one of the few channels which grew their share slightly during 2009, benefiting from the recruitment push for new distributors by major players, such as Avon,” Latev says. “It also benefited from the higher unemployment rates, which made more people look for extra income.”
The advantages of direct selling as a business channel go beyond low overhead and simplified distribution. Direct selling allows for an intimacy with the consumer that many traditional retailers can never aspire to. The direct sellers of beauty and personal care products, as well as direct sellers as a whole, have the ability to first and foremost establish a relationship with consumers and then sell the product.
“While women will certainly browse cosmetics counters and racks at retail, they don’t want to be sold ‘a look,’ ” says Sheryl Adkins-Green, Vice President of Brand Development at Mary Kay Inc. “What they value most is a customized product consultation. Direct sellers have the advantage of providing consumers with advice and service from someone they trust, whereas retailers have too much staff turnover to compete with this benefit.”
It’s the business model of establishing relationships and assisting consumers with finding the right product that has allowed direct selling companies to sustain and endure.
Putting Beauty in the Hands of the Beholder
With the continued increase in direct selling companies marketing beauty and personal care products directly to the consumer, there is an increased awareness in the consumer’s need to learn more about beauty regimens. Another aspect in the beauty and personal care industry that is seeing growth is in the development of at-home beauty kits. Do-it-yourself (D.I.Y.) products are quickly gaining popularity as sensible alternatives to more costly salon, retail and high-end department store visits.
Direct selling companies are diligently working to capture the new trend of do-it-yourself in the beauty and personal care industry. The work of the research and development teams at top-ranking direct selling companies shows the industry’s dedication and commitment to finding and securing the best practices for both the company in question and its consumers.
“Beauty is one of the fastest-evolving industries, and it’s not enough to be on-trend—you have to be ahead of the trends,” says Jeri Finard, Senior Vice President and Global Brand President, Avon Products Inc.
Avon has more than 300 scientists and technicians from all over the world with expertise in biochemistry, pharmacology, molecular modeling, bacteriology and formulation who work together to create and evaluate nearly 1,000 products every year.
Mary Kay Inc. spends millions of dollars and conducts more than 300,000 tests to ensure that every Mary Kay product meets the highest standards of safety, quality and performance. The company also strives to ensure that each product combines a scientific perspective with an understanding of consumer needs and desires; the Mary Kay research and development team continually delivers products in more than 35 markets worldwide.
Oriflame R & D employs more than a hundred scientists and technical experts, covering a variety of scientific disciplines, including formulation science, skin research, clinical testing, process development, packaging technology, microbiology, toxicology, environmental science, patent support and global regulatory affairs, to create hundreds of products yearly.
The constant development of new products for consumers to use at home not only minimizes the need for store visits but reduces saturated product offerings, which often leave consumers leery of new products that offer fast and permanent solutions. Natura’s Bellora believes the introduction of customizable products could be the solution to what he sees as an overcrowded marketplace.
Beauty Before Brawn
But staying on top of the market takes more than sheer size. A company must also be careful not to sacrifice innovative agility and creativity. These will help differentiate them in the marketplace, setting their products apart from the competition.
“Direct sellers are superbly located in the fastest-growing markets,” says Geoffrey Jones, Professor, Harvard Business School. “They continue to do very well in Brazil, India and China and are surviving the recent downtown in Eastern Europe. The lack of chained distribution channels in these markets means that direct seller growth will continue to boom, assisted by their reliance on mass products which, nevertheless, can position themselves as aspirational. The direct selling category has some really impressive, competitive companies, whether global players led by Avon, Mary Kay, Nu Skin or regional giants, such as Natura and Oriflame.”
“Direct sellers are superbly located in the fastest-growing markets.”
—Geoffrey Jones, Professor at Harvard Business School
The agility of direct selling companies to move into industries not well captured by the major retailers allows for a significant increase in capital gain. Beauty and personal care products are a universal language throughout the world, and direct sellers have fared far better than retailers because of the combination of quality and company-specific products and creative, personal selling techniques. Retailers are continually capsized in their efforts to increase beauty sales because of consumer preferences.
Premium cosmetics bore the brunt of the economic downturn, contracting by 0.4 percent in 2009. So, players in the luxury segment have had to find ways to attract more price-conscious consumers. This has inspired the emergence of more affordable beauty lines and price reductions. But lower costs alone are not enough. The average consumer is expecting more out their products—more value and more quality.
Such demands have given manufacturers cause to rethink their product lines and their business practices. Analysts see this as an opportunity for more creativity in the marketplace.
And direct selling companies are at the head of this new consciousness, offering innovative beauty and personal care regimes through quality ingredient products. While consumers have altered their preferences when purchasing beauty and personal care products, thanks to current economic conditions, the desire for personal contact is still strong. Customized, personal interactions are at the core of any direct selling company, and are the catalysts that will allow these companies to continue seeing growth.