Brick-and-mortar retail is hot in this specialty segment

Multi-brand and vertically integrated beauty stores are shaking up the beauty industry — and growing at a rapid rate.



With hundreds of new doors opening in various formats, cosmetics specialty and vertically integrated stores, such as Ulta, Sephora, Bluemercury, NYX, Kiko Milano, and e.l.f., have grown at a compound annual growth rate of nearly 19% over the past five years, according to a report by research and consulting firm Kline. Such stores now account for an estimated 20% of total beauty market sales.



Kline's "Beauty Retailing USA: Channel Analysis and Opportunities Report" cites such examples as Bluemercury, which recently opened a digitally enhanced flagship location in New York City, with plans to open 40 more stores by the end of the year, and Sephora, which recently opened its largest store in North America, in New York City, and its smallest location, the 2,000-sq.ft. Sephora Studio, in Boston.



"This concept (Sephora Studio) is one step towards creating more curated and digital experiences for consumers in the real world. Alongside digital tools, increasingly demanding younger generations require one-on-one services, including 15-minute facials and 45-minute makeovers that drive consumers seeking a spa-like experience into stores," the report said.



In addition, vertically-oriented boutique -styled beauty stores, such as NYX, e.l.f., and Kiko Milano, are conquering local malls with unique concepts targeted to younger consumers at lower price points. These brands are increasingly offering digital enhancements, such as NYX's iPads that help create different looks with beauty influencers/vloggers walking consumers through the replication while in store.



"Enhancing a customer's experience with a brand is one of the key reasons for the incredible growth of these free-standing beauty stores," the report stated.



Meanwhile, department stores are mimicking tactics applied by successful multi-brands specialty stores to draw more traction, according to the report. In early 2017, Bloomingdale's launched its first Knockout Beauty boutique composed of prestige brands with a natural/organic slant. Nordstrom's beauty area continues to evolve, bringing in brands with limited distribution. Nordstrom also added beauty concierges in remodeled locations to help guide consumers across brands, showcasing the top products in each beauty category. Neiman Marcus' interactive Memory Mirrors to help consumers remember the steps and products used during the in-store makeover.