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Beauty & Wellness Briefing: Why physical retail is bouncing back

By on August 2, 2022 0

After nearly two years of exceptionally strong online sales, beauty and wellness companies are once again turning their focus to stores.

When Shopify cut 10% of its staff last week, CEO Tobias Lütke shared that the company took a risk by betting on a permanent shift in sales to e-commerce, and failed.

“Before the pandemic, e-commerce growth was steady and predictable. Was this surge a temporary effect or a new normal? And so, given what we’ve seen, we’ve placed another bet: We’re betting that channel mix — the share of dollars flowing through e-commerce rather than brick-and-mortar retail — would jump in before permanent five or even 10 years. We couldn’t know for sure at the time, but we knew that if there was any chance it was true, we had to expand the business accordingly. It is now clear that this gamble did not pay off,” he said in a statement from Shopify.

Lütke said the company’s growth is still significant, but it doesn’t match the share of sales he hoped would come from brick-and-mortar. And the pains Shopify is going through are indicative of the broader landscape’s flight to brick-and-mortar retail.

Ecommerce Sales Flatline
“E-commerce sales are starting to stagnate. One of the things we’ve been saying now for several months to our clients is that we’re definitely seeing the rate of growth slow down,” said Polly Wong, president of Belardi Wong, a direct marketing and creative services agency that works with DTC. . brands.

Wong continued, “The takeaway is that before the pandemic, 88% of all retail sales were in stores and 12% were online. Now, even coming out of the pandemic with a huge increase in online sales, we still see that retail sales are about 80% in stores and 20% online. We have seen a change, but [sales are] still significantly in stores.

DTC faithful no longer ignore these signs; see Glossary permanent partnership with Sephora. And as sales in physical stores remain strong, beauty and wellness companies are working to improve those experiences.

Experiential retail is back
Ulta Beauty, for example, revamped its in-store experience to better reflect changing customer behavior. “We are rolling out a refreshed storefront experience rooted in novelty, curated stories and campaigns to improve overall in-store navigation,” an Ulta Beauty spokesperson said. “The brand’s evolved physical touchpoint delivers a new ‘wow’ experience that thoughtfully opens up greater opportunities for discovery and storytelling throughout the store…creating an even more cohesive experience, from visual components to intuitive merchandising of adjacent categories. Customers will now find an exciting new navigation with a consistent approach to showcasing categories, products, themes and promotional moments.

Apparently, a mix of traditional and indie brands will be found in the storefront designation, which will be especially useful for new indie brands looking for greater awareness. Generally, these brands are reserved for retailers Sparkling section, is home to its emerging brands.

“Experience” seems to be the keyword that businesses are showing when it comes to physical locations.

“We always say we’re not really selling nails, but we’re selling the experience and how someone feels when they’re [at our salon]said Lauren Dunne, co-founder and CEO of Varnish Lane, a natural, waterless nail salon company that also sells products. “I wanted to create something clean, safe, beautiful and a really relaxing environment. The goal is for it to feel more like a home and less like a nail salon.

Varnish Lane, which has a foothold in the DC area with four recently expanded locations in the southeast as far as Charleston, SC; Charlotte, North Carolina; and Atlanta, Georgia. More locations are in the pipeline for Varnish Lane in new developments, where its nail salon can be an anchor to a building. “We’ve looked at what projects are in the works, where we can get into and sign leases fairly early on,” Dunne said.

Rely on owner flexibility
Although residential tenants face opposition in the search for affordable housing, retail businesses find more favorable opportunities, especially if there is an “experience” attached.

“We want to be able to have a real footprint and interact with people. And the other goal is to be able to have a physical expression of all the very exciting things that [customers] want to do on our website,” said Lena Korres, co-founder of Korres. The brand opened its first store in New York in May. Korres called the store a “Greek party”.

Korres found its space on Elizabeth Street after five years of searching for a location for its flagship product; it started renting in the summer of 2021. “We always wanted to be on that specific band. We think it has the right vibe for our brand, but you could never find a location there,” she said. “With a pandemic, it was possible to find a location, and we went there.”

While there may be no more “post-pandemic,” Dunne said New York landlords are still more willing to relax rental terms, such as a percentage of monthly revenue instead of a fixed rate. However, the Southeast is another story.

“New York is a different beast than the other markets we look at. There’s a lot more empty space in New York than in Washington, DC and some of these Southern cities,” Dunne said. “In Atlanta, Charleston, and Charlotte, there are more strip malls, as opposed to apartment buildings or high-rises, so you encounter more exclusivity agreements that landlords have with previous tenants . If the right space opens, you should try to jump on it.

For its part, Varnish Lane, which is in the midst of raising funds for its series A, is looking at spaces in Florida and Texas. Dunne isn’t concerned that the current recession will hurt fundraising efforts or the company’s larger store rollout.

“Consumers are shifting their spending from buying products online at an unprecedented level to [investing in] experiences. This has resulted in two trends over the past three to six months: Service retailers that have survived Covid are now starting to grow significantly and are seeing a lot of investor interest, while the growth of products slows down due to DTC slowdown. This has created a higher bar for investment activity in these commodity businesses,” said Jeremy Triefenbach, co-founder of Stage 1 Financial. Varnish Lane is a Stage 1 client.

Match the product with the experience
However, some companies play on the boundary between experiential and product models. Easy, a dermatology and skincare boutique with two locations in Los Angeles, took an interest in New York real estate while growing its product business. Because dermatologists are at the core of Facile’s DNA – clients only see doctors when receiving treatment – it’s not just about finding the right space at the right price, but it’s [also about having] the good doctors who make a location stronger, said co-founder and CEO Danielle Nadick Levy. “We’re not trying to have hundreds of locations like Dry Bar,” she said.

The Easy line of products, meanwhile, launched in September 2021 and is selling at Revolve and Anthropologie. It represents approximately 30% of total income; eventually, Nadick Levy said, it could be 70%. Easy is also in talks with larger physical sites.

“Our CPG side has the potential to be even bigger than retail, but that’s a consequence of what we do well in retail,” Nadick Levy said. “There is an advantage to having your own retail experience because you can touch, smell, see and be educated about the product. And because that happens alongside our treatments, it becomes very intuitive.” With additional reporting by Liz Flora

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