Beauty in Distress

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Everyone knows that beauty fades eventually, but in the case of San Francisco-based cosmetics retailer, no one expected it to happen so soon. The e-tailer, founded in June 1999 by business school buddies Mariam Naficy and Varsha Rao, offered an array of some 200 high-end cosmetic brands, including Versace, Calvin Klein, and BeneFit. Their target: working women aged 18 to 44 who have money to spend on high-end cosmetics, are Internet savvy, and pressed for time.

As its first anniversary approached, Eve was attracting over 600,000 visitors a month - more than three times the traffic of any other Web-only beauty site. In June, the company inked a deal to make Eve a featured shop in Yahoo's very popular cyber-stores, and had plans to expand their offerings to include the rest of what's typically on the first floor of a department store: handbags, jewelry, and other accessories. Cosmetic industry trade publications reported that the company was on track to make more than $10 million by year's end.

But didn't survive to see the holidays. By October, the site was shut down and the company was finished. After a little more than 16 months in operation, visitors who clicked on hoping to charge themselves up a little pretty, were instead faced with a somber message: "Dear Friends of Eve, we hope that shopping with us has been a `beautiful' experience. Thanks for your support." By November, the remains of Eve, including its domain name and database, were sold to one of its biggest rivals online, Sephora. Today, if you're one of 200,000 who still click onto, a brief message encourages you to visit Sephora, "a company for whom we have a great deal of respect." After a few minutes, you're whisked away from Eve's site forever.

Of course, isn't the only cosmetics e-tailer in recent months to close its cyber-doors. It joins and as early casualties in the battle to gussy up American women through modem and mail. In fact, according to the NPD Beauty Trend report, only one-third of the Web's cosmetics, fragrance, and bath and body sites that were online in the fall of 1999 were still in business the following year. Although there are plenty of small, unknown e-tailers that fade away without as much of a raised eyebrow, the rapid demise of - the Web's first, major, prestige beauty presence - is startling. In fact, the end of Eve highlights a key challenge that many e-marketers share: convincing consumers to buy products that are all about color and smell, in the vacuum of cyberspace. Until beauty e-tailers figure out how to use technology to make a cold computer feel more like a chichi cosmetics counter, the combination of modem and makeup may not be enough to convince consumers to part with their money.

A heightened interest in making money is part of what brought down the likes of The general malaise that affected dot-coms in 2000 has been a major factor in the shuttering of many prestige beauty sites, says Judith McGregor, vice president at Investors' desire for profit meshed poorly with a hard reality about the online cosmetics market: it's tiny. Although women now make up the majority of Web surfers, the percentage of Internet users who purchase prestige cosmetics online is minuscule. Consider that in October 2000, just 2.6 million unique visitors clicked to a retail fragrance or cosmetics e-store, compared with more than 17 million who visited alone, and more than 78 million Internet surfers in total, according to Media Metrix. Although the health and beauty e-marketplace generated revenues of about $192 million in the third quarter of 2000 - of a total $9.6 billion according to Harris Interactive's eCommerce Pulse data - the percentage of these sales that fall in the high-end cosmetic category is minute. And in fact, Harris Interactive data confirms that the most visited sites in the health and beauty category were not "prestige" beauty sites, but those like, and Little wonder then, that in a profit-focused environment some online beauty marketers would fall away.

Demographics may also be what's behind today's less-than-pretty online beauty picture. The demographic profile of a cosmetics e-shopper is somewhat different than common wisdom would suggest, according to Media Metrix data. Out of all consumers that visited a retail cosmetics Web site in October, the largest share skewed older than's stated target market: More than 42 percent of female visitors to beauty sites are aged 35 and older, compared with just 28 percent aged 34 or younger. Visitors to online beauty sites are also unlikely to be upscale: A 58 percent majority of all Web surfers who log on to beauty sites have incomes of less than $60,000 - making these consumers somewhat less affluent than the Web population as a whole, and more likely to search out discount cosmetics online. And don't forget a not-too-shabby percentage of "Adams" who shop beauty sites: A significant 23 percent of adult visitors to retail cosmetic sites are male, the largest share not teenagers, but men aged 35 to 54.

But more than industry problems and a slightly off-tune demographic profile, a larger quandary plagues the online beauty market: More than any other category, consumers are loathe to buy their lotions and potions online, according to the America Online/American Demographics Study of Online Commerce. Just 2 percent of all consumers have made a recent beauty or health purchase online, while 92 percent have gone to a store - the only category with as small a share of online purchases is automobiles.

The reason behind this has been the biggest bugaboo for e-beauty marketers: it's more difficult to get consumers to buy something online when tactile senses really count. According to Cyber Dialogue, 60 percent of Web shoppers do not trust the color they see on their monitor - a legitimate reaction, because every monitor is different, and colors vary based on the type of monitor. No surprise then, that 30 percent of shoppers have decided not to purchase from Web sites because the true color of the product was in doubt; and 15 percent of shoppers returned items because the product they received did not match the color on their monitor. When you're not sure that your red lipstick is going to be just the shade to set off your flashing green eyes, it's hard to input that credit card number.

Given all of these obstacles, why would anyone invest in an online cosmetics venture? Because although the market is small in comparison to others, and although technology creates some problems in the sale of beauty products, technology also creates a tantalizing opportunity to completely change the way cosmetics are sold.

Richard Gerstein, a vice president at, says his company capitalizes on the promise of new technology, rather than simply compensating for its drawbacks. The San Francisco-based company allows consumers to create customized makeup, shampoo, and fragrance, through a series of questionnaires and choices. By employing a neural network and other technology to tap into the combined forces of Procter & Gamble's consumer and product research, Reflect is able to provide at least 300,000 customized products, that are "created" by consumers online. ( is funded by Procter & Gamble, and venture capitalists Institutional Venture Partners and Redpoint Ventures.)

Gerstein believes that using technology to customize products helps Reflect to overcome some of the reluctance consumers have about buying cosmetics online. Why? Because the thrill of a novel experience of having cosmetics and toiletries created "just for you" outweighs some of the Internet's drawbacks. And that sets Reflect apart from other dot-coms "who are just building retail stores that happen to be online," says Gerstein. By creating a product that's exclusively available online, consumers have no chance to bargain shop, and no chance to take their repeat purchases elsewhere, he says. It's meant that the company has enjoyed very high conversion rates, although as a privately-held company, Gerstein declined to reveal specifics.

What's more, the customized nature of its offering has allowed Reflect to leverage the data mining capabilities of the Internet into a product sampling campaign. The sampling strategy has helped keep down the company's abandoned shopping cart rate (purchases that are initiated, but then abandoned). "If a person leaves something in their shopping bag, we send them a sample of what they created, with their name on it, for them to try," Gerstein says.

But doesn't the process of creating a customized cosmetic product depend on sight and smell - senses that are not exactly stimulated by today's Internet? On the color front, Reflect "compensates" for monitor disparity by using a series of questions about hair, eye, and skin color, and then offers a range of colors for the consumers to pick from based on their answers. When it comes to smell, Reflect uses descriptions, like "coconut" to help consumers know what their custom shampoo will smell like. "As long as we give a good description, if you say it's going to smell like coconut, they get it," Gerstein says. For custom fragrances, Reflect sends customers a $5 sample of their creation to try out - and they can apply the money back to their ultimate perfume purchase.

But technology that's just beginning to break onto computers today, could put an end to the search for "smell" capability and accurate color substitutes. For example, E-Color, a San Francisco-based company, is in the business of eliminating the problem of monitor color disparity. You'll download a cookie that reads your monitor's color output. When you surf over to an E-Color ready site, the cookie will "read" your monitor. If your monitor adds a bluish tinge to everything on your screen, for example, the cookie will tell the server to tone down the blue values in the burgundy lipstick you're considering.

Peter Bernard, E-Color's vice president, projects that 130 million computers will be equipped with this capability by 2002. In fact, the company just entered into a deal with Compaq in which the computer company will ship E-Color software with all of its monitors. "When you go to a physical store, the retailer controls your sensory input: music, lighting, the salesperson. On the Web it's just this piece of glass. Having control over that is fundamental to being a successful beauty e-tailer," says Bernard. (The company just announced its first deal with a beauty dot-com, signing on to color-correct L'Oreal's Web site.) In fact, a recent study by Buystream - an e-commerce research firm in San Francisco - shows that consumers are more likely to buy when they know merchandise has been color-corrected. The visit-to-buy ratio for sites with products that hadn't been color-corrected was between 2 percent and 3 percent, according to Buystream. But with color correction, that ratio jumped fivefold, to nearly 14 percent.

As new technology addresses the problem of color accuracy, it will also tackle a smellier issue. Today, it's impossible to transmit scents over the Internet. But tomorrow, the capability may be as commonplace as diskettes. digiScents, an Oakland, California-based company, has designed a product called iSmell Personal Scent Synthesizer. It's a speaker-size peripheral device that you'd plug into your computer. Imagine an ink jet printer that's loaded with various scent cartridges instead of ink. When the device receives the right code from a Web site, it emits the smell according to the formula. This will help consumers in the market for fragrance, shampoo, and any kind of cosmetic. Young and Rubicam's Intelligence Factory predicts that this capability will be available to consumers within a few years.

With innovations like these just around the corner, the promise of the online beauty market may eventually blossom. Jupiter Communication projects that online sales of skin care, cosmetics, and fragrances will reach $1.2 billion in 2003 - still a small percentage of the whole e-commerce universe, but nothing to sneeze at. Will the prestige beauty segment ever emerge from the shadow of other categories online? For this market, the picture is yet to be fully developed.

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