L'Oreal Attacks Fast-Growing E-Commerce Space
New Business Models Are Intended to Boost Sales, Nurture Loyalty and Gather Data for the Beauty Giant
After years of boosting spending on digital media, L'Oréal is now looking for more direct payback with a bigger and multifront focus on e-commerce.
Those efforts include three new business models for the company: the launch last month of L'Oréal's first brand to be born and live almost entirely in e-commerce and social media; the December acquisition of Baxter of California, in an effort to use e-commerce to address U.S. men's reluctance to adopt high-end grooming products; and a host of L'Oréal brands that have launched online auto-replenishment programs.
The growing focus on e-commerce wasn't necessarily what led L'Oréal last month to launch a review of its digital media-buying and -planning account, said Marc Speichert, CMO-Americas of L'Oréal. But working in an environment where digital marketing increasingly spurs online sales will clearly influence the pitches.
The prize is potentially huge for L'Oréal. While e-commerce remains fairly small in the packaged-goods category, with only around 1% of grocery sales handled online, beauty is another story. The consulting firm Booz & Co. said it believes 8% of beauty sales last year -- or more than $5 billion -- came from e-commerce, which actually places it above the overall retail average of 6%. In 2011, A.T. Kearney pegged beauty e-commerce sales at only 4.5% of the $66 billion beauty market, or around $3 billion.
But regardless of the exact size, the opportunity is growing, and L'Oréal is exploring a host of business models to tap it, Mr. Speichert said.
"You have some data available, and then you make some assumptions on where you have gaps, and then you realize this is a big opportunity," he said. While L'Oréal's Luxe Division brands, such as Lancome, have had the most focus on e-commerce up to now, other divisions such as mass and salon hair-care are also increasing their e-commerce efforts, he said, "because the consumer is now very much thinking about e-commerce no matter what product they're looking for."
And, increasingly, online-marketing efforts appear ready to lead consumers to e-commerce. Digital-consulting firm L2 last year found Amazon was a top downstream recipient of traffic from half the beauty brand websites it tracks, up from only 36% a year earlier. While only three prestige beauty brands were carried on Amazon, the e-commerce giant was buying against 46% of prestige search terms on Google, "suggesting the beauty industry could be [Amazon's] next major feeding ground," according to L2.
L'Oréal is working with Amazon and other e-commerce sites, but Mr. Speichert said, "The ambition is to get as much mileage as possible out of our own sites."
In one such effort, L'Oréal last month launched Em, a prestige cosmetics brand from YouTube beauty blogger Michelle Phan, who's endorsed Lancome for the past three years. Em will be sold primarily direct to consumers via Emcosmetics.com, and though it will have a standalone flagship store in Manhattan, Mr. Speichert said it will be the company's first true "e-commerce brand," inspired by and developed in consultation with Ms. Phan's followers.
Baxter of California, which is undergoing a website overhaul following its acquisition by L'Oréal in December, will still be sold in the 50-year-old brand's retro barber shops and specialty retailers. But an expanded e-commerce effort is key to L'Oréal's effort to address the fact that U.S. men spend less per capita on grooming products than those in any other developed market.
"We know guys are very actively shopping online, specifically for grooming products that they don't necessarily want to buy over-the-counter or at a department store," Mr. Speichert said. Digital content, he said, is key to getting men to adopt new grooming routines.
Meanwhile, a host of L'Oréal brands -- including Kiehl's, Lancome, Clarisonic, Armani and YSL -- have in the past year worked with subscription-commerce-software provider Order Groove to increase their auto-replenishment business. The idea is more to lock in loyalty than tap the subscription craze started by Birchbox and emulated by many others.
"We've made great progress on consideration, on evaluation, on purchase" in digital-marketing efforts, Mr. Speichert said. "The loyalty piece is the last piece of it and a very important one."
Kiehl's last year began an auto-replenishment program that in its first six months hit its targets and industry benchmarks for the first full year in terms of sales and percentage of customers enrolled, said Sean Reynolds, assistant VP of e-commerce and marketing for the L'Oréal unit.
Beyond just persuading customers to embrace replenishment, Kiehl's wants to learn from the data generated on how often people repurchase and what products are truly complementary.
One fear about auto-replenishment is that it will discourage impulse sales online or at stores. To combat that, Kiehl's includes a sample with each order aimed at generating sales from the customer and encouraging pass along to friends, family and co-workers. Based both on e-commerce sales data and anecdotal accounts from store employees, Mr. Reynolds says the program has been generating incremental sales.