Last April, luxury marketplace Farfetch made a splash with its entry into the beauty sector. However, the company has recently been facing difficulties in running its beauty division, and industry insiders are reporting that Farfetch’s beauty division may be shutting down.
For Farfetch at the time, the launch of its own beauty category followed its acquisition of beauty retailer Violet Grey in January 2022 and was highly anticipated in the global luxury beauty market, which was estimated to be worth approximately $69 billion. Indeed, the company’s beauty category includes a stunning lineup of more than 100 brands, from renowned British makeup artist Charlotte Tilbury to luxury Swiss skincare brand La Mer.
The company was also becoming known for its assortment of forward-thinking beauty brands, including charismatic makeup artist Isamaya Ffrench and twin DJ and influencer Simi Haze, as well as for its marketing effort, which turned the conventional beauty concept on its head.
The increasingly competitive beauty market
Despite Farfetch’s expectations, competition among beauty retailers for prestige beauty customers has intensified, with a number of digital platforms, including Net-a-Porter, Ssense, The RealReal, and many other digital platforms having entered this category. As for The RealReal, it was confirmed that it ceased operations earlier this year.
On the other hand, what differentiates Farfetch from other online players is that it is a matching platform that does not purchase and sell its own products and does not carry inventory. The company’s business model is called the “E-Concession model,” where apparel brands and retailers list their products on Farfetch’s marketplace, and when consumers select and purchase products, they are shipped directly from the seller.
However, Ransley Carpio, a beauty investor who heads up venture investments for the e-commerce acceleration company Front Row, told Vogue Business that “an e-concession model in beauty is very difficult, because of tight restrictions and distribution agreements”. At the same time, he also noted that the multiple inventory systems combining Violet Grey, Browns, and Farfetch inventory are “cumbersome” and complicated to manage. Usually, beauty brands have fairly limited distribution agreements in order to maintain exclusivity or the right distribution channels, especially if they are professional brands because there are only a limited number of retailers with which they can partner.
These two large beauty stores, Sephora and Ulta Beauty, also lead the beauty industry in terms of the number of stores, customers, and recognition. In recent years, Glossier, which had previously limited its sales to in-house only, has formed a partnership with Sephora, and Israel body care brand Sabon has begun selling its products at Ulta Beauty. Thus, there is no shortage of emerging D2C beauty brands and major beauty brands that are focusing their efforts on strategic alliances with these two companies.
Why It’s Not Easy for Online Platforms to Enter the Beauty Industry
Customers undeniably prefer to purchase beauty products in familiar and trusted physical stores rather than on emerging digital platforms. Loyalty between customers and brands is built over time, and this is likely to be even more true in the prestige beauty industry.
In addition, the experience of “visiting a physical store to try a product” also carries significant weight in the beauty industry. Potential customers often actually hold the product in their hands and touch it to determine if it is right for them before deciding to purchase the product for the first time. In particular, the product’s scent, texture, and color rendering are very important factors. Therefore, no matter how advanced virtual try-on technology is integrated, many shoppers prefer to actually interact with products before purchasing.
The ever-expanding beauty market certainly presents significant opportunities for companies and investors. According to McKinsey statistics, the beauty market, with revenues of approximately $430 billion in 2022, reflects further consumer interest and demand. At the same time, however, competition is intensifying, and winning in this environment will require strategies for a wide range of aspects, including innovative approaches, deep consumer engagement, and the development of sustainable business models.