Monday 21 May 2018

Beauty giants snap up tech firms to boost online sales

A woman having Shiseido makeup applied in a store in Tokyo
A woman having Shiseido makeup applied in a store in Tokyo

Bruce Einhorn

Shiseido, the Japanese firm that sells Laura Mercier cosmetics and Dolce & Gabbana fragrances, sold a trillion yen (€7.5bn) worth of beauty products last year, mostly in traditional stores where customers can sample brands in person.

That's a problem for Masahiko Uotani, Shiseido's CEO. Consumers in their teens and 20s often prefer to shop online, beyond the reach of in-store salespeople. Uotani's solution? To partner with or buy up small startups in Silicon Valley and other tech hubs to gain expertise in AI, augmented reality and other technologies.

His ambition is to help shoppers replicate online the experience of trying on cosmetics in a store, and use data from smart devices to create personalised makeup for customers.

"Particularly with the younger generation, often they don't go into the stores," Uotani said. "The way they buy, the way they share their excitement with their friends, is completely different from older generations."

Technology is upending the $440bn global beauty industry. While only about 6.9pc of sales were online in 2016, according to Euromonitor International, ecommerce is becoming more important as online sales soar in China and other markets.

China will likely cross $1trn in online retail sales in 2018, according to Forrester Research. Such sharp changes in shopping habits in Asia's biggest economy and across the globe have big brands scrambling to keep up.

France's L'Oreal said on March 16 it would acquire Canadian tech company ModiFace, which develops software that allows consumers to use augmented reality to see how they would look with different types of blushes and eyeshadows. L'Oreal has also partnered with French telecommunications entrepreneur Xavier Niel, who recently took control of Eir, to create an accelerator for beauty-tech firms.

French luxury giant LVMH is working with Niel, too. The company announced on April 10 a programme, La Maison des Startups, to support entrepreneurs at Niel's Paris-based campus for new companies developing technologies and services for perfumes and cosmetics as well as wine, fashion and other LVMH businesses.

In China, ecommerce already accounts for 25pc of Shiseido's business, said Uotani, and in three years will rise to almost 40pc. For Shiseido worldwide, 15pc of sales will happen online by 2020, up from 8pc last year.

Shiseido has also snapped up Olivo Laboratories, a startup specialising in artificial skin technology in Watertown, near Boston, and close to Harvard and MIT. Other Shiseido acquisitions include MatchCo, a California startup which develops software customers can use with smartphones to create customised foundation products that match their skin tones.

"The first generation of ecommerce was really about replicating the store experience, but with cosmetics there's an extra layer of uncertainty for the customer," said Dave Gross, MatchCo co-founder and general manager. "So in that sense there's a big problem to solve related to helping the customer find the right products."

To help address that problem, Shiseido bought Giaran, a startup which develops AI technology and wants to enable consumers to remove and apply makeup virtually so they can see how they look before making purchases.

Analysts predict that more beauty companies will be on the prowl for technology. "We will definitely see more," said Deborah Aitken, an analyst with Bloomberg Intelligence in London, who said companies need to respond to the shift of customers, especially in Asia, to shopping for cosmetics and other beauty products online.

Shiseido intends to boost its R&D staff to 1,500 by 2020, up from 1,000 in 2014. It expects to see a payoff on its investments from its existing technology investments soon, said Marc Rey, CEO of Shiseido Americas. "It's not 10 years from now," Rey said. "It's really happening."

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