How Amazon’s Beauty Boom Is Challenging Traditional Retailers

What a difference a few years can make.

Amazon, once the pariah of prestige beauty, is now viewed by some as its potential savior, but what does this mean for other beauty retailers?

The biggest turning point came in March when, after years of eschewing the platform, the Estée Lauder Cos. did an about turn and launched Clinique on Amazon with its own storefront. Since then, Too Faced and Bumble & Bumble have joined and Tracey Travis, Lauder’s departing chief financial officer, previously told WWD that the e-commerce platform has the potential to become an important distribution channel for the company.

Their launch followed L’Oréal, whose Luxe division was the first of the powerhouse prestige players to make the leap when it launched Lancôme last year. Since then, Kiehl’s, Youth to the People, IT Cosmetics, Urban Decay and Ralph Lauren Fragrances have followed suit.

Overall, in 2023, even before the Lauder brands joined, Amazon sold a billion-plus beauty products in the U.S. and currently there are more than 100,000 brands available in its beauty store. “Amazon Beauty is all about driving the category and the industry overall,” Melis del Rey, general manager, U.S. stores, beauty, baby and beauty technology at Amazon, said earlier this year at the WWD Beauty CEO Summit in May. “It’s all about net new incremental customers, and it’s net new incremental shopping opportunities for the brands that we work with.”

It also certainly has the ability to attract more brands, with more than 100 million unique beauty customers on its books. Morgan Stanley predicted that Amazon will take over from Walmart Inc. as the biggest beauty retailer in 2025.

As for what all this means for other beauty players in the space, this poses more of a risk to Ulta Beauty than LVMH-owned Sephora, according to a recent note by Jefferies analyst Ashley Helgans. Based on Jefferies’ estimates, Ulta’s prestige makeup business has a 16 percent brand overlap with Amazon’s premium beauty storefront, versus Sephora with 9 percent. 

“A prestige brand refresh is needed, as many of the legacy prestige brands Ulta carries have added new distribution points in off-price as well as e-commerce,” Helgans said, noting that the retailer has been most challenged in prestige, while outpacing category growth in its mass business. She believes that promotions, which increased year-over-year, are expected to remain elevated.

When asked about competition in the digital space during its most recent earnings call, Ulta Beauty chief executive officer Dave Kimbell said: “One of the great things about our business is when we get our in-store guests shopping online, they increase their brand love, their brand connection and our share of wallet. Their spend goes up 2.5 times,” he said. “We see opportunity to continue to drive programs like communities and affiliates.”

Kimbell said that while promotions have increased, levels remain rational and that he expects promotional levels to be below 2019 for the year. 

Amazon also continues to pressurize department stores, a slowing but still important distribution channel for beauty.

Macy’s has outlined plans to close 150 stores by end of 2026, leaving it with 350 “go forward stores.” That’s down from about 850 stores 15 years ago. For the remaining stores, it is piloting new activations including beauty services such as fragrance bottle engraving, and craft stations. 

Others have taken a view that if you can’t beat it, join it. When Hudson’s Bay Co. reached an agreement to acquire the Neiman Marcus Group for $2.65 billion, bringing the Dallas-based luxury retailer together with the New York-based Saks Fifth Avenue as Saks Global, Amazon was revealed as a surprise investor in the deal.

Not much is known of the mechanics of the deal at this point, but HBC has said Amazon will work with Saks Global to “innovate on behalf of customers and brand partners following the close of the transaction.”

Lucie Greene, founder and chief executive officer at consultancy Light Years, believes that where brands cannot compete is Amazon’s infrastructure, so the Amazon stake in the Neiman Marcus/Saks deal is very timely.

“If you were to strip the branding away from Amazon deliveries, the experience and the speed and the convenience with which you receive Amazon packages is probably more luxurious than you would get from a Prada, where it would take like a week and then maybe it would be dropped off somewhere and not signed for properly,” she said. “If they’re able, in both beauty and luxury, to create an elevated version of that, with all that muscle power of their infrastructure and convenience, that’s really interesting.”

She added that this stake could also give Amazon access to data to better understand the luxury customer.

Where non-Amazon retailers do have some muscle to flex, though, is around storytelling and newness, said Greene. “[Amazon] is not necessarily the place to discover and play, although they’re making a lot of effort….I’m a repeat purchaser of YSL Touche Éclat on Amazon because I know I’ll get it the next day. Would I go to Amazon to discover a new blush? No.”

In this instance, beauty retailers with a physical presence need to make sure their stores are worth the trip and that their websites create editorial style buzz around products, experts said.

Wendy Liebmann, chief executive officer and chief shopper at WSL Strategic Retail, chimed in that while it is hard to compete with Amazon on infrastructure, other retailers must ensure that consumers can order, reorder and subscribe with ease.

“Can I buy the brand I want as easily at the regular retailer, as I might at Amazon?” she said. “That talks to the omnichannel success of the retailer, and some are better than others. Certainly, Sephora and Ulta have really reinforced their websites, as has Bluemercury. They’re doing a decent job, but some of the department stores are not so great.”

On prices, Liebmann said that the smart retailers won’t try to compete. Instead, they need to focus on bundles, newness, loyalty programs, samples, events and exclusivity.

“Those are the things that retailers really have to ramp up because once you start to get to, it’s all about low price and convenience, then Amazon wins,” she said.

One other area that they can also compete in is the fact that as of now, the majority of luxury beauty brands (think Chanel, Prada, Guerlain) are not currently on Amazon.

Whether we will see another seismic shift in luxury beauty joining Amazon, only time will tell.