How Retailers Can Win on Beauty as Amazon Ramps Up Pressure

Amazon’s continued push into prestige beauty is placing unprecedented levels of pressure on beauty retailers in the U.S.

First, Ulta Beauty executives said they had never seen such a competitive beauty environment, resulting in it losing market share for the first time in 2024.

Now it appears Sephora is feeling the pressure, too. During an earnings call earlier this month, Cécile Cabanis, chief financial officer of Sephora parent LVMH Moët Hennessy Louis Vuitton, said of the beauty retailer: “In the U.S., we have a bit less momentum, when it comes to e-commerce, especially because Amazon is being very aggressive, and being aggressive is mostly regarding price. And we try to avoid this technique.”

So if they won’t compete on pricing, what options do they have?

“If you play on Amazon’s terms, you can’t win,” said Wendy Liebmann, chief executive officer and chief shopper at WSL Strategic Retail. “What beauty retailers have to work hard at is the advantage they have of offering a physical, emotionally engaging experience.”

Where Amazon offers unparalleled convenience, Liebmann reasoned, brick-and-mortar beauty retailers can foster more intimate relationships with their shoppers.

“Amazon is still something where, yes, you can go, you click, you buy, it comes tomorrow, you get all the efficiencies of it, which is the beauty of Amazon,” she continued. “That said, the Ulta experience, the Sephora experience, the Bluemercury experience, and even the department stores experiences, if they build that more intimate relationship with a beauty shopper who so often wants to touch, feel, smell the product, then it’s not that they’re not going to go to Amazon to click and buy, but there is a reason to stay with the physical retailers as well.”

She cited Bluemercury as one example. The Macy’s Inc.-owned retailer has been embarking on a significant number of store openings as well as upgrades to existing doors, plus a renewed emphasis on differentiated brands, upscale locations and the service element. 

“They’re really working hard to improve the uniqueness of the brands, the services in the store,” she said. 

Sephora’s fleet is also getting a makeover during an extensive refurbishment project.

Hand in hand with the brick-and-mortar reimagining, companies will also have to lean even harder into exclusivity, said Cassie Cowman, a cofounder of View From 32, a beauty consultancy.

“In the case of Sephora, they’ll never lead with price and promo. That’s just not their position as a prestige retailer. However, they’re still the best for product curation,” she said. “So the number-one way that they will continue to court clients is through that differentiated assortment, either at the product level or the brand level.”

Brands loyal to Sephora tend to over-index in the retailer given additional marketing, inventory and social media support.

Part of that is retailers “having to ensure that they can secure the brands’ growth trajectory in their retail so that the brands don’t have the need to have to expand,” said Margarita Arriagada, the founder of beauty brand Valdé and former chief merchant at Sephora.

While this push for exclusives has always been the case, what’s changed is getting brands to hold off on Amazon for as long as possible, according to Cowman. 

Olivia Tong, an analyst at Raymond James, pointed to the strength of loyalty programs, offered by both Sephora and Ulta.

Ulta relaunched and grew its loyalty program 3 percent to a record high of 44.6 million members, it said in its most recent earnings. As of 2024, Sephora had more than 40 million in its Beauty Insider program across the U.S. and Canada.

“They can leverage that data to really understand their consumer a little bit better and offer them more of what they want, whatever it is,” Tong said. “Can they suggest products to them a little bit more concretely? Do they react to points versus ‘x’ percent off or whatever it is, whatever deal they like? Can you mine your data a little bit better within beauty?”

Arriagada added that the days of loyalty programs as a basic points system is “yesterday’s news. Really, the future is about community and personalization.”

In the case of Ulta, Tong said the retailer can also leverage its salon services. Ulta has already begun this: When it scored the first retail partnership for Beyoncé Knowles-Carter’s hair care line Cécred, it teased a first-of-its-kind integration with the retailer’s salons.

In a recent interview with WWD Beauty Inc, Ulta Beauty president and CEO Kecia Steelman said: “That service component really brings the theater to life in a true, authentic way. We’re very excited about doing that with Beyoncé’s brand Cécred. We’re going to do an activation like you’ve never seen before at Ulta Beauty.”

Further building on its exclusive with Cécred, on Thursday Ulta announced itself as the official beauty retail partner of Knowles-Carter’s “Cowboy Carter” tour. This will entail “Cowboy Carter” tour-inspired beauty looks, curated product assortments, immersive experiences and a brick-and-mortar retail debut of the singer’s highly coveted fragrance Cé Lumière by Beyoncé Parfums, available for a limited time in select Ulta Beauty stores and on ulta.com.

Another tactic the likes of Ulta and Walmart, which is also pushing into prestige beauty, have implemented is debuting their own marketplaces.

Ulta will launch an invite-only marketplace this year, while Walmart began adding premium beauty to its online marketplace in August 2024, starting with 20 brands and more than 1,000 stock keeping units, with a heavy focus on skin care and hair care. Now it has 80-plus brands and more than 2,500 items in stock for premium beauty.

“Everybody’s got to figure out how to differentiate themselves,” Tong said. “In the case of Ulta and to some extent, Walmart, wanting to get into a market quickly and with minimal capital investment, it [a marketplace] is a way to go if that’s what the consumer wants. The consumer wants to be able to have access to everything.”