Drug chains face unique challenges when it comes to reimagining a category: They often have smaller stores, cannot carry upscale brands and focus heavily on pharmacy.
In 1955, Walgreens distributed a black-and-white flier in Albany, N.Y., that read, “Fine Toiletries, Moderately Priced.” Over the years, Walgreens and other drug chains became leaders in affordable beauty products. With department stores controlling beauty’s upper tier, they were convenient destinations for young women. Beauty brands aggressively targeted these shoppers through TV and glossy magazine ads.
The 21st century dramatically changed everything. Department stores declined while other retailers gained prominence. Today, Sephora, Ulta, Target and Walmart are formidable drug store beauty competitors. Instead of TV and fashion magazines, Gen Y and Gen Z women get beauty tips from social media and online influencers. And rather than mega brands, they often embrace entrepreneurial “indie” and the other unique, environmentally conscious brands these retailers offer.
“In the Sephora era, we started seeing a shift away from department store beauty with retailers like Target building it out,” said Katie Thomas, who leads the Kearney Consumer Institute. “Walmart and Target have done a great job experimenting with brands, keeping beauty exciting. Drug stores haven’t evolved this way.”
Online beauty sales also continue to rise. According to macarta.com, U.S. online beauty should grow 48% by 2023. E-commerce helps women find unique items and is convenient. “There’s higher expectations,” said Alison Schilling, managing director, L.E.K. Consulting. “Younger generations want new products as trends change. Amazing search functions let you find very specific things. [Amazon] Prime has changed the game for everyone.”
Drug stores and some established brands are fighting back, aligning with influencers and personalizing beauty with special services, wider ethnic assortments and unique products that meet specific needs. They are emphasizing environmentally friendly merchandise and have removed harmful ingredients from some items. And, they want to turn around faster with new products.
“They’re trying to find a happy medium, figuring out logistics and how to swap products out quickly,” Thomas said. “They continue expanding offerings, such as shampoos and conditioners, that meet different hair needs.”
But drug chains need to do more. According to Magid’s 2022 study, “Status of the U.S. Consumer,” young women’s favorite physical stores include: Walmart, popular among 46%; Target, 33%; Dollar General, 32%; Sephora, 15%; Walgreens, 23%; CVS, 21%; and Rite Aid, 11%. Among the general population, percentages were lower for most of these chains.
At Target, sales of beauty and household essentials have grown 26% or more for three consecutive years. Ulta Beauty’s 2022 annual revenue was $8.631 billion, a40.3% increase from 2021. Except for 2021 (impacted by COVID-19), sales have steadily increased for 15 years.
For CVS, 2021 front-end same store salesgrew 7.6% due to stronger performance in HBC and OTC test kits. Walgreens’ non-pharmacy sales declined 0.4%. Rite Aid’s total front-end sales fell. But a revamped beauty assortment including “clean” makeup buoyed color cosmetics revenue 5.7% in Q1 2022.
Drug chain hurdles
Drug chains face unique challenges when it comes to reimagining a category: They often have smaller stores, cannot carry upscale brands and focus heavily on pharmacy. And they are not usually first to market.
“Drug stores are more followers than leaders, not the tip of the spear for entrepreneurs,” said Andrew Csicsila, Americas leader of Alix Partners’ consumer products practice. “Introducing indie brands is a big investment. I haven’t seen drug getting behind them like Target and Ulta, which are destinations.”
Entrepreneurial “indie” brands represent 1.7% of beauty sales, said Nielsen’s Indie Brands Intelligence report, but they are impactful and growing. Sometimes, indies are nurtured and adopted by mainstream retailers, for which they help differentiate offerings. But speed is essential when introducing them, since young women constantly seek new items. According to Nielsen, indie brands cut the innovation cyclefrom 18 to 24 months to less than 20 weeks. Can drug chains keep pace?
“Younger beauty consumers move faster than any other generation,” said Sonika Malhotra, CMO U.S. hair care, Unilever, and co-founder of all-natural hair and skin care brand Love, Beauty and Planet. “The cycle is shorter. Retailers and manufacturers must keep up with innovation. It’s moving faster than their insights. Target has really stepped up its game. Walmart has a huge platform and Amazon is trying to do so. Reacting quickly isn’t a choice. Somebody will do it faster.”
In recent years, drug stores’ priorities have revolved around expanding pharmacy services and adding produce and prepared food. “Drug real estate has been changing a lot, with pharmacy and fresh and on-the-go foods,” Schilling said. “Beauty hasn’t changed as much. They haven’t pushed the envelope like Target. In beauty, balance of shelf must change.”
Drug chains’ strategies also involve having multiple smaller stores per market; other channels erect one large store per market. “How many CVS’s are there per square mile compared to a Target?” Csicsila said. Beauty’s position near drug stores’ entrances, however, is an advantage. “It’s very prominent.”
For drug chains, better meeting young women’s needs involves first understanding their wants and then further personalizing products and shopping experiences. CVS has been doing this by tapping into its extensive ExtraCare rewards data and leveraging its retail media network. Last year, CVS named influencer Nyma Tang as its first beauty inclusivity consultant. The African-American influencer has 1.5 million Instagram and YouTube followers.
“We’re leveraging influencer partnerships for exclusive products and launches in addition to building our retail media network with suppliers to get the right products and messages in front of the right consumers,” said Andrea Harrison, vice president of merchandising, beauty and personal care.
CVS carefully monitors trends. It also wants to make assortments more store specific. “We’re continuously looking to discover up-and-coming relevant brands for customers’ evolving needs,” Harrison said. “We’re working toward a much more localized view of offerings. We recognize consumers’ diversity. It’s our ongoing mission to feature trends and brands that speak to shoppers while offering value and innovation.”
CVS’ Beauty in Real Life (BeautyIRL) concept encourages discovery of new brands and trends. This expanded department features new social and indie brands, hairstyling and other services through outside provider Glamsquad. Launched in 2018, it’s in 160 locations.
In July, Skin Care centers were added to three of these stores, Harrison said. Using advanced LED technology from SkinScope and ModiFace’s Derm Skin analyzer, on-site diagnostic tools assess specific needs. “The biggest technology benefit is to help demystify skin care and ingredients, making it easier for consumers,” Harrison said.
In recent years, CVS also removed “chemicals of concern” from more than 600 proprietary HBC products under its paparazzi, Goodline and GSQ by Glamsquad labels, Harrison said. Lines encompass skin care, nail care and men’s grooming. And in 2020, it removed oxybenzone and octinoxate from about 60 store brand sunscreens. “Consumers are smarter about what they’re looking for,” she added. “Needs and expectations have shifted toward cleaner, more environmentally friendly offerings more than ever.”
Heather Hughes, group vice president of beauty, personal care & seasonal, Walgreens, also cited growing demand for vegan and cruelty-free items, recycled packaged and reusable products. “While sustainability took a brief step down during the pandemic’s height, it’s now further in the forefront of consumers’ minds. Brands must work hard to deliver efficiency and do good.”
Shelf Life, Walgreens’ year-old video series, features small, diverse suppliers like Monique Rodriguez, founder/owner of Mielle Organics. Walgreens works with affiliate organizations that support, advocate and/or help certify these types of companies. It is also “working hard” to launch hair and skin care brands for different skin types and hair textures. “We want shelves to reflect consumers who shop them, creating a sense of belonging,” Hughes added.
Personalization is evident in Walgreens’ proprietary brands. In skin care, its peel-off face masks come in 10 varieties, including charcoal and cucumber. “Walgreens owned brands play a critical role in our goal to drive personalization that is high-quality, affordable and convenient,” Hughes said. It uses data from myWalgreens, its 102-million-member loyalty program, to better identify shoppers’ needs. “There’s various factors we look at that are ever-changing to deliver the best experience,” Hughes added.
Walgreens’ professionally trained, in-store beauty consultants address people’s needs, suggesting ethnic items and OTC products for skin conditions. They even work with pharmacists to recommend products that alleviate skin and hair changes resulting from cancer and other drug treatments. “They’re trained to ensure each customer has solutions that meet their needs,” Hughes said.
Rite Aid’s efforts at being more on-trend have involved rolling out Store of the Future in 2020. The spa-like destination offers updated beauty products. Many are natural and chemical free. Beauty “ambassadors” help shoppers find solutions. And in 2018, it introduced indie brand Kokie Cosmetics to 2,300 stores. The affordably priced line includes about 200 cruelty-free items whose ingredients follow popular Korean makeup trends.
To become more competitive in beauty, drug stores do not necessarily have to emulate other channels. But they must find ways to better serve a generation that gets its cues from grass roots advisors and not high-ticket fashion magazine ads and supermodels. “It’s about rebalancing space and thinking of the functional benefits this group wants and shifting some aisles toward that,” Schilling said.
The supplier side
“Indie” companies are not the only ones attracting the coveted young female segment. Several huge corporations have either purchased smaller brands or developed trend-right products themselves. This lets retailers obtain desired merchandise from companies with the bandwidth, experience and technology to service myriad stores.
Colgate-Palmolive purchased natural toothpaste brand Tom’s of Maine in 2006. In 2007, Clorox bought Burt’s Bees, a maker of natural lip balms and other products. CPG giant Unilever also has been aggressive, launching Love, Beauty and Planet in 2017 and purchasing Schmidt’s Naturals (soap, toothpaste and shampoo) in 2018.
Historically, labels were primarily offered in natural products stores. But changing demand has brought them mainstream. “Socially conscious brands are no longer on the fringes,” said Sonika Malhotra, CMO U.S. hair care, Unilever, and co-founder of Love, Beauty and Planet. “They’ve come to the center of the plate.”
Fifteen years ago, 90% of Dr. Bronner’s business came from natural products stores. Today, 80% is with big chains, said Mike Bronner, president. “Today’s consumers seek different reasons for believing in products than earlier generations. They don’t take brand claims at face value. They look behind slick salesmanship and marketing campaigns and want authenticity.” Dr. Bronner’s has manufactured natural, sustainably produced soaps since its inception in 1940.
Changes prompted Dr. Bronner’s to update its marketing. “Until recently, we never did traditional advertising,” Bronner said. “Money went for cause marketing. It was, ‘This is who we are and what we believe in.’” One third of company profits go to charity.
To keep the brand authentic, Dr. Bronner’s relies more on blogs, video and social media influencers. They discuss ethical ingredient sourcing, fair trade and other social issues. Media features real families using products. “We’re focused on storytelling and what happens behind the scenes beyond enriching stakeholders,” Bronner said.
Influencers are often self-appointed, independent experts. Some companies have recruited them as spokespeople. “Brands that harness the power of social commerce by influencers and other means become more important,” said Mark Hosbein, head of Magid’s Consumer & Commercial Brands practice. “It gives manufacturers and retailers major insights into consumers’ habits.”
Among Gen Y and Gen Z women, 44% are swayed by social media influencers compared to 29% of combined age groups, said Magid’s 2022 study, “Status of the U.S. Consumer,” Social media and podcast ads influence 27% of young women versus 23% of other groups. Just 17% of Gen Y and Gen Z respond to traditional advertising.
Unilever markets brands via social media, too. Love, Beauty and Planet influencers have discussed everything from littering to creating “beach” hair looks. Dove’s social media campaign talks about young girls and self-esteem.
Unilever’s TIGI Professional brand Keep it Casual flexible hairspray was a big Instagram hit. Introduced under the Bed Head label in 2022, it was the first item to come close to “breaking the top 10 products since the brand’s 1996 inception,” said Nataly Avila, head of TIGI Professional, Americas.
“Manufacturers must adopt these shifts into brand and innovation planning,” she added. “Traditional brands are still very relevant. It’s about positioning yourself as authentically as possible to that person when they need and want you most.”
An older product, the Bed Head Stick, went viral on TikTok in March after influencers discovered it. “This wasn’t a ploy by the brand,” Avila said. “It was the first product marketed by Bed Head. It’s now the go-to item for the slick bun look.”