Why Amazon’s Foray Into $10.6 Billion Prestige Makeup Biz Has Department Stores Worried

Amazon's next conquest could take another big chunk out of the retail industry. The online discount giant has apparently set its sights on the beauty products departments of prestige department stores, a $10.6 billion industry, according to Forbes article, Chanel for Cheap? Why Department Stores Should Fear Amazon's Beauty Push. Selling prestige cosmetics has been the traditional bailiwick of top-line department stores for decades. You may have noticed that when you enter these department stores, you are immediately greeted by multiple, bright counters with multiple, bright specialists offering multiple upscale makeup and beauty products -- put on while you sit there -- and then buy what makes you look good. 

These prestige beauty items have historically been sold via third party retailers (such as department stores), and, for the most part, never directly sourced from the brands themselves; and, equally important, until now, the prestige stores have enjoyed charging full price, with no discounts, except for infrequent promotions. 

When Amazon gets into the game, will Amazon, "the low-price online leader" offer these prestige cosmetics at lower prices? Will the huge cosmetics manufacturers go along with Amazon? After all, just as Walmart commands low prices from vendor partners who figure they can't afford not to do business with the world's largest retailer, says the Forbes article, beauty suppliers could find themselves in a similar position.

While Amazon hasn't said much about the details of its beauty relaunch, the retail giant has apparently been working to secure direct distribution deals from brands such as Clinique, MAC, Chanel, Estee Lauder and Lancôme. "By year-end, shoppers can expect a much different customer experience and selection than the one we currently have," Amazon's director of health and beauty category leader told Women's Wear Daily.

Another question is how Amazon will overcome the need for personalization? After all, it's extremely important to sample several different shades of lipstick or makeup to see how they look on your skin. To meet this, Amazon is said to be experimenting with creating a virtual experience online -- added functionality to help customers choose products, like taking your own image or skin type and matching it to a particular color.

I recently described another global eCommerce trend of concern for both retailers and Amazon… "Many consumers no longer distinguish between retailers and their favorite brands and go straight to the manufacturer or distributor to order." (In True or False? PC Is Preferred Shopping Device Of Global Online Retail Customers). In that piece, PwC research says, "This phenomenon could be one of the biggest stories for both consumer goods companies and retailers in the next five years."

Bottom Line For Your Bottom Line:

Amazon shakes up product sectors -- because it can. And, like a locust wearing lipstick, Amazon may be chomping away at the department store niche of providing prestige makeup at manufacturers' prices.  Only competitive pricing intelligence and smart competitive pricing -- and service -- will separate the wheat from the chaff that the locust is tasting.

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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