Industry Snapshot: Health & Beauty

Innotrac White Paper

Published February, 2012

Perhaps more so than other retail e-commerce categories, the health & beauty segment encompasses a very diverse group of brands with merchandise ranging from vitamins and fitness equipment, to cosmetics and contact lenses.  It is also a category with a broad mix of manufacturer, brick and mortar, and pure-play online brands selling their wares directly to consumers, or in the case of two of its leaders (Amway, Avon), primarily through a network of distributors. 

Regardless of the mix, one thing is certain – health & beauty is a fiercely competitive category online, with some of the world’s most recognizable brands like Lancome and Estee Lauder alongside newer players like Coastal Contacts, and SkinCareRX.com.  According to Internet Retailer’s 2011 Top 500 Guide, the top 29 health & beauty merchants accounted for $4.15 billion in total online revenue, or 2.8% of the total Top 500 sales.  By comparison, nearly 130 apparel & accessory merchants made the Top 500 list, accounting for over $18 billion in sales, or 12.0% of the total Top 500.  What health & beauty may lack in relative category size, it certainly makes up for in performance.

Efficient Shipping Performance

In Q4 2011, Innotrac’s proprietary SmartHub® benchmarking analysis identified several data points where health & beauty merchants differed from the overall population.  First, 86% of health & beauty orders placed as part of the benchmark study were delivered within three business days or less.  This compared with roughly two-thirds of all orders in the study that arrived within that timeframe.   Many top health and beauty merchants fulfill direct-to-consumer orders either from a single warehouse in the eastern U.S., or from a multi-facility network in which geographic hubs optimize delivery times.  The result was a more efficient shipping performance for the companies in the category, a sample that included Sephora, with distribution centers in both Utah and Maryland. 

Multi-facility distribution is a growing way many best-in-class merchants are able to minimize delivery times.  While a single facility strategically located in the Ohio River Valley area can usually reach 40% of the country’s population within 2-3 days, many national retailers understand the advantages of having distribution on both coasts.

Extending The Brand Experience

The availability of gift packaging also stood out for health & beauty merchants.  While only 38% of all merchants offered gift packaging as an option, that number spiked to 80% for health & beauty merchants in our Q4 2011 analysis.  Gift packaging allows consumers to share a gifting experience with a recipient even if they aren’t the ones personally delivering the gift itself.  Furthermore, while only 28% of all merchants offered some sort of branded packaging, 43% of health & beauty merchants did so. 

Looking at both gifting and branded packaging together, health & beauty is clearly ahead of other categories in extending its brand experience beyond the web site experience itself.  Innotrac expects to see more merchants take advantage of the opportunity to brand the fulfillment experience over time.

Free Shipping Has Become Table Stakes

In a SmartHub® Custom analysis completed in February of this year, Innotrac also tracked the prominence of free shipping amongst health & beauty merchants.  The numbers were clear; 90% of all health & beauty merchants in the Internet Retailer Top 500 offered some sort of free shipping to the consumer (only three out of the 29 did not).  $53.38 was the statistical average minimum price point for free shipping, with $50 the most common.  This ranged from free shipping on all items for four of the merchants, to a minimum price point of $150 at the high end.

All of this points to one conclusion – health & beauty competition is fierce, with evidence of high operational efficiencies along with the ability to extend the brand experience all the way through fulfillment of a direct-to-consumer order.  To compete in this category, merchants must be willing to meet this high standard.