For Beauty Brands, Small Is Beautiful

Lipstick-to-skincare companies have found a way to stay relevant among Gen Z and millennial consumers in the highly competitive $16.8 billion market.

Brands, including Mars Cosmetics, Plum Goodness and Swiss Beauty, are opening more stores to woo shoppers in ways they can't online. These stores resemble those of deep-pocketed retailers like Reliance Retail-backed Tira in terms of service experience but aren't as large and spacious. They are smaller, cozier spaces that are just enough to stock its assortment of products and equipped with assistants to advise shoppers.

"Gone are those days when there was a need for brands to have a network of large, exclusive brand outlets... There is the internet for that," Saahil Nayar, chief executive officer of Swiss Beauty Cosmetics Pvt., said. "Small-format stores are proving to be more productive."

"This generation likes the informality of shopping in upmarket kiosks, where the experience is extremely elevated," Nayar said.

Swiss Beauty is available at about 25,000 retail touchpoints and also digitally. Even as online sales are growing, traditional exclusive brand outlets are no longer a viable concept, according to Nayar.

To cater to on-the-go consumers, Swiss Beauty plans to roll out kiosks. It is looking to open six such stores this quarter, taking its total count to 20 by the end of this fiscal.

The strategy of opening kiosks in areas with a high concentration of their target demographic can also help them compete with larger beauty retailers and stand out in a crowded marketplace, according to retailers.

"While it's about engaging with consumers and giving them an experience, getting them to enter a store is a harder deal," Rishabh Sethia, director at Mars Cosmetics, said.

For the young colour-cosmetic brand, foot traffic matters more than sales figures. In a shopping mall, a Mars kiosk as small as 64 sq. ft. helps attract more walk-in customers, according to Sethia.

The Delhi-based cosmetics brand plans to open a dozen kiosks this year, where shoppers can test out lipstick colours and experiment with its make-up and beauty collections. Its products are available online, both on its own website and on major e-commerce platforms such as Nykaa. Yet Sethia said customers tend to spend time in kiosks, growing an affinity with the brand and then buy products online later.

In the current beauty landscape, experiential retail holds immense significance, according to Shreedha Singh, co-founder of the Ayurveda Co. "Positioning kiosks, the model that resonates with the evolving preferences of today's beauty-conscious consumer, as immersive product experience centres is in consonance with our aim to compete with larger brands."

Key factors, such as trials and higher brand salience, are integral aspects driving the decision to open more kiosks.

There is a huge influx of beauty brands looking to showcase their products in high-traffic areas, according to Pushpa Bector, senior executive director and head, DLF Retail. "But not all of them are rockstars, some are testing out new markets... So, we are not confident of giving them a permanent lease."

DLF Malls, one of the first movers in the concept of kiosks, offers six-month and 11-month leases. While startups looking to reach a wider audience with minimal investment are most likely to opt for kiosks and pop-ups, mid-rung beauty retailers or international brands prefer stores to capitalise on the growing demand for convenience and personalised shopping experiences, Bector said.

"We are seeing a definite surge in demand for small stores that are 300 square feet in size," she said.

There is an "overwhelming preference" for stores for Plum Goodness, even as the brand has a few kiosks in Delhi's DLF Saket and DLF Promenade malls, according to Chief Executive Officer Shankar Prasad. "We deal in several categories ranging from fragrances to foundation, so we need about 300–500 sq. ft. of space."

Overall, the brand has 35 exclusive stores, of which five are kiosks.

However, Prasad agrees that there is a clear shift towards small, focused stores for single-brand retailers from the traditional giant showroom-style spaces.

"We have a couple of large 700-square-foot stores where we are now examining if we can give up half the space," Prasad said. "These are no longer making any sense as the revenue generated is not commensurate with the space. Our small stores that are half their size generate (the) same, if not more, revenue."

A shopping mall today looks very different than it did a decade ago.

The shrinking size of beauty retail concepts comes at a time when building brand image is becoming a costly affair. The challenge is two-pronged: time-pressed shoppers, particularly millions of generations Y and Z, are finding large stores inconvenient and weary to get all the way through. Brands are also realising that even if a customer walks in the door, they often see a huge selection of products in multi-brand chains and can’t figure out what to buy, eventually not purchasing anything.

More importantly, brands are opening smaller stores to cut costs and make bigger profits in a competitive economy. Rents drop, and smaller amounts of inventory cost less, thereby cleaning the balance sheets.

"I don't want to be even paying one rupee extra on rental when I can do the same sales from a smaller space. Also, it helps reduce manpower costs as fewer employees are needed," said Plum's Prasad.

The online cost of acquisition is going through the roof, too. A swarm of niche online brands appearing in the skincare and makeup space has resulted in more expensive search keywords and advertising costs. Higher costs and cutthroat competition online are also partly causing the shift.

"The online customer acquisition cost for beauty retailers ranges from Rs 800–1,500 on an average and this range has seen a surge of around 50% in the last two–three years, driven by the increased adoption of online advertising and e-commerce platforms," according to Varun Tangri, chief executive officer of QueueBuster, a company that helps retailers manage inventory, product enhancements and the scaling of distribution networks.

Typically, a kiosk costs Rs 1–5 lakh, depending on the size. Rentals in premium malls involve the revenue-sharing model, where mall developers collect a percentage of the retailers' sales as rent. "A small set-up is much more viable economically for a fast make-up brand like ours," Sethia said.

Despite these changes in the retail landscape, the overall demand for store space is robust, thanks to multi-brand retailers. Take the case of Tira Beauty. Instead of following the same approach, the omnichannel beauty platform of Reliance Retail Ltd. is moving towards larger and better stores, even as they are on the lookout for new brands to add to their store shelves. On March 9, Tira unveiled a 3,500 sq. ft. store on the ground floor of the DLF mall in Saket—its first Tira store in the national capital region.