Designer Makeup Brands Are Fighting a Battle for Relevance

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On a stretch of Broadway in New York City’s Soho neighborhood, one of the city’s most touristy blocks, two new shiny beauty stores opened right next to each other last month. One is almost entirely red and has a huge red gorilla in the window. The other, lacquered black with red accents and hot-pink neon signs, has a DJ booth in the back and features a rotating roster of visiting YouTube and Instagram beauty influencers. The brands? Armani and YSL.

Designer fashion brands are obviously only within financial reach for a certain shopper, but their associated fragrances and beauty lines traditionally offered a way into the brands for people who couldn’t otherwise afford it. Even then, designer makeup brands held themselves aloft from the beauty fray and reveled in being exclusive, with a price point to match. However, they are now trying to become more accessible, in a bid to grow in the US beauty market. Makeup in particular is on fire as an overall category, but seems to be leaving the luxury stalwarts in the dust.

Prestige makeup sales, which include designer brands as well as heritage brands like Estée Lauder and indie brands like Anastasia Beverly Hills, totaled $7.9 billion in the US for the 12 months ending June 2017, according to NPD Group data. This represents a 10 percent increase in sales from the previous year. Designer brands only made up 6 percent of those total prestige makeup sales. Sales for this group increased by 4 percent, less than half of what the growth was in the rest of the category. Designer brands tend to have strong fragrance businesses, but fragrance is a smaller overall market. For the same time period, women’s fragrance had $2.6 billion in sales, and 66 percent of those sales came from designer brands; overall fragrance sales were flat from the previous year.

Which is presumably why Armani Beauty and YSL Beauté decided to open pop-ups with a heavy makeup focus. Both brands are owned by L’Oréal and are part of that company’s International Designer Collections group, so the fact that the stores are right next to each other makes some sense. They will both be open until December 31st, though it’s pretty clear that this is an experiment for them to see if standalone retail is realistic for these two brands. Both brands have their own e-commerce sites, and both sell in a selection of traditional department stores as well as at Sephora. Representatives for these brands said, in separate interviews and in what appears to be a mantra for the company, “Stores are the new media, and media are the new stores.”

The Armani Box, as the pop-up is called, previously made the rounds in Paris, London, Beijing, and Tokyo before landing in New York City. There is a large portrait of designer Giorgio Armani on the wall and in the window, a replica of Uri, a gorilla prop from an unknown movie set that is in the Armani atelier in Milan. Customers can get lipsticks and fragrances engraved, take selfies with Uri, watch digital makeup tutorials to learn how to create makeup looks from Armani runway shows, and attend live events with celebrity makeup artists and fashion influencers.

Giovanni Valentini, the vice president for Giorgio Armani Beauty, says that the brand has been growing three to four times faster than the general market, with purposefully limited distribution. He thinks Armani’s makeup strength is in its foundations, like the bestselling Luminous Silk ($64), although shoppers are also responding to its lip products. Valentini says, “It’s a brand a lot of people know for fragrance and the awareness of beauty may not be as high.” He says that Armani has been in discussions with an “important” retailer to incorporate the Box concept into an existing store.

Right next door at YSL, there’s a bit of a nightclub vibe, as a DJ plays loudly and Swarovski-encrusted guitars are passed around for selfie-taking. The centerpiece of the store, though, is the engraving station. Customers can pick a shade of Rouge Pur Couture lipstick ($40) and then can choose one of four caps, featuring lips, sparkles, stars, or hearts. They can then have it engraved with whatever they want. A suggestion on display: “Will you marry me?”

Alexandre Choueiri, the president of L’Oréal’s International Design Collections, spoke at a CEW industry panel recently in New York City, where he discussed the state of the luxury-beauty industry and acknowledged that in certain ways YSL was “late to the game. We wanted to put this brand on the map. It’s tiny in the US compared to where it is in Europe,” he says, still noting that overall its growth has been in the double digits. Lipsticks are YSL’s fastest-growing category, so in 2016, the brand started offering engraving for free via its website. It appealed to its intended target. “Gen X doesn’t engrave. The millennials all engrave!” he said, to audience laughter. “We are only going to thrive against the giants if we’re creative and if [customers] are given a special experience.” Choueiri said the engraving resulted in “high-triple-digit growth” in lipsticks.

Verane de Marffy, the vice president of marketing for YSL Beauté, thinks the customization option is the “unique proposal” that will get customers into the door of the pop-up and bring them back for more. She says lipstick is popular because customers think of it as a status symbol, something they will take out of their bag and use proudly, a little piece of what she calls “the edgiest, coolest, couture [fashion] brand.” It’s certainly cheaper than YSL bags, which start at $2,000. (And this alignment with the fashion brand seems to be a strategy itself. Former Saint Laurent creative director Hedi Slimane took to Twitter in 2014 to distance himself from the beauty brand and proclaim he had absolutely nothing to do with YSL Beauty’s Black Opium fragrance campaigns.)

Despite the sunny assessments, designer makeup has a lot of lost ground to, uh, make up. Even de Marffy admits, while laughing, “On other categories it’s more of a battle. I actually think Dior, Chanel, YSL — we have lost the battle of eye palettes. It’s over.” (Indie brands like Natasha Denona can sell out $129 eye palettes at Sephora, and there are countless other brands offering more reasonably priced options.)

David Olsen is the CEO of Cos Bar, a luxury beauty chain that now has 20 freestanding stores and a website whose sales went from 2 percent of the business to 15 percent since he came on board almost two years ago. Before Cos Bar, he launched the beauty category at Net-a-Porter, so he understands designer brands. “They’re not as nimble with trends,” he says, adding that historically, these brands were the trendsetters. “But I think they’re getting better with it. Since they’ve got the billion-dollar pocketbooks, the new technologies that they’re launching are generally very solid.” He says Cos Bar is growing well, but it sells more skincare than makeup.

Other designer makeup brands are in critical transition periods. Coty, which already held fragrance licenses for designer brands like Marc Jacobs and Calvin Klein, acquired a large group of brands from P&G last year, including Gucci beauty and fragrances. And this October, it acquired the license for Burberry Beauty, which had previously been developed in-house at Burberry. Neither Gucci nor Burberry makeup has had breakout hits like some of the other designer companies have, so Coty has some work to do here. The company declined to comment for this story since the brands are in a transitional period, but Coty luxury president Edgar Huber told the trade publication BW Confidential Magazine, “Burberry already has a strong make-up business which is doing well, so we have great opportunities to energize it even more.”

For Olsen, Gucci Beauty is a much more exciting prospect ever since creative director Alessandro Michele took over and re-energized the fashion brand. Coty understands this. Michele just helped develop his first fragrance for the brand, Gucci Bloom. The Gucci cosmetics line debuted a little over three years ago, covered in gold and plastered with the brand’s double-G logo. Huber said in the article, “Gucci has reduced its make-up business a little bit over the past few years, but we have decided to re-focus on it and re-develop it as fast as possible.” Slap some of the house’s fun floral patterns on the packaging and let Gucci fan Harry Styles help promote it, and it would be a winner. (Please see its candles, which cost $250 to $450 each, for a glimpse of what this could look like.)

Then there’s Dior, which is second to Chanel in terms of beauty sales. But only about 30 percent of its revenue comes from makeup, according to WWD. Terry Darland, the president of Parfums Christian Dior North America, came on about 14 years ago to refresh the beauty brand, which she said at the CEW panel had gotten “dusty.” The brand, which is owned by LVMH, opened its first makeup-focused store last year in the Oculus of the Westfield World Trade Center in New York City. It also sells at department stores and at Sephora (also owned by LVMH), where Darland says its customers are “younger and more dynamic.” It was a coup, though a complicated one, for Ulta Beauty, known for selling both drugstore and prestige brands, to land a blessing from Dior to sell its uber-popular DiorShow mascara ($28.50) in select stores.

Dior beauty is also sold online via a brand website, but Darland notes that its “retailer partner sites are much larger generators for us.” Sometimes fashion and beauty arms of a house can actually be too close. The Dior site also features fashion, which it does not actually sell online, so it’s more of a branding exercise for the house. “[The Dior website] does a nice business,” Darland says, “but it’s not as strong as if it was a pure play beauty site.”

In a story similar to the other brands here, Darland says Dior’s makeup business has “rebounded,” primarily due to the lip and face category. This can partially be attributed to beauty influencers like Manny Gutierrez and Jaclyn Hill, who have raved about Dior’s Airflash ($62) and Forever ($50) foundations. Forever’s sales are up 150 percent for Dior. At the panel, Darland proudly played a video clip of influencers gushing about the brand’s foundations. “Everyone says to me, ‘How does that work in terms of having Bella Hadid as the face for the brand?’” Darland says, presumably referring to the high-low nature of these ambassadors. “We obviously appreciate all that Bella brings to Dior, but there is a highly engaged, highly visible audience for influencers.”

While designer brands may not have wanted to be associated with beauty influencers in the past, there are no qualms now. YSL and Armani both paid influencers to do meet-and-greets at the pop-ups. But the brands could probably do more. Tribe Dynamics, which measures earned media value (EMV) based on influencer engagement with brands via social media, pulled some data for Racked. EMV is an indirect measure based on mentions and engagement, but does have some correlation with actual market share and revenue. From January through September of this year, most designer-brand engagement was based around fragrance launches, not makeup, although some of YSL’s buzz came from its $58 All Hours Foundation. But designer brand EMV pales in comparison to other prestige brands. For example, Dior’s estimated EMV, the highest of all the designer brands in this time period, was about $136 million. Anastasia Beverly Hills’s EMV was over $1 billion for the same time period.

While luxury-beauty brands say they are staying away from Amazon, which doesn’t allow brands to tell a visual story and still places an emphasis on “commoditization” and selling things cheaply (according to L’Oréal’s Choueiri), other options are on the table. (Likely to their dismay, though, Amazon does carry designer beauty brands like Chanel and Dior via third-party vendors, probably sourced from the gray market.)

Octoly, the business that works with brands to offer free beauty samples to micro-influencers to review, just raised a $10 million investment and launched a program called Octoprime, which allows influencers to sell products via their own storefronts and receive a commission from brands directly. Thomas Owadenko, the CEO and co-founder of Octoly, says it’s a way for brands to compete against Amazon, which just launched its own influencer storefront program. He calls it B-to-I-to-C marketing, or business to influencer to consumer. “I think with the relationship we have with the brands [which include Dior and Givenchy] right now, they could really leverage it and have fun with it,” Owadenko says.

Fun is the thing that could be the tipping point for designer makeup brands’ success, in fact. The designer brands mentioned here have a lot of competitors breathing down their necks and from whom they could learn a few things. There is American designer beauty upstart Tom Ford, whose beauty license is owned by Estée Lauder. The brand started with fragrance, then lipsticks, and grew from there. It is now on track to hit $1 billion in sales. Cos Bar’s Olsen says the brand is selling exceptionally well there.

“I think that luxury needs to take itself a little less seriously because if it isn’t fun, especially in this day and age, people won’t engage in it,” he says, mentioning Ford’s new “Fucking Fabulous” perfume ($310). “He’s not scared to break the mold of what people think luxury is and still maintain that luxury position.” Tom Ford beauty is sold at department stores, but also more niche retailers like Beautylish. It experimented with its Soleil line of products at Sephora a few years ago, which did so well that the brand launched the entire makeup line there. It also courts a younger customer (who presumably has less money) with its Boys and Girls lipsticks, which are smaller and, at $36, cheaper than the full-size $54 versions. The brand just opened its first freestanding beauty emporium in London.

Then there are powerhouse makeup artists Charlotte Tilbury and Pat McGrath. The latter was a creative director at P&G Prestige for many years, and had a hand in designing both Gucci’s and Dolce & Gabbana’s makeup collections. She has also spent decades behind the scenes at designer runway shows. She is savvy with social media, took a page out of the Supreme and Kylie Jenner “drop” book to build excitement for her limited-edition launches, embraced influencers, and has tons of chic and influential friends. She now has a permanent line that is sold on her site and at Sephora — and it is growing.

Charlotte Tilbury leveraged her years of working with celebrities and her bubbly, charismatic persona into a line of luxury products with whimsical packaging launched in 2013. It’s sold at every major department store, on Net-a-Porter, and on Beautylish. This past spring, it received an undisclosed amount of venture capital, and retailers have reported that it “exceeds sales expectations.”

L’Oréal’s Choueiri says that his brand’s sales have been much better since Thanksgiving and credits it to people “being ready to party. They’ve had enough negativity.” Time will tell if that translates to more people wanting to engrave things on $40 lipsticks.

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