HBA is possibly my favorite beauty industry conference. I remember attending four or five years ago, and listening to Sarah Kugelman, Founder and CEO of Skyn Iceland, present her story on a panel about indie beauty brands. I decided I had to somehow find a way to be a speaker – I wanted to be just like her (funnily enough, we had coffee at the Javits at this year’s show, as we now often do, and I told her that story). For the past three years, I have been invited to speak and moderate various panels, which is both a pleasure and an honor.

The panel I moderated on Wednesday was possibly my favorite to date. It was a “Part 2” of a panel I moderated in 2010 on shifting trends in beauty distribution. Last year, that panel was composed of  Shop NBC, Bloomingdale’s and  bluemercury – I was moderating and presenting the brand’s perspective on the various channels (home shopping, department stores, independent beauty boutiques).

In this year’s panel on “The Changing Face of Beauty Distribution,” only “virtual” channels were represented: QVC, Hautelook, and Dermstore.com. Karen Doskow, Industry Manager, Consumer Products Practice, Kline & CO., set the stage for us by presenting some data on the personal care industry. Three key data points:

–          The US personal care market reached $36.5 billion in 2010, surpassing pre-recession levels

–          Industry growth bounced back after a dip in 2009, and was up 2.4% in 2010

–          The direct sales channel (TV, internet, person-to-person sales) achieved a 5.2% CAGR and is the fastest growing channel over the past five years (in comparison, over the same persio, department store sales decreased 3.5%)

–          Within the direct sales channel, the internet posted the highest CAGR, 26%, followed by TV shopping, 19.7%.

No need to further explain why the panel was composed of Allen Burke, Senior Advisor for Beauty for QVC, Paula Scandone, Vice President of Beauty, Hautelook, and David Olsen, Vice President of Business Development, Dermstore. As Allen Burke said in his opening comments, “a significant shift in beauty distribution is the fact that only virtual channels are represented here today.” Indeed…

Here are some highlights from questions I posed to the panelists:

The most significant shifts in beauty distribution in the last three years were identified as:

–          Consolidation (including consolidation between bricks and mortar and internet businesses; think of Walgreens and Skinstore.com for example, or Nordstrom and Hautelook)

–          The advent of mobile shopping; as Allen said, “today it seems almost old-fashioned to be shopping on your computer.”

–          The rise of flash-sale sites such as Hautelook

New sampling business models have emerged, driven by Birchbox, which launched its curated and edited box of samples in September 2010.

–          Both Paula and Allen agreed that this offers an opportunity to expand the reach of certain brands, without the need to internally handle shipping and handling. Indeed, QVC has now partnered with New Beauty on two of its “TestTube,” and plans on continuing this successful association.

–          A slightly different model is Dermstore’s BeautyFix program, which provides consumers full-size products in a mystery box.

The next question centered on the integration of bricks and mortar channels and virtual channels. There was no true consensus, other than the agreement that the consumer is now shopping across all channels. Allen discussed QVC’s partnership with Sephora, and Paula presented the cross-marketing opportunities between Hautelook and its new parent, Nordstrom – in effect, leveraging different consumer bases, introducing Nordstrom consumers to Hautelook, and encouraging the Hautelook consumer to shop preferentially at Nordstrom.

From a brand perspective, I proposed that the two keys to a successful mixed distribution channel is strategy (for example, how do flash sales fit in to your mix, how many times per year, on which products, etc.) and honesty with your partners (let your spas know you are going to be on QVC ahead of time; let your retailers know when your products will be discounted on a flash sale site).

Most interestingly to me, we then discussed the key success factors for the various channels, which are so very different from the key success factors needed in the spa channel (think training, gratis for staff, professional-only products), or in retail (think GWPs, in-store support, ads).

For Dermstore, David identified the keys to success as a true strategic partnership with the brand, brand visibility, and sampling. For QVC, Allen suggested that innovation and the experience of the shopper are key: “It is not about a good demonstration, it is about the experience.” For Hautelook, Paula identified assortment, value, and brand recognition as the keys to success.

HBA is an international show, and TV and the internet are global. We thus had to touch on the three companies’ international plans and experiences. David mentioned that Dermstore used to own dermstore.ca, prior to selling the business to Rogers Communications. While the internet is indeed global, the rules and regulations affecting the sale of personal care products differ country by country, making internet sales abroad complicated. Paula spoke of foreign Hautelook-like companies, including VentePrivée, but suggested that given the young age of Hautelook (3 years old), her focus was still on the US. Allen spoke about QVC’s experience in Japan, Italy, Germany, and the UK. His conclusions were not far off from David’s. Indeed, while US brands tend to do fabulous on QVC UK, UK brands have not been successful on QVC US. Perhaps it is not just the regulatory framework that makes global beauty selling complicated, but also differences in beauty cultures and consumer preferences…

I left the most controversial question for last – how has discounting impacted the various channels? David explained that Dermstore, as a general policy, does not discount. However, the company finds other ways to compete, including free shipping and gift with purchases. Paula is all for discounting, after all, that is the founding principle of flash sale sites. She suggested however that her consumer, while enjoying the discounts, continues to shop at full price. From her perspective, discounting is here to stay, and is should be part of a brand’s marketing strategy (notice, again, the word strategy; think about when and how and why you discount, don’t just do it). Allen closed the discussion by stating that QVC does not offer free shipping because a consumer should understand and be ready to pay reasonable shipping fees for a quality product, and that QVC will not offer a brand at a price that is higher than it is commonly found in other channels.

As the session came to a close, we all agreed that we were all still friends, despite differing perspectives. We also all agreed that it is amazing how different the beauty distribution landscape looks today versus five or 10 years ago. And that is what makes our industry, and this panel, so interesting… I am already hoping for a shifting distribution, “Part 3,” at HBA 2012.