What are the latest global e-commerce trends in Beauty and Cosmetics – and how can merchants leverage payments to stay competitive?
Whether it’s an online cosmetics shop or a beauty salon with a new booking app, merchants in the Beauty and Cosmetics sector are working to provide their customers with quality digital experiences. Naturally, this extends to the way Beauty and Cosmetics consumers pay for products or services online.
Amidst growing competition and consumer expectations around digitization, merchants must pay increasingly close attention to optimizing the customer journey across all digital channels – from browsing up through the point of checkout and beyond.
Stores that overlook the importance of the checkout process risk running into missed opportunities. Looking at the Beauty and Cosmetics sector specifically, stores offering cosmetics-related products and services have witnessed a 70%+ cart abandonment rate so far in 2022. At the same time, the choice of which payment methods to offer can often play a bigger role in driving conversions than some merchants realize. According to Amex Trendex research, 84% of surveyed US consumers consider whether the store offers their favorite payment option.
How can businesses in the Beauty and Cosmetics industries use digital payment tools to drive higher digital conversions and build loyalty amongst customers? And what are the global trends that merchants should be watching?
Keep on reading to find out more.
Beauty and Cosmetics global industry overview
Common challenges for Beauty and Cosmetics e-commerce
Tips for success when growing your Beauty and Cosmetics business
In 2022, the global cosmetics market will bring nearly $94 billion in revenue – by 2026, this figure is forecast to reach over $128.3 billion.
According to Statista, in 2021 29% of global consumers shopped online and 22% shopped in a hybrid mode (both online and offline) for personal care and beauty products. These numbers will likely grow as online shopping channels capture a larger market share, and as more merchants introduce and expand omnichannel sales and marketing strategies.
Looking at the global cosmetics market revenue in 2021, the most popular segments in the United States were:
Looking forward, skincare will be one of the most profitable product categories, with some $177 billion in projected revenue by 2025.
Natural and organic cosmetics is also a rapidly growing category worldwide. In 2022, the market was worth $11.9 billion – experts predict it will reach $15.6 billion by the middle of the decade.
A survey from PYMNTS revealed that the most important factors influencing consumer behaviors apart from price or location were special sales, unique products, and reward programs.
One interesting insight? Younger consumers are mostly buying cosmetics and personal care products on marketplaces and online stores of cosmetics retailers.
On average, the largest percentages of Gen Z customers in the United States spent between $21-$50 (38% of respondents) and $10-$20 (37% of respondents).
That same customer segment rated that top three factors as most important when it comes to selecting Beauty and Cosmetics products:
Millennials, on the other hand, choose beauty products because of the feeling or look given by the product, healthy ingredients, and finally, their price.
Just as in any other sector, cross-border e-commerce in Beauty and Cosmetics opens the door to new opportunities for business expansion – particularly as consumers grow more comfortable buying from international merchants online.
For Beauty and Cosmetics, the trends are especially promising. ESW’s Global Voices 2022 survey recently revealed, for example, that more and more consumers are buying beauty products outside their home countries. What’s even more interesting is that this habit increased across all age groups.
From a generational perspective, nearly a quarter of global millennials surveyed said they had purchased Cosmetics, Skin Care, and Health and Beauty products from outside of their home country. Almost a fifth of Gen Z respondents reported the same.
Notably, the share of all generations who reported buying Beauty and Cosmetics products from cross-border merchants increased between ESW’s most recent report in February 2022 and the current survey – showing the growing appeal of cross-border e-commerce within this sector and in general.
Seasonality is a challenge for many online businesses – particularly those which are consumer-focused.
What’s more, the Beauty and Cosmetics sector follows its own specific seasonality patterns, inspiring brands to launch product innovations adapted to seasonal conditions. The majority of merchants’ efforts focus on marketing campaigns during sales peaks.
To sustain business operations in this context, e-commerce businesses rely on campaigns and distribution networks via partners that can come at a high cost. To offset some of the unavoidable costs of sales, marketing, and distribution during peak season, merchants can look for other ways to drive process efficiencies – for example, by lowering other operational costs and fees.
Beauty and cosmetics sellers usually address multiple markets at the same time. At the same time, customers often demand extremely fast deliveries – making logistics and inventory management an especially pressing concern for any business in this sector.
Most logistics challenges are often linked to storage, shipping, and returns – especially across borders and with a range of different distribution channels such as supermarkets, drugstores, beauty shops, direct sales, and more. Finally, international shipping brings logistical, pricing and regulatory hurdles, while consumer expectations differ between countries.
In this highly consumer-focused industry, meeting local expectations is an especially important part of doing business across borders. The more that merchants can do to ensure that the shopping and checkout experience is as localized as possible, the better.
Direct sellers, niche retailers, and large direct-to-consumer brands are all susceptible to fraud schemes. One of them is promo abuse, when customers use multiple email addresses and open several new accounts for one-time promo codes. In affiliate link abuse, bad actors manipulate promotional codes or affiliate links to siphon commissions. In a market vertical such as Beauty and Cosmetics where brands frequently offer such codes and do a high volume of business, this form of fraud is particularly dangerous.
Health and beauty merchants are also vulnerable to resale fraud, which occurs when people use stolen credit cards to purchase goods, then resell to third parties.
For merchants, the best way to prevent fraud is by enabling sophisticated tools that can detect online fraud and root it out before it happens. While such tools can be costly and complicated for merchants to seek out on their own, many online payment processing providers (like PayU) offer anti-fraud support as part of their offer. For merchants who want to take fraud seriously but don’t know where to start, this can be a good option.
Competition is another challenge that is particularly difficult to navigate in the Beauty and Cosmetics sector. The market is notoriously overcrowded, and many merchants struggle to keep up with the latest industry trends while striving to stand out from the crowd.
Building a strong brand is just one side of the coin – the other is addressing customer demands such as broad product offers, a smooth checkout experience, and fast delivery.
In a highly competitive landscape, businesses that do the little things well can distinguish themselves more easily. That’s why merchants hoping to grow their business online should pay especially close attention to the quality of the digital customer experience – and look at all the ways in which this experience can be optimized.
Merchants should always offer options that enable customers to purchase goods and services quickly and efficiently, regardless of where they are located.
Consumers appreciate a fast checkout process – as well as a familiar one. That’s why Beauty and Cosmetics merchants can improve conversion rates across domestic as well as international markets by providing a good mix of traditional and alternative payment method options.
Which payment methods should merchants offer? The answer depends on the local market – which is why merchants should consider working with a payment gateway that can provide a wide array of global and local payment method options.
What should merchants do in order to take payment methods seriously? This is one area where partnering with an expert can make a big difference.
Consider one of PayU’s clients – a leading global player in the Beauty and Cosmetics space. Over the past few years, the business has gone from processing almost no online payments at all to about 40% of its total business being done online. Having the right global payment provider helps this merchant ensure that it is offering the right payment methods to customers in different locations, without needing to be an expert in payment methods on their own.
The more relevant payment method options a merchant can offer, the more likely they are to appeal to a broader audience and deliver a seamless shopping experience for everyone. And while conventional payment methods like credit cards and bank transfers might reach a wide swath of consumers in some markets, in others they can leave a significant amount of potential customers on the outside.
Beauty and Cosmetics products are available everywhere, starting from drugstores and brick-and-mortar stores to e-commerce sites, platforms, or social media channels. To increase conversion rates, merchants need to ensure that the payment experience is well-optimized and that checkout is just as user-friendly on mobile or desktop as it would be on any other selling channel.
One area that merchants should pay specific attention to: mobile commerce, which is especially relevant for Gen Z and Millennial customers. Unsurprisingly, these two generations convert via mobile more than any other generation.
Payment methods are a particularly important part of successful mobile commerce strategies. As part of an overall mobile-friendly user experience, the checkout process should be optimized for the device – for example, offering Apple Pay/Google Pay/Samsung Pay as an available payment method when users are browsing a catalog on a smartphone or checking new products on a tablet.
High return rates are another unfortunate – and largely unavoidable – challenge common to the Beauty and Cosmetics sector.
Beauty and Cosmetics is among the industries most impacted by returns rates, as 22% of cosmetics and health products are sent back to merchants.
How can merchants reduce return rates and lower the need for complicated and costly reverse logistics? The choice of payment system may not be the first thing that comes to mind, but it can help.
For example, PayU offers an instant refund service in Romania, a refund management feature in Poland, and functionalities such as partial capture and partial refund.
While this won’t prevent payments from being refunded altogether, fast or instant refund capabilities at least capture returns before they happen by preventing unwanted products from getting shipped out in the first place.
One key tactic that merchants can use to offer more local payment methods (and get more payments approved) is to acquire and process payments locally. Local acquiring is generally cheaper – and it’s required to accept local payment methods in the first place.
So why don’t more merchants do this already? There are a couple of reasons.
First, many online merchants start their expansion journey using off-the-shelf payment gateway technology. This can be helpful for getting started, but it usually only provides access to a handful of popular payment methods. Because the payment gateway doesn’t have the necessary payment acquiring relationships on a country-by-country basis, merchants can’t offer many local cards, bank accounts, or other important payment methods that are not supported by the payment gateway.
Merchants who wish to offer local payment methods or process payments locally in any given market can get around this by choosing to work with a local payment provider in that market – but this solution obviously doesn’t scale well.
To process payments locally on a global scale, merchants should look for a global payment solution that has acquiring capabilities in multiple local markets. Local acquiring is a cornerstone of PayU’s approach and is a must for companies that hope to do high volumes of business internationally.
One benefit of acquiring locally is benefitting from local knowledge and expertise. When starting cross-border operations, merchants need to get familiar with local regulations and develop a seamless checkout experience in line with buyer expectations, establishing processes to overcome logistics and shipping hurdles.
This is another area where the choice of payment provider can help merchants to navigate some of the more thorny issues.
By working together with PayU to grow and expand its online business in Latin America and EMEA, for example, a social selling beauty company operating across 60 markets has already unlocked over $100 million in total payment volume and witnessed a 35% increase in approval rates year-over-year in key emerging markets.
Payment data is often challenging to access, analyze, and use for decision-making. Due to disparate and overlapping payment providers across different markets, a lot of data is siloed and getting a full picture can be complicated. But as with other types of analytics, when the full picture does come into view, it can drive massive efficiencies and cost savings.
A sophisticated analytics platform allows businesses to get a full birds-eye view of global payment transactions, giving merchants an opportunity to drive higher approval rates and checkout conversions while delivering a better customer experience.
Using PayU’s advanced payment analytics capabilities, merchants can integrate and analyze payment data worldwide to discover hidden insights from the payment journey. A prominent cosmetics merchant working with PayU, for example, uses reports to evaluate the impact of 3DS authentication on approval and conversion rates.
By analyzing approval rates and other key metrics across different payment providers, payment methods, currencies, and transaction locations, merchants can identify areas for improvement and greater efficiencies when it comes to processing global payments.
The other side of payment analytics is the ability to turn data-driven insights into opportunities for actually optimizing payment activity. This is where smart routing tools come into play.
Each payment must go through a maze of payment processing networks, acquiring banks, and more on the journey from the payment method chosen by the customer to the merchant’s bank account. The costs of different payment providers can vary widely depending on the location, and the most efficient routing configuration in one location might not necessarily be the best in another.
Smart routing essentially lets merchants benefit from multiple payment routing configurations depending on the transaction. Merchants can set custom routing rules, and then the payment platform will use AI-based technology to find the optimal routing configuration. By routing transactions in a smart way, merchants can optimize approval rates while lowering transaction fees.
To get the most out of smart routing, merchants should work with a routing engine provider that can retry declined payments if one of the receivers fails to process the payment. PayU’s Instant Retry Feature can retry failed transactions using a pre-configured set of routing rules – helping merchants to minimize false declines while making checkout faster and more streamlined.
As more consumers make purchases online, payment fraud continues to figure as one of the biggest challenges within the e-commerce space. But there’s some good news: payment providers have a range of security tools at hand designed specifically to block transactions recognized as potentially fraudulent.
A combination of rule-based and statistical models helps merchants to identify patterns that indicate fraud. Business owners can choose between relatively conservative solutions that help keep fraudulent transactions in check, or more sophisticated approaches that protect data while allowing legitimate transactions to pass through.
Next to anti-fraud, the right choice of payment provider can also help merchants to manage other important aspects of payment security, like PCI DSS compliance, 3D Secure implementation, network tokenization, and more.
Network tokenization opens the door to even more security than ordinary tokenization and can help drive higher approval rates. By avoiding lost or expired card declines, tokens used in this method achieve higher approval rates and capture bigger transaction volumes. Many merchants use network tokenization to balance security and convenience.
The Beauty and Cosmetics industry has long been one of the earliest adopters of new technologies, from e-commerce itself to virtual and augmented reality.
Over the past two years, the e-commerce market for beauty products has continued to grow, fueled in part by the rise of newly emerging e-commerce markets where the segment is a major driver of online consumer spending.
At the same time, the growth of social commerce and a more socially-engaged customer journey across digital channels has helped to transform online shopping for beauty into a streamlined and immersive experience that fosters high levels of brand loyalty.
There has never been a better time for online merchants in the Beauty and Cosmetics vertical to expand their customer base into new markets. As the industry continues to grow and adapt to change, online businesses will focus increasingly on ensuring customer loyalty and omnichannel e-commerce strategies at every touchpoint – from item search and virtual product testing to payment, delivery and beyond.