Why Beauty Giants Are Snapping Up Technology Startups(BoF)

Source: Shiseido. Business of Fashion.

The article first appeared on the Business of Fashion.

NEW YORK, United States — Shiseido Co., the Japanese firm that sells Laura Mercier cosmetics and Dolce & Gabbana fragrances, sold 1 trillion yen ($9.3 billion) worth of beauty products last year, mostly in traditional stores where customers can sample brands in person.

That’s a problem for Masahiko Uotani, Shiseido’s chief executive officer. Consumers in their teens and twenties often prefer to shop online, beyond the reach of in-store salespeople. Uotani’s solution? To partner with — and even buy up — small startups in Silicon Valley and other tech hubs to gain expertise in artificial intelligence, augmented reality and other technologies.

His ambition is to help shoppers replicate online the experience of trying on cosmetics in a store, and use data from smart devices to create personalized makeup for customers.

“Particularly with the younger generation, often they don’t go into the stores,” Uotani said in an interview. “The way they buy, the way they share their excitement with their friends, is completely different from older generations.”

Technology is upending the $440 billion global beauty industry. While only about 6.9 percent of sales were online in 2016, according to market research provider Euromonitor International, e-commerce is becoming more important as online sales soar in China and other markets.

China will likely cross $1 trillion in online retail sales in 2018, according to Forrester Research. Such sharp changes in shopping habits in Asia’s biggest economy and across the globe have big brands scrambling to keep up.

France’s L’Oreal SA said on March 16 it would acquire for an undisclosed sum a Canadian tech company, ModiFace, which has more than 70 employees. ModiFace develops software that allows consumers to use augmented reality to see how they would look with different types of blushes and eyeshadows. L’Oreal has also partnered with French telecommunications entrepreneur Xavier Niel to create an accelerator for beauty-tech firms.

French luxury giant LVMH is working with Niel, too. The company announced on April 10 a program, La Maison des Startups, to support entrepreneurs at Niel’s Paris-based campus for new companies developing technologies and services for perfumes and cosmetics as well as wine, fashion and other LVMH businesses.

In China, e-commerce already accounts for 25 percent of Shiseido’s business, said Uotani, and in three years will rise to almost 40 percent. For Shiseido worldwide, 15 percent of sales will happen online by 2020, up from 8 percent last year, he said.

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