The document discusses 10 trends and disruptors in the digital beauty industry organized under 3 themes. 1) Online: Smartphone browsing has lower conversion rates, driving demand for information-rich apps and social media recommendations. 2) Stores: In-store retail focuses on enhanced experiences through digital tools, magic mirrors, wearables and 3D printing, and on-demand beauty services. 3) E-Commerce: Subscription models are growing for habitual purchases. Luxury beauty is thriving online. Grocery sales and CPG brands are increasingly moving to online channels.

1. TOP TEN TRENDS AND
DISRUPTORS IN DIGITAL
BEAUTY
Make Up in Paris
June 10, 2016

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4. 10 DISRUPTORS, THREE THEMES
1. Online:
• Primarily about research.
2. Stores:
• Experience is all.
3. E-Commerce opportunities:
• Subscription, luxury and grocery.

5. THEME 1: ONLINE
• Online is disproportionately about research
and browsing.
• Smartphones have made it more than ever
about browsing: lower conversion rates,
because of “downtime browsing” with little or
no intention to buy.

6. SMARTPHONES DRIVING “DOWNTIME
BROWSING”—WITH LITTLE INTENTION TO BUY
Online Conversion Rate, 4Q15
Smartphone Visits as % of All
Visits
4.4
3.8
1.5
3.5
0 1 2 3 4 5
Desktop
Tablet
Smartphone
Overall
%
19.9 20.3
22.9
25.6
28.6
0
5
10
15
20
25
30
4Q14 1Q15 2Q15 3Q15 4Q15
%
Source: Monetate Source: Monetate

7. Demand for an information-rich
experience fulfilled by apps offering
“scientific” advice and social media
offering human recommendations.

8. INFORMATION-RICH ONLINE EXPERIENCE
1. The App as a Beauty Tool:
Facial Mapping
• Virtual makeovers and try-ons
• Factual, scientific, algorithm-driven advice
• ModiFace, a Toronto-based company with a background in building 2-D
and 3-D facial simulations, offers multiple apps
• Sephora Pocket Contour: facial contour analysis
• L’Oréal Makeup Genius: magic mirror-type experience
1

9. INFORMATION-RICH ONLINE EXPERIENCE
1. The App as a Beauty Tool:
Color Matching Goes High-Tech
• Sephora + Pantone = Color IQ
• IMAN Cosmetics determines a user’s
“color signature” after taking a headshot
• ShadeScout matches the Pantone shade
of colors from photos
1

10. INFORMATION-RICH ONLINE EXPERIENCE
1. The App as a Beauty Tool:
Smartphones as Personal Beauty Consultants
• Smartphone apps are capable of:
– conducting skin analysis
– making product recommendations
– performing virtual cosmetic testing
• Allure SkinBetter applies
dermatologist-grade scanning
technology to identify skin issues
• Visada analyzes skin lines and spots
from a selfie, to provide makeup
recommendations
• Plum Perfect determines skin tone,
hair type and eye color to make
recommendations
1

11. INFORMATION-RICH ONLINE EXPERIENCE
2. Social Selling for Beauty Products:
The Human Element in Digital
• 50% of beauty shoppers rely on
beauty videos on YouTube when
making a purchase (source:
Google).
• With YouTube’s help, beauty
brands provide beauty products
for product placement/trial.
• Regular shoppers sharing their
finds through “beauty hauls.”
Zoella
2

12. INFORMATION-RICH ONLINE EXPERIENCE
2. Social Selling for Beauty Products:
The Human Element in Digital
Beauty on
Source: Pixability, 2015
2
45.3 bil.
Total beauty video
views to April 2015
123 mil.
Total beauty
subscriberships
1.8 mil.
Total beauty videos
Mature and male
beauty are high-
growth areas

13. INFORMATION-RICH ONLINE EXPERIENCE
2. Social Selling for Beauty Products:
The Human Element in Digital
Beauty brands on YouTube:
• 215 beauty brands present on YouTube.
• 2.1 billion brand-owned beauty video views…out of 45.3 billion total beauty video
views.
• So brand-owned videos have <5% share of beauty video views.
• Top-viewed branded beauty channels range from Chanel to Dove to Dior to
Sephora: massmarket and luxury.
• 2016: L’Oreal launches “authentic” unbranded content-sharing site, Fab Beauty.
• 2016: L’Oreal and YouTube launching an online vlogging school.
Source: Pixability/Company reports
2

14. THEME 2: STORES
• In-store retail is more than ever about experience.
• Particularly essential for beauty categories, where
tangibility can be essential.
• But shoppers want experience on their terms: some
16% of US consumers decide to shop where sales
associates will leave them alone until sought out for
help (Mintel, 2015).

15. 85%
• Of US shoppers
prefer to shop
in stores
because they
like to touch
and feel
products
90%
• Are likely to
make a
purchase when
they receive
assistance
from a
knowledgeable
store associate
63%
• Say if an item
is the same
price at
different
retailers, they
choose where
to shop based
on overall
experience
DIGITIZATION CAN HELP DELIVER THE
EXPERIENCE SHOPPERS EXPECT
Source: Timetrade, 2015

16. In-store tech can play a role in
enhancing the experience, offering
service, and bringing the
information consumers are used to
getting online, into stores.

17. EXPERIENCE IS EVERYTHING
3. Digital Stores
• Sephora Flash ultra-connected boutiques. First is at 66, Rue de Rivoli in Paris.
• An edited selection of products, alongside a digital catalog of more than 14,000
products from 150 brands.
• Perfume testers with an NFC (Near Field Communication) tag provide shoppers with a
multitude of information on the fragrance by simply placing the tester on the connected
screen.
• NFC-reactive screens can bring some of the information consumers are used to getting
online into the store.
3

18. EXPERIENCE IS EVERYTHING
4. Magic Mirrors
• In-store experience through technology.
• Samsung OLED magic mirror: multiple use cases including virtual beauty try-ons.
• May 2016: First commercial use, in a hair salon.
• Panasonic’s Interactive Mirror: “After analysing your skin condition and pointing
out fine lines, age spots and other issues it recommends cosmetics and
treatments.”
4

19. EXPERIENCE IS EVERYTHING
5. Wearable Tech and 3D Printing
• In future, products made or personalized before your eyes.
• Early areas of wearable-tech in beauty include:
– nail decoration
– tattoos and conductive makeup
– combining beauty and technology to empower the disabled
5

20. EXPERIENCE IS EVERYTHING
5. Wearable Tech and 3D Printing
• Open-source desktop 3D printer with a sub-$200 price tag that can
print makeup such as lipstick, lip gloss, eye shadow, blush, nail polish
and brow powder
5

21. EXPERIENCE IS EVERYTHING
6. On-demand Beauty Services
• Apps such as Beautified, BeautyNow and Glamsquad allow users to
search for nearby salons and book last-minute appointments using
geolocation-based technology.
• Sits within a landscape of service-focused apps and intermediaries,
from Just Eat to Deliveroo to Uber.
• Beauty services is a fragmented market—many small, independent
players.
• Platforms such as this consolidate the sector at the front end.
6

22. EXPERIENCE IS EVERYTHING
7. Shoppers are Digitizing Stores
More Than Retailers Are
• Shoppers are turning stores digital with their smartphones.
• 45% of beauty consumers prefer to search for product
information in-store on their mobile device rather than ask for
assistance from a sales associate (Mintel, 2015).
• And 90% of US smartphone users use their smartphone in stores
while shopping.
7
42
48
54
90
0 10 20 30 40 50 60 70 80 90 100
Checking Reviews
Looking Up Product Information
Price Comparison
Any Smartphone Use
%
Percent of US Smartphone
Owners Using Their
Smartphone In Store, 2015
Source: SessionM

23. THEME 3: E-COMMERCE
OPPORTUNITIES
• Growth and opportunities in three distinct
segments.
o Subscription—for habitual purchases and
trialing.
o Luxury—a strong channel in a struggling
market.
o Grocery—set for strong growth.

24. E-COMMERCE IS A DIVERSE CHANNEL
Internet’s Share of Color Cosmetics Sales, 2010-15
8.2
10.0
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
2010 2011 2012 2013 2014 2015
%
Western Europe US
Source: Euromonitor International

25. “Beauty online” is more nuanced
than being a homogeneous
channel.

26. E-COM OPPORTUNITIES
8. Subscription Models
• Consumers find value in avoiding the drudgery of shopping for
everyday commodity items
• They appreciate the benefits of curation
• Many consumers use subscriptions to treat themselves to a monthly
gift
• Consumers love the convenience and dependability of the services
• Retailers love subscription models as a source of recurring revenue
8
1 Mil.
Subscribers
2.2 Mil.
Subscribers ?
Source: Company reports

27. E-COM OPPORTUNITIES
9. Luxury E-Commerce
E-commerce is a bright spot in a weaker luxury market:
• Total luxury CAGR to 2020: 2-3%.
• Luxury e-commerce CAGR to 2020: 15%.
• Beauty offers a better fit to e-commerce than other luxury
goods: no concerns about fit, habitual purchases, and small
size.
9
E-Commerce Share of Global Luxury
Goods Sales (Percent) and YoY % Change
Source: Bain & Co.
1.3 1.7 2.2 2.6 2.9
3.5
4.5
5.8
7.7
9.8
12.0
16.8
0
5
10
15
20
25
30
35
40
45
0
2
4
6
8
10
12
14
16
18
04 05 06 07 08 09 10 11 12 13 14 15E
% Share of Market (Left Axis) YoY % Change (Right Axis)

28. US: % of Grocery Shoppers Who Bought
Groceries Online in the Past Year
US: Online’s Estimated
Share of CPG Sales
19
31
0
5
10
15
20
25
30
35
2014 2015
%
+63%
0.8
2
3
4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2014 2015 2016E 2017E
%
Source: IRI/Fung Global Retail & TechnologySource: Mintel
E-COM OPPORTUNITIES
10. Online Grocery
10

29. E-COM OPPORTUNITIES
10. Online Grocery
• In developed markets, up to 39% of
BPC products are sold through
grocery stores.
• Online is the fastest-growing
channel in grocery: it will be a
principal growth channel for
massmarket BPC brands.
• In the US, online CPG sales will make
up more than half of total CPG sales
growth to 2018 (source: IRI).
Indirect disruption for beauty brands:
• Brands need to consider how they
are going to continue putting their
products in front of shoppers.
• And they will find pure plays such as
AmazonFresh a source of growth.
10
Grocery Retailers’ Share of
Sales, 2015 (Percent)
16.0
27.1
38.5
12.2 12.5
29.5
0
5
10
15
20
25
30
35
40
Color Cosmetics Skin Care Men's Grooming
%
Western Europe US
Source: Euromonitor International

30. 10 DISRUPTORS, THREE TAKEAWAYS
1. Information-rich online and app tools to help
customers research and decide.
2. Experience-rich stores, leveraging technology
to bring information into the store.
3. E-commerce is a diverse channel with discrete
opportunities.

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And soon at www.fgrt.com