Is e-commerce a challenge for the perfume retail market (in Belgium)?

Rafiah Flowers and Wim Vanhaverbeke

Abstract

Based on the master thesis of Rafiah Flowers (University of Antwerp), we embark on a journey to explore how digitalization (and e-commerce in particular) has transformed the traditional perfume industry in Belgium. The advent of e-commerce has brought about a revolution in the way we shop, fundamentally reshaping the traditional retail landscape.

E-commerce has not only changed the way consumers make transactions but has also prompted a reevaluation of the very foundations that have supported physical stores for generations. Even industries deeply rooted in the brick-and-mortar model are facing the challenge of adapting to this digital era, and the perfume industry is no exception.

The allure of online shopping, with its convenience and accessibility, has not gone unnoticed by fragrance enthusiasts. As a result, we are witnessing a shift towards digital platforms in how these products are sought and acquired. We explore the changing dynamics of this industry, weighing the advantages and disadvantages of e-commerce adoption, and analyzing successful adaptation strategies. Our aim is to provide valuable insights and actionable recommendations. These insights can serve as a foundation for strategic adjustments, enabling brick-and-mortar perfume retailers to not only navigate the intensifying competition in the online sphere but also to thrive in an ever-evolving digital marketplace.

Starting with price comparisons

Our research began with a simple observation: the prices of perfumes are typically lower in online retail spaces compared to their brick-and-mortar counterparts. This observation piqued our interest in not only quantifying these price differentials but also in dissecting the strategic challenges faced by traditional perfume shops as online shopping continues its steady ascent.

Our primary objective revolved around conducting a thorough comparison of perfume prices between physical stores and their online counterparts. To achieve this, we adopted a comprehensive approach. A diverse sample of twenty-five perfume products, spanning various brands, fragrance categories, bottle sizes, and price ranges, was selected. This selection encompassed both online retailers and physical stores to ensure a well-rounded and insightful comparison.

In the digital realm, we gathered pricing information from multiple online retailers. Our search encompassed the selected perfume products, capturing not only price ranges but also product descriptions and any available discounts or promotions. We took care in ensuring the precise recording of prices, including any supplementary charges such as shipping fees or taxes.

In the realm of physical stores, Rafiah conducted in-person visits to local retail perfume shops. Here, we adopted a hands-on approach, manually recording the costs of our selected perfumes. Throughout this process, we documented not only prices but also any additional details, such as bottle sizes, variations, or promotional offers. The prices are shown in the following table:

Price comparison

Among the twenty-five samples examined, a mere three were found to be less expensive in physical stores. In other words, the large majority of perfumes tend to carry a higher price tag in brick-and-mortar establishments, confirming our initial assumption.

The price differences underscore the competitive advantage that online retailers possess in terms of pricing, rendering them an enticing option for price-conscious consumers. Online shopping's inherent convenience empowers customers to effortlessly compare prices across various platforms, enabling them to secure the best deals without the need for multiple in-person store visits. This facet of online shopping perfectly aligns with the growing consumer trend toward seeking affordability and cost savings.

Several factors contribute to this pricing differential. Primarily, online retailers often benefit from reduced overhead costs, such as rent and staffing expenses, which can be reflected in their competitive pricing strategies. Moreover, the fierce competition among online retailers frequently compels them to offer more attractive prices to both attract and retain customers, thus securing a larger market share.

However, even in the face of generally higher prices in offline stores, interviews shed light on why consumers still opt to purchase perfumes in physical establishments. These reasons frequently revolve around the desire to personally experience the fragrance, receive expert advice, and engage in a more interactive and sensory shopping encounter. As articulated by one perfume retailer, the inherent value derived from the in-store experience justifies the higher price tag for certain consumers.

The empirical findings emphasize that while online retailers typically offer more competitive perfume prices, many consumers continue to favor brick-and-mortar establishments. This underscores that factors beyond price, such as the in-store experience and personalised service, wield substantial influence in the consumer decision-making process.

Do the lower online prices pose a competitive threat to brick-and-mortar stores?

The surge in online perfume sales, as illustrated in following Figure, has been remarkable in recent years. In 2017, online sales represented a modest 11.5% of total perfume sales, but by 2023, this figure has more than doubled, surging to an impressive 25%. This substantial shift underscores the preference of consumers for the convenience and accessibility offered by e-commerce platforms.

As technology continues its relentless advance and more consumers embrace the world of online shopping, it's anticipated that the upward trajectory of online perfume sales will persist. This places traditional brick-and-mortar stores in the challenging position of needing to adapt and innovate to maintain relevance in this changing retail landscape.

The ongoing growth of online shopping is reshaping the landscape of various industries, echoing the experiences seen in sectors such as media, hospitality, flight bookings, and electronics retail. Similarly, this evolving dynamic in the perfume industry carries implications not only for online retailers but also for offline stores, perfume manufacturers, and consumers. It unveils a range of challenges and opportunities as they navigate the digital transformation that is altering consumer behavior within the perfume market.

Physical perfume shops offer a distinctive advantage through personalized consultations and sensory engagement that online platforms struggle to replicate. The experiential aspect of sampling fragrances remains a pivotal draw for customers, amplifying the allure of in-store interactions. However, the contrast in pricing between offline and online alternatives could potentially erode customer retention, particularly among price-sensitive consumers. This could result in diminishingsales over time, necessitating a strategic response to strike a balance between sensory engagement and the competitive pricing offered by digital counterparts.

Amazon serves as a vast online marketplace, Estée Lauder Companies excels as a luxury fragrance producer, and Ulta Beauty Inc functions as a comprehensive beauty retailer with a robust fragrance selection. These three major players dominate online perfume and cosmetic sales within the industry. They specialize in e-commerce platforms that emphasize convenience, a wide product range, and competitive pricing. This appeals to customers seeking specific brands or cost-effective deals. Nevertheless, distinctive challenges emerge, particularly regarding product authenticity and trust. The prevalence of counterfeit products poses a significant hurdle, compelling online perfume retailers to vigilantly safeguard their credibility. Furthermore, the sensory engagement intrinsic to the offline store experience retains its status as a defining attribute, potentially limiting repeat online purchases. In this sense, fragrances are different from the retail of electronics where sensory engagement is absent, counterfeiting less a problem and possible savings much larger.

But for perfume manufacturers, a parallel can be drawn with Best Buy's association with electronics manufacturers. Like electronics brands that utilize physical stores to showcase their latest innovations, perfume producers leverage both offline and online sales channels to their advantage. Physical stores provide a tangible platform to spotlight the unique qualities of their fragrances, akin to the unveiling of novel gadgets in Best Buy. However, a significant challenge arises in preserving brand loyalty amid online price differentials. While the sensory appeal of perfumes aligns seamlessly with offline stores, intense competition in online sales may reduce profit margins, potentially eroding a brand's value over time. Balancing these disparities necessitates strategic interventions to preserve the brand's essence while navigating the digital landscape.

The implications of e-commerce's emergence shape the current landscape of the perfume industry. As such, we will further develop comprehensive conclusions and strategic recommendations to guide stakeholders, particularly offline perfume retailers, in embracing this transformation. Physical stores provide personal experiences and services, working in tandem with perfume producers and brands to maintain consistency in pricing and identity. On the flip side, online retailers leverage convenience and innovation to craft an enticing digital shopping space while ensuring the authenticity of their products. As these elements converge, we develop some conclusions and guidance to assist stakeholders in adapting to this new retail landscape, where the interplay between offline and online shopping is redefining how consumers experience and purchase fragrances.

Conclusions & recommendations

While e-commerce has undeniably exerted a significant influence on the retail industry, perfume shops in Belgium display resilience in the face of digital disruption. The relatively slow adoption of e-commerce compared to other industries finds its roots in the unique nature of the perfume industry, characterized by its heavy reliance on sensory experiences and the profound emotional connections between customers and fragrances. This coexistence of traditional retail and e-commerce serves as a testament to the adaptability and tenacity of these shops, catering to a diverse clientele while preserving the personalization intrinsic to their offerings.

Nevertheless, the findings of this study underscore the importance for traditional perfume shops to acknowledge the surging popularity of online perfume sales and actively embrace digital strategies to meet evolving consumer preferences. While the sensory and experiential aspects of in-store shopping are indeed invaluable, integrating online platforms can expand their customer reach and appeal to tech-savvy consumers seeking convenience and a wider array of product choices.

What are the recommendations that we can offer?

Firstly, perfume retail shops can enhance their omnichannel approach to cater to the diverse preferences of modern consumers. This strategic shift ensures that customers enjoy a consistent and personalized journey, regardless of whether they choose to explore fragrances in-store or make purchases online. Offering a "click-and-collect" service allows customers to conveniently browse and purchase their favorite scents online and subsequently collect them at the nearest physical store, fostering convenience and flexibility.

Secondly, prioritizing personalization through a deep understanding of individual customer preferences and profiles is paramount when reengaging with customers in perfume shops. Leveraging data from past purchases and scent preferences empowers retailers to curate a more tailored and memorable shopping experience for each customer, strengthening the bond of connection and loyalty. Emphasizing personalization in this manner ensures that customers feel valued and understood, fortifying their relationship with the shop and increasing the likelihood of repeat visits and word-of-mouth referrals. Furthermore, in the realm of online experiences, creating personalized encounters can be valuable, especially when addressing the limitations of sensory experiences in the digital domain. To tackle the challenge of not being able to physically test fragrances online, retailers can explore incorporating virtual scent testing experiences and augmented reality (AR) tools. This approach enables retailers to offer personalized scent recommendations by discerning individual tastes and previous purchasing behavior, enhancing convenience and empowering shoppers to make informed decisions about their purchases. Since mainly producers of perfumes and cosmetics are developing digital tools to enhance personalization, it becomes imperative for retailers to forge collaborative partnerships with these producers. This collaboration aims to elevate the overall customer experience, spanning both online and in-store interactions. Consequently, retailers might consider further consolidation into larger chains to effectively integrate these digital tools as a distinctive offering for their customers.

Thirdly, investing in a robust online digital marketing strategy is imperative for perfume shops to maintain competitiveness. This encompasses Search Engine Optimization (SEO), customer engagement through social media marketing and email campaigns, and the art of storytelling to forge emotional connections. Such efforts expand the shop's reach, heighten brand visibility, and cultivate enduring customer relationships. This approach not only broadens their audience but also preserves the distinct value proposition of their physical stores, setting them apart from online-only retailers.

Lastly, it's worth noting that online purchases may not pose as severe a disruption to offline perfume shops as they have to offline shops in industries like media and electronics. In comparison to the media industry, online shopping in the perfume sector presents fewer advantages (e.g., absence of real-time consumption feedback). Similarly, when measured against the electronics industry, the potential cost savings are relatively modest, and the sensory nature of fragrances creates unique challenges for online shopping. Consequently, it's unlikely that the perfume industry will experience the same level of disruption witnessed in other sectors. However, it's crucial to recognize that the increasing market share of online sales necessitates proactive adaptation strategies for offline stores in response to the industry's ongoing digitalization.

While offline shops have demonstrated resilience in response to the emergence of e-commerce, embracing digital transformation, enhancing personalized experiences, and adopting data-driven strategies can empower them to stay competitive, expand their customer base, and flourish in the evolving digital landscape. By adapting to changing market dynamics and customer preferences, perfume shops should be able to secure their position as sought-after destinations for fragrance enthusiasts and ensure sustainable success in the digital era.