COSMETIC RECOVERY: Fresh-faced appetite for alternatives — upscale beauty shakes up SA’s retail landscape

There’s a novel category of beauty retailer lurking in our malls. It might look similar to the pharmacies and department stores we already know, but it is capitalising on a distinct new market that it didn’t need to cultivate itself. 

Online beauty trends have created a brick-and-mortar opportunity to profit from an appetite for alternatives.

Enter ARC Store. This sleek cosmetics peddler recently crossed the radar of beady-eyed investors, when Clicks announced last month that it had upped its stake in ARC to 61%, having first bought into the business back in 2021.

‘SA’s answer to Sephora’

ARC can be summed up as “South Africa’s answer to Sephora” is how Rabia Ghoor put it, referring to the beauty behemoth founded in France, now selling across the globe. 

Ghoor knows a little something about hitching your wagon to the beauty trade – she founded the local direct-to-consumer beauty brand Swiitch at the age of 14.

“Prior to [ARC] being around, there wasn't, like, a dedicated, centralised place in which you could not just shop beauty but also discover beauty trends,” said Ghoor.

Her own business was born partly out of frustration at the lack of access South Africans had to makeup that was popular online. What she saw was the huge gap between pharmacy brands and high-end options.

This hits on a wider trend in South African retail: a dearth of “middle-market” options – things that work slightly better than the basics, but don’t have all the frills – and accompanying mark-up – of the luxury realm. 

Initially, she contacted overseas retailers about reselling, but was told Africa was not considered a viable market. As a result, she started developing her own products, tailored to a South African climate and wallet. 

Beyond ‘local is lekker’

Africa’s access to international brands has grown over the past decade, but Ghoor has also seen an important shift in why South Africans still look to local sellers. 

“Now it’s not about just supporting local. The truth is that the local brands are competing on a global level.”

Whereas the main focus for beauty shoppers a few years ago may have been a viral eyeshadow palette, or a 17-step skincare routine, focus has moved to “what is practical”, particularly in the 20 to 30-year-old market. 

Plugging drugstore-luxury gap

These “young working professionals” are a key demographic for the indie brands which try to plug the gap between drugstore and luxury, focusing on active ingredients that social media has made more recognisable. 

BeautyOnTApp Founder and CEO Mathebe Ngwenya told Daily Maverick that the impetus was linking customers to beauty service providers when the business launched in 2015. It then evolved into a marketplace, starting in-house brands like Pastry body care. 

Aggressive online marketing by South Korean or K-beauty brands has meant BeautyOnTApp and its peers need to keep plenty of imported stock, though Ngwenya underscored the local ethos. 

The in-house brands, she explained, are a “response to what our consumer requests. People want a more boutique, specialised experience – they don’t just want to be told ‘go to aisle five’.”

This hits on something missing in drugstore beauty, and arguably, even at glossy department store counters. The new beauty retailer has to offer an upscale experience, but also one that feels personalised, matching the tone of short-form influencer-led content.

It is where smaller, locally founded brands have been able to shine – they stake their reputations on the fact that products are developed by people who actually use them. 

Growing empire

Against that backdrop, BeautyOnTApp has opened seven physical stores – not just in Cape Town or Sandton hotspots, but also the quieter corners of Durban and East London.

Beauty products have high retail sales density, meaning that regional branches can be packed with impressive variety. 

Tahreeq, manager of ARC’s V&A Waterfront store, told Daily Maverick that customers come in asking about individual items they’ve spotted on social media, and sales staff in BeautyOnTApp report the same thing. In this scenario, a store must stock the full range of shades and finishes, because degrees of pigment or texture matter to this customer.

According to Tahreeq, “customer experience and newness” drive business. “We have a couple of brands that only ARC supplies,” he added.  

Old-timers 

The phenomenon is not limited to South Africa (SA), as Mckinsey & Co noted: “For both brands and retailers, beauty’s competitive landscape is in flux.”

In Ghoor’s view, it’s less a question of how much social media has influenced beauty marketing than a question of whether anything else has, on a comparable level. 

Paul Egan, from the UCT Liberty Institute of Strategic Marketing, put it succinctly:

“When was the last time you watched a full-length advert?” 

He acknowledged that Gen Z and Gen Alpha are getting most of their advertising online, but said there’s a misconception “that it’s just younger people who are on social media. Gen X… are strong social media users”. 

When Woolies posted annual earnings last month, it highlighted Beauty sales growth, “despite increased competition” and said the category would support “a broader lifestyle proposition” while it improves the food business. 

Meanwhile at Edgars, perfume and makeup sales via Red Square have arguably kept stores alive, though it’s difficult to back that up with data, since Edgars is owned by private firm Retailability, which doesn’t publish its financials. 

When asked about raising its stake in ARC, Clicks sent us a statement from CEO Bertina Engelbrecht. It explained that ARC “provides exposure to a faster-growing, more resilient segment of the market” – specifically “millennial and Gen Z customers for differentiated premium beauty brands”.

The magic product

It’s tempting to dismiss cosmetics as a frivolous part of the economy. But what is sold as aspirational tells us a lot about what society values, and whose needs retailers are willing to service.  

One obvious example is that decent foundation shade ranges, with high-quality options for darker skin tones, are a much too recent phenomenon, spurred in part by Rihanna’s Fenty line. 

For those only concerned with the numbers, a Mordor Intelligence report projected that SA’s wider cosmetics and personal care product market will grow from about $4.2-billion this year to $5.97-billion – nearly R100-billion – in 2032. 

This comes down to “two magical ingredients”, said the Finance Ghost: a long shelf life and a nice gross margin. Add shopper frequency, and relative resilience – and you have a very appealing category. 

While firmly in the category of “wants” rather than “needs”, these products represent essentials to many consumers, giving cosmetics an edge even when confidence in the economy is low. It boosted the personal care sector during the Covid-19 pandemic, when they could operate even as other businesses were shuttered. 

Health and beauty are often grouped together, but the Finance Ghost argued that grocery stores have pushed more into staples such as shampoo and body wash, without doing much in the way of beauty. This means the more “premium” products are the main thing Clicks has left. 

Loyalty points

ARC has been a Clicks ClubCard partner since 2021, with the rewards game being central to the strategies of Clicks and rival Dischem.

Amanda Cromhout, founder of Truth Loyalty, said the challenge for both pharmacy chains lies in servicing “the whole spectrum of wealth in South Africa”.

Rewards matter because they are not just about cross-selling, but “recognising what you spend”, Cromhout explained. This has the potential to dovetail very nicely with the personalised feel new beauty retailers shoot for, though it would still be difficult for brands like Clicks to foster that kind of environment, given their footprint. 

“I genuinely think that beauty has simply been playing second fiddle to clothing for so many years,” the Finance Ghost noted. “Beauty is the new competitive frontier.” DM