Cosmetics Giant Acquires Gloss.com

As widespread consolidation prepares to sweep the e-commerce landscape, brick-and-mortar beauty queen Estee Lauder announced Wednesday that it has acquired struggling cosmetics e-tailer Gloss.com.

Estee Lauder will introduce a content-rich, multi-brand site that will offer prestige brands of beauty products sometime early next year. The company already operates several high-end sites, including clinique.com, origins.com and bobbibrown.com. Those sites are all set for expansion this spring, around the same time that two new sites, esteelauder.com and maccosmetics.com, are scheduled to debut.

Bold Moves in a Struggling Sector

The troubled online beauty industry has thus far been a victim of over-saturation and under-capitalization, according to some industry analysts.

In the brick-and-mortar world, consumers who shop for beauty products traditionally are segmented into high-end and low-end groups. The high-end buyers favor products such as Estee Lauder, and generally purchase them in upscale stores.

The online industry has suffered due to the ill-advised homogenous merchandising of products, some observers say. Consumers of the high-end beauty products are not attracted to shopping in drugstores or discount stores — online or off. Estee Lauder hopes to attract its offline consumer base to the Net by adopting a swanky online image.

The company’s acquisition of Gloss.com is not the first shakeup in the online beauty industry. Drugstore.com paid $42 million (US$) in stock for Beauty.com earlier this year, less than two months after the cosmetics e-tailer was launched. Luxury goods purveyor Ashford.com acquired online fragrance site Jasmin.com at around the same time.

Strategy Could Become Model

Industry analysts who are projecting massive consolidations among online retailers point to the beauty industry as “Exhibit A” when making the case for streamlining electronic commerce and ferreting out some of the weaker players.

Estee Lauder is taking a comprehensive approach to its Internet dealings, including the development of a database of its legions of loyal customers and the integration of offline and online product distribution.

While the company may also develop marketing strategies to create extra interest and cost-savings for online customers, price is not likely to be the main attraction.

According to a recent study by the NPD Group and Media Metrix, brand names matter more than price to high-end consumers in the fragrance, makeup and skin care categories. High-end shoppers are acutely brand-conscious and are generally willing to pay premium prices for their preferred labels.