The beauty industry has undergone a massive transformation over the last year, brought on by shifting consumer preferences, upgraded self-care routines, and the rise of e-commerce. The FounderMade Future of Beauty & Wellness Summit on March 18th featured a series of conversations with some of the most coveted names in the industry to tackle this topic, including content from Bobbi Brown Cosmetics, The Detox Market, The Estée Lauder Companies Inc., and more, as well as virtual product showcases from the most innovative up and coming brands.
Bernice Merlini, VP of Digital and eCommerce at Rare Beauty by Selena Gomez joined Klarna’s Commercial Director Sindhura Sarikonda for a conversation on the rise of buy now, pay later in the beauty category, moderated by Clearbanc’s Tori Piccin. Here, we’ve compiled five key takeaways from their conversation.
1. Beauty shoppers are asking for alternative payment options at checkout — especially Gen Z and Millennials.
“[Our customer service team] said that yes, people are asking when [flexible payment options] are going to be available to them. And that’s a big indicator to me—if people are calling in and asking for it, then it’s something that we should consider as a service to our consumers.”
Prior to integrating with Klarna, Bernice had never used buy now, pay later options herself; however, after witnessing the rapid acceleration of alternative payment options within the retail market in 2020, she was curious if solutions like Klarna might provide value to Rare Beauty’s customers. Through conversations with Rare Beauty’s customer service team, Bernice quickly learned that customers were asking for more flexible payment options at checkout, regularly. It was this feedback that drove her brand to integrate with Klarna in November of last year. Bernice shared: “[Our customer service team] said that yes, people are asking when [flexible payment options] are going to be available to them. And that’s a big indicator to me—if people are calling in and asking for it, then it’s something that we should consider as a service to our consumers.”
Sindhura had a similar experience in her previous role as Walmart’s Head of Prestige Beauty. When speaking with her Gen Z and Millennials colleagues, they had all used flexible payment options regularly and often preferred them to traditional credit options. Why? Because they found it more convenient to split payments over time, loved the app experience, and appreciated that they could see and track all of their purchases in one place. “I asked my team, which was predominantly Gen Z and younger Millennials, if they had used BNPL, and almost all of them had. They all had credit cards, and were all compensated well and didn’t need to pay in installments, but all did. I asked them why, and they said they just preferred it,” said Sindhura.
2. Rare Beauty has seen a 20% increase in AOV with Klarna in just five months.
After launching with Klarna in late November, just in time for Black Friday weekend, Rare Beauty has seen an AOV that is consistently 20% higher. Flexible payment solutions like Klarna’s increase customers’ purchasing power in real time, which leads to higher AOV and higher conversion. “It’s great to have a partner that helps us boost AOV without having to make any other changes to our e-commerce platform,” Bernice said.
Rare Beauty has also seen an interesting pattern in the types of products that consumers are shopping for using Klarna. “We have our core A skews that do well across the board, but the top selling products with Klarna are slightly different. For orders placed using Klarna, the average price per item is about 8% higher,” said Bernice. Consumers are picking up core items, but also picking up items that are at a higher price point that they may have been more hesitant to purchase if it was not for BNPL.
3. Consider consumer awareness, international presence and fees when selecting a payments partner.
“The international reach of Klarna has certainly been really helpful and extremely attractive as well as we look at international expansion of [Rare Beauty’s] D2C business in 2021.”
Rare Beauty’s advice when selecting a payments partner is to look for a company and team that is invested in your business for the long-term—not just a piece of technology to add to your tech stack and walk away. “I found that we really had that with Klarna. The partnership team has been great in wanting to understand our business, wanting to understand how it is that they can help,” Bernice said.
For brands and retailers looking to expand to new markets, selecting a partner with a presence outside of the US is also important. Bernice shared: “The international reach of Klarna has certainly been really helpful and extremely attractive as well as we look at international expansion of [Rare Beauty’s] D2C business in 2021.”
Rare Beauty was also struck by Klarna’s dedicated customer base: Klarna’s brand has carved out a core, dedicated audience of loyal shoppers, which in turn enables Rare Beauty to reach a new set of consumers. Sindhura echoed this sentiment, emphasizing that retailers should focus on incrementality when deciding on a payment partner—not just incremental sales in conversion and AOV, but also new customer acquisition.
4. Gen Z and Millennials already love flexible payment options, and older generations are catching on.
While the majority of BNPL users are younger shoppers, both Sindhura and Bernice agreed that older generations will also catch on in time. “75% of Klarna customers are Gen Z and Millennials, but we are seeing it essentially grow into other demographics as well,” Sindhura said.
There’s also an educational component of attracting older demographics, which we’re still in the midst of. “It took years before [my parents] would purchase anything online, while most of us have been purchasing online since the beginning, really. Younger generations are carving the way for older generations to use these platforms in the future,” said Bernice.
5. Representation, brand values and inclusivity are resonating with beauty shoppers today.
Beyond the rise of alternative payment options, 2020 was also a hugely transformative year when it comes to consumer preferences. Both Sindhura and Bernice agreed that inclusivity and representation have grown even more important to today’s beauty shoppers. Bernice shared: “As someone that is a beauty marketer, I’m excited to see consumers holding brands accountable for that.”
In addition, Rare Beauty has seen shoppers embracing skincare routines—a trend that has been happening for years, but that has been accelerated by the pandemic. But despite the rise in this natural, less-is-more makeup routine, Bernice foresees heavier makeup and ‘pops of color’ will make a comeback once the world begins to reopen.
Special thanks to our partners at Clearbanc for hosting this session. Clearbanc helps brands access non-dilutive capital to fund things like marketing costs or inventory financing. DTC brand HAUS LABORATORIES put its Clearbanc funding behind marketing and grew revenue 500% in 3 months. Learn more.
To watch the panel from the Future of Beauty & Wellness Summit, click here.