The

adoption of online purchasing by consumers in the personal care category, which includes fragrances, skincare, and cosmetics, will bring about changes that are much greater than most people understand or acknowledge, according to the head of a Thailand-based skincare company that distributes products globally via online sales. The business sector that will be hit the hardest over the next 5-10 years is, in my opinion, the mall-anchor department store and I am of the view that in many cases the viability of the classic department store will come under intense pressure, and it will increasingly become unsustainable. This claim was made by David Christensen (55), a New Zealand born Australian and veteran of the Asia Pacific business landscape, who now heads up Royal Siam Natural Health and Beauty, a Thailand based manufacturer of premium skincare and anti aging products. At the risk of sounding overly dramatic, he says I dont believe many people truly understand the implications of the changes that have occurred in Business to Consumer (B2C) distribution over the past half decade. Its very much like what we read of the period of calm after an offshore earthquake has been recorded, and before the tsunami hits the beach, and I think thats where we are right now with retailers saying its not too bad we can handle this unaware that the tsunami is already on its way and that will sweep away everything in its path. Involved in the development of online distribution since the mid 1990s, Mr Christensen believes that the necessary infrastructure to make online consumer shopping viable at scale has only really come together over the past few years. A simple and reliable payment system that was available to the mass market was an early inhibitor of growth, but the development of debit cards and the rise of payment processors like PayPal have resolved this issue. In addition, the need for inexpensive, reliable and comprehensive fulfillment and shipping methods for physical products has quietly been assembled by the most logical service providers the consortium of Post Offices in each country. The last thing that has really only occurred over the past few years has been a change in consumer behavior towards being comfortable to purchase products online, rather than to
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Online Cosmetic Sales Threaten Viability of Department Store Model Says Skincare CEO

use the internet just for research he says. Explaining his rationale for Mr Christensen explains the challenges facing traditional retail, including Department Stores in selling personal care products such as cosmetics. The latest information we have is that a little over 20% of all personal care product sales occur online, and the online adoption rate is growing at twice the rate of the categorys overall growth. And its the most popular product to purchase online in many mature markets more than 90% of people who say they have purchased products online say they have purchased items of personal care such as cosmetics, toiletries, and skincare. A decade ago a consumer in Des Moines, Iowa or Adelaide, South Australia was to a large extent a captive of the retail distribution outlets in their city or immediate vicinity. Today, I am contesting for a good proportion of them just as hard from our offices in Bangkok and because of my cost base have some real advantages over the local Macys or David Jones. Mr Christensen goes on to say that there is no indication where the percentage of online sales for the category will start to plateau, as the growth rate is constant and the additional impact mobile e-commerce is yet to be measured. He also believes that online purchasers tend to be those with higher discretionary spending power who choose to purchase online because of the time saved. Looking ahead by just a couple of years and taking these factor into account, my estimate is that I will be able to target with confidence between 40-50% of the global market for personal care lines, knowing their willingness to purchase online. So what then leads him to such dire predictions of the department store retail model? Go into any department store and the model is the same the prime traffic flow areas often the entire first level is dedicated to the high margin personal care lines in fragrances, skin care and the like. Its the lynch-pin in the entire model and you dont need a Harvard MBA to work out that if your floor space and overheads dont alter, but you take out 20%, 30%, 40% or more of your top line sales revenue in your most profitable departments, and you will see a domino effect that will result in the entire department store business model collapsing like a house of cards, he says. In the early establishment of Royal Siams business I was introduced to a senior executive in a department store business by a friend, and as a courtesy met and discussed our business and plans. I was then presented with a check-list which essentially said for the privilege of having our products for sale within their stores we would pay them an up-front cash listing fee, we would pay for the cost of constructing displays which they would build to their specifications, we would employ and pay for our own sales staff, we would guarantee the store a minimum margin on products and a minimum monthly revenue amount whether our sales justified this or not, and we would give them 90 days credit while we funded all inventory for that period (and they had the right to return stock if they wished). I laughed and still chuckle about that conversation today. My response was to say that this didnt at all fit with our view of the world, and we didnt need to distribute products through their outlets. But the conversation gave me great encouragement because it indicated that yesterdays thought processes were alive and well, and presumably many of our competitors are locked into this vicious circle, and while they concentrate on capturing a diminishing market we can concentrate on building our business through online channels, says Mr Christensen.

 He sums up with the comments only time will tell how this pans out and things settle to a new normal, but theres one thing I can say for certain I dont plan on buying shares in any department store chains any time soon. # END # About Royal Siam

Manufacturer and distributor of Royal Siam skincare, haircare, and related health and beauty products including: "Powered By Nature" range of moisturizers, skin whiteners, facial masks, melasma treatment, eye area treatment, foot repair balm; "Faithful to Tradition" products made with 100% natural ingredients that includes facial serums, toner, hair restoration, facial cleansers, pure lime shampoo; "Breakout! Anti Acne" products for acne treatment and prevention, and "Ultra Cosmeceuticals" which includes facial serums, masks, eye area treatment and related products. The company was established in 2010 and distributes through a variety of channels in Thailand, and internationally via online retailing. The corporate website and online store can be accessed at http://www.royalsiam.asia, and the companys Fecebook Fan Page is at http://www.facebook.com/RoyalSiamBeauty, while the YouTube channel is located at http://www.youtube.com/RoyalSiamBeauty

Author: David Christensen, August 2012

About the Author: A veteran of the Asia Pacific business scene, David Christensen is an Australian (with New Zealand roots), currently based in Bangkok, Thailand where he is CEO of premium skincare and anti aging products manufacturer Royal Siam Natural Health and Beauty (http://www.royalsiam.asia) Having lived and worked in 14 countries as wide afield as Russia, India, and Japan, David has a background in advertising with Saatchi & Saatchi and DDB, extensive international business strategy consulting experience as a Partner with Gravitas Partnership in Hong Kong, and senior regional line management roles across Asia Pacific with American Express, Carlson Wagonlit, and AXA Asia Pacific. His LinkedIn profile can be seen at this link LinkedIn Profile and you can contact him by email at david@royalsiam.asia