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JUNE10,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

OurkeytakeawaysfromtheMakeUpinParis2016eventinclude:

• Gen Y andGen Z look for different things in beauty retail: theformerenjoyssalon-typeexperiences,whilethelatter looksfordigitalizationandlowprices.

• Customization of products or packaging can strengthenconsumers’emotionalconnectionswithbrandsthroughasenseofsharedexperienceorculturalconnection.

• In 2015, e-commerce accounted for 19% of beauty sales inChina—butonly 11%of sales in theUS, 7% inWestern Europeand7%intheAsia-PacificregionexcludingChina.

• The online channel is disproportionately about research andbrowsing,whilephysical stores aremore about theexperiencethan ever, and e-commerce is a diverse channel with distinctopportunities.

TheFungGlobalRetail&TechnologyTeamattendedMakeUpinParis2016 on June 9 and 10 at the Carrousel du Louvre. The event is ashowcase for the beauty industry in Europe, and it included aconferenceprogramonbeautycategoriesandretailing.Hereareourkey takeaways fromselectedconferencepresentationsand fromour10topdigitalbeautytrendsanddisruptorspresentedbyJohnMercer,SeniorAnalystatFungGlobalRetail&Technology.

GenYandGenZLookforDifferentThings

Pauline Bonafous, Marketing ProjectManager at communications agencyCarlin International, noted some keydifferences in the preferences ofGeneration Y (or millennials, bornbetween 1980 and 2000) andGenerationZ(bornafter2000):

• Gen Y wants everyday, naturalwell-being. They visit salonsfrequently and they like sensorialexperiences and customizedadvice. As a group, they are wellinformed and look for proof ortransparency when choosingproducts. In France, their favoritebeautyretailbrandisSephora.

CarrouselduLouvreParisJune9-10

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JUNE10,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

• GenZismoredigitallyengagedasagroup,andturnstoblogsandYouTubeforbeautyadvice.Theyappreciatedigitalizedstores,andtheywantlowprices.InFrance,theirfavoritebeautyretailbrandisKIKO.

CustomizationHelpsBrandsDeepenConnectionswithConsumers

Françoise Dassetto, Founder and CEO of branding agency Eferday,noted the importanceof customizingproducts or packaging in orderto strengthen brands, and showcased some examples of successfulcustomization through packaging and product innovations. Shehighlighted Chanel’s summer-themed eye shadow—which came inshort-lived, limited-edition packs—and Estée Lauder’s speciallydesignedChineseNewYearpackaging,whichthecompanycreatedinordertocatertoaspecificlocalmarket.Thiskindofcustomizationcanstrengthen consumers’ emotional connections with brands througheither a sense of shared experience or cultural connection.Dassettoconcluded that customization projects should be underpinned bythreecoreobjectives:• Theymustbecoherentandconsistentwiththeproduct,brandand

objectives.• They should surprisepeople, as that is thebestway toappeal to

customers.• Theymust enhance the storytelling of the brand, and become a

newchapterinabrand’sbook.

ChinaHasaSubstantialLeadinBeautyE-Commerce

Laurence-AnneParent,SeniorPartneratconsultingfirmAdvancy,ranthrough key statistics on the growth of e-commerce in the beautyindustry,andnotedtheleadChinaenjoysinthischannel.AmongthenumbersParentsetoutwere:

• In2015,e-commerceaccountedfor19%ofbeautysalesinChina—butonly11%ofsales intheUS,7% inWesternEuropeand7% intheAsia-PacificregionexcludingChina.

• TheAsia-Pacificregionnowaccountsforaround47%ofworldwideonlinebeautysales.

• In2015,8%ofglobalbeautysalesweremadeonline;by2020,thisshouldbe10.4%.

TenDigitalBeautyTrends

John Mercer, Senior Analyst at Fung Global Retail & Technology,presentedour10topdigitalbeautytrendsanddisruptors.Hegroupedthetrendsunder threethemes:onlineresearch, in-storeexperiencesand e-commerce. We outline these three themes and 10 trendsbelow.

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JUNE10,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

I. The online channel is disproportionately about research andbrowsing:1. Mobileappshavebroughtscientificskinanalysisontoconsumers’

smartphones.2. Incontrast,socialmedia(notablyYouTube)bringsamorehuman

elementtoonlineinformationaboutbeautyproducts.II. Physicalstoresaremoreabouttheexperiencethaneverbefore:

3. Digital stores, such as Sephora Flash, are bringing online-styleinformationandexperiencesintophysicalretail.

4. Magicmirrorshavefinallystartedtobedeployedinretailing,buttheyneedtoofferanexperiencethatisatleastasgoodastestingproductsinperson.

5. Wearabletechand3Dprintingofferpossibilities,and3Dprintingmayeventuallyallowretailerstooperatewithzeroinventory.

6. Appsandonlineservicesareconsolidatingthefragmentedbeautyservicesmarket.

7. By using smartphones in-store, shoppers are digitalizing storesmorethanretailersare.

III. E-commerceisadiversechannelwithdistinctopportunities:8. Subscription services cater to routine, “chore” beauty purchases

aswellastoexperimentationandtrial.9. E-commerceisabrightspotinanotherwiseslowluxurymarket.10. OnlinegroceryissetformajorgrowthintheUS,andmass-market

beauty brands will shift online as part of consumers’ regulargroceryshopping.

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JUNE10,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalystHONGKONG:10thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223002470LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FBICGROUP.COM