A new report from Internet Retailer shows that millennials’ growing distaste for store shopping, as well as retailers’ creative efforts to making shopping fun and engaging, are driving a big shift in health and beauty purchases to the web.

Spending on health and beauty products is shifting rapidly to the web. U.S. consumers spent roughly $12.11 billion on health and beauty items via the web last year, nearly double what they spent five years earlier, according to Internet Retailer’s just-released report, Health & Beauty Online.

As that shift intensifies, there’s real potential to make some serious money. The margins on health and beauty items are some of the highest in retail, and return rates, at 1%-2% on average, are some of the lowest. Plus, online health and beauty buyers tend to reorder often on the products they like—so with a really good product or a great loyalty program, a merchant can hook a customer into coming back to buy again and again.

Shipping costs are relatively low on beauty items too. Purchases often ship in small, lightweight packages.

Some retailers even say that the online beauty products shopper is more lucrative than the one that shops in stores. Here’s how Fabrizio Freda, the president and CEO of The Estee Lauder Cos. Inc.—one of the top players profiled in the report—sums up his view of the online beauty buyer:

We see a very different pattern in purchases online. Purchases online tend to be younger and tend to be, frankly, very profitable because consumers are very loyal when they get into it. There's a lot of good repeat.

Still, the distribution of skincare, haircare, makeup and eyewear products—especially on the high-ticket items, often dubbed prestige products—is far more limited than most other categories of retail, merchants and experts say.

Consider this: Consumers have dozens of choices when purchasing, say, a Samsung 40-inch LED television. They can walk into any number of physical stores, including electronics chains like Best Buy, department stores like Sears, or discount mass merchandisers like Walmart or Target. They also have a slew of online options, including such frequently shopped destinations as Amazon.com, eBay.com and Newegg.com, not to mention Samsung’s own e-commerce site.

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Consumers looking to buy a foundation from popular cosmetics brand Urban Decay (one of many brands owned by L’Oreal Group), on the other hand, have far fewer buying avenues. They won’t find the item at Walgreens stores, in Walmart or on Amazon.com, thanks to tight restrictions on distribution channels common with many of the big beauty brands.

Limited buying channels and tight distribution by the big dogs in beauty is often good news for web-savvy beauty startups.

The web is opening the door for small players who want to get in on the beauty biz. Younger shoppers, who tend to most frequently try new beauty products are comfortable shopping online. They also are in many cases swayed by strong reviews on social media or new technologies that bring beauty products alive on the web. And many smaller health and beauty retailers on YouTube and with innovative marketing strategies so far untapped by the bigger players.

These are some of the factors that help explain why health and beauty sales online are growing at an especially rapid pace. The 58 largest online health and beauty retailers drove roughly $9 billion in sales on the web last year—double what they did five years ago. Add in what Amazon, Macy’s and others sold on the web last year, and the health and beauty market topped $12 billion—a 24.5% increase compared with 2015.

Internet Retailer’s report Health & Beauty Online delves into this fast-growing market, identifying the key players and trends driving growth, as well as the strengths and strategies that are working to push more consumers to buy their beauty products online. As much as possible, Internet Retailer aimed to align its analysis of the health and beauty category with how the U.S. Commerce Department defines it. As such, we’ve included retailers in the following segments:

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  • Skincare/Cosmetics/Haircare
  • Vitamins/Supplements
  • Contacts/Eyewear
  • Fragrance

The 34-page PDF report also includes:

  • Rankings (based on 2016 web sales) and growth rates of North America’s 58 leading health and beauty e-retailers
  • An analysis of Amazon’s health and beauty business, including 2016 online sales and growth in the category, and top-selling products
  • Extensive data on each of the four product segments, including total online sales and growth rates, average conversion rates, average tickets and monthly web traffic

Click here for more information.

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