A future outlook with Rickard Lyko
A conversation on the state of the beauty retail market with Nordic’s leading beauty entrepreneur.
4 Apr 2024

The day before our conversation, Rickard Lyko has taken the stage at Association of Beauty Brands’ seminar about The Future of Retail.

— It was exciting. We of course want to be a good partner for the industry and the brands. It’s partly to find better profitability — for them and us — and support with, for instance, logistics. But also building their brands effectively and being able to reach the right audience — and share the innovations and initiatives we have come up with to make this even better. The industry in general is doing quite well, and a lot is happening. Now, retail has come back as well which helps significantly, because in beauty, both the industry and the brands are quite reliant on retail, so this affects them a lot.

Speaking of logistics, you’ve also become a logistics partner to beauty brands at your Swedish warehouse, which will be further expanded in 2025. In what other ways can you become an even better partner to your suppliers?

— I mentioned visibility and brand building, and we can also provide customer insights. Through Lyko Insight, they get access to a lot of data about customers and their own business and sales. They just log in and can see stock levels, what customers bought which product, what the target group is, whether it was in-store or online, their age, what else they have bought, and how their brand ranks among industry colleagues in certain categories. We also share what the prices look like in the market, how we and our competitors charge our prices, and what our margins are. More or less all the data that we have, we provide there. Some that we don’t have, such as views and conversions — which need to be saved, and that is a lot of data! — we are currently developing to share.

Is there any particular reason why you are so generous in sharing all this?

— I believe in transparency, Lyko explains. I believe that the better they know their business with us, the better they can come up with offers that will be better together with us. We want to work together with the suppliers on long-term cooperation and we think it’s good that they know more about our business and have better control over it. This also includes transparency in products that don’t sell. Why is that? The product may not be the right one, or there might be certain information missing.

You’ve just opened a flagship in central Stockholm. Did it turn out the way you imagined?

— I have to say yes. It has also opened the door to a whole new kind of store for us, given that it’s around ten times bigger. Above all, we have made a huge category shift from when we came to market back in the day when we were only selling professional hair care. Now, we sell broadly, in all categories, and have become a beauty player more than a hair care player. Above all, you can see this in our stores; as long as you don’t present makeup and fragrance on a sufficiently large surface area, it just won’t do. Now, when we have it, we can also see this big shift first-hand. Now, we can’t say that ’this is the Lyko flagship’ week in and week out — no one is interested in that. Instead, we must run events and always have something new to talk about, a reason to speak. We need to have campaigns, but we don’t want to be the ones always standing there with 20% off — we want to talk about other things.

Consumer retail is largely campaign-driven. What’s your view on campaigns?

— Yes, it is. When it comes to products with a wide distribution, the biggest and the second biggest retail players can look away from it a bit, while the rest compete with price. Then, it’s the campaigns you turn to — and that’s what you can sacrifice a future demand for. What we see with the brands that don’t do that — that have a very selective distribution, and where we don’t have to do so much campaigning — is that their sales are much more even. The customers come and buy when they need it and it’s continuous. On the other hand, if you run big campaigns, you lose out on future demand. And it is clear that if we can lose that, we will obviously take it from some other retailer. But if several others think the same, and it happens gradually, the brand is soon destroyed. And what has become clear is that once you’ve destroyed a brand like that, it’s very difficult to find your way back. 

— We as retailers don’t lose that much by running a campaign, unless our margins are too low. Our lowest margins are under 10% while the highest are just above 80%, so it’s very diverse. The brands, though, lose a lot. Many brands will have to be much more selective — just as they have been historically — and choose which channels to use in order to build the brand they want to be.

— It’s a tough market. When there are 30 e-tailers and everyone is pretty good at deliveries and has a decent website, it comes down to the prices. Take perfumes, which is a more ’infrequent purchase’, where many know pretty well which one they want, and has a pretty high price point. There’s absolutely no reason to buy it for much more anywhere else — you go where the price is the best.

Will this just keep rising? How far can you take it?

— The current economy is probably a driving factor, Lyko says. And, for many, there is no longer the same value of just having growth — you also need to have profitable growth — and it is difficult to just push this by ’buying’ the customer with lower prices. It also helps that there is a consolidation in the market. Matas and Kicks is of course the big one, but smaller e-tailers will also drop off or merge so that we’ll see fewer players. If brands realise and understand all this, they’ll start to be a bit more selective (with campaigns). If not, it will certainly continue to escalate.

What’s your view on Matas acquiring Kicks and changing the entire Nordic beauty market?

— It feels good. From our side, I don’t see a better acquirer for Kicks. It is clear that such a consolidation is good for the competition for us, rather than having a venture capital company that wants to just pour money into it. Those who compete on the same terms, which they definitely do, are easier for us to meet. What is more difficult for us to face is a small e-tailer who does not spend anything on building brands but only on the pricing.

On stage yesterday, you also talked about the importance of remaining relevant locally but also globally. I guess that you focus more on a bigger player like Douglas rather than, say, a local Swedish webshop.

— Yes, of course — we always want to look at the larger ones, and how we reach them. Having said that, we must not lose the business here, and it is clear that, for instance, the new store opening in Turku is super important for us in Finland. We do that by having a building organisation in each market and have now appointed a Danish country manager as well as a Swedish and Finnish one, joining the Norwegian and European ones that we’ve had before. We’ve communicated 3-5 new stores per year and we are sticking to that, although the one that opened at Drottninggatan (in Stockholm) is equal to 10 stores if you look at the investment.

”How do you become as big as in Sweden and Norway in Germany? The simple answer is: I have no idea, basically.”

Except for new store openings, Lyko aims for a revenue growth rate of 3 billion SEK (€259 million) to, first, 10 billion and, later, 30.

— To reach both 10 and 30 billion, I don’t think we need to do so much differently. It’s about rolling out what we’ve already done in Sweden in more countries and larger markets, and sticking to being a beauty specialist. Of course, we have many things that innovate and can help increase the pace but to be blunt, it comes down to opening more stores to get a bigger presence and to make it logistically manageable. In terms of technology, it is clear that our e-commerce will not be able to handle 10 times the volume, say, tomorrow. But we don’t need to rebuild it from scratch — it’s about managing larger transaction volumes, which we will be able to. The logistics, the stores, and all the other things in the company need to scale to handle such a volume increase. 

— So, it’s back to, ’how do you become as big in Germany as in Sweden and Norway?’ The simple answer is: ’I have no idea, basically.’ I only know that it will not be in the same way as in Sweden. Instead, it’s about putting people in place locally who know everything about it, start somewhere, learn, and take the opportunities that arise.

You also talk about spreading the visibility and different types of visibility are differently important in different markets. Some are more mature when it comes to online, while Out of home is more important in others.

— Yes, so it seems. In the German market, you don’t go on a big TV campaign in all of Germany the first thing you do. Instead, it’s region by region — there are several countries in one country. To use influencers works in one country but not in another and so on. We have realised all this, and need to continue to learn even more locally but also see that the local adjustments we make can also be used globally, centrally, to make real use of it.

When you have expanded, how do you look at consumer behaviour in different markets?

— You can see different channel structures and different brands. But mainly, there are cultural differences that are often in the details where it’s difficult to say exactly what it is. It’s those subtle things that you can feel immediately, similar to when you go to an auto-translated website; you can immediately recognise whether it’s your language or not. It’s hard to put your finger on exactly what that is, but you can see it in the details, and that’s why we see that we need to localise. To know all these things, we need local people. When we recruit in these countries, we say that we want people who are native to the country and also are good at beauty. We are often classified as an e-tailer but what we are, is a beauty company. Then we sell a lot in our e-commerce but above all, we must be good at beauty.

And the fact that post-pandemic consumer behaviour has never shifted faster has become almost like a mantra. Do you agree?

— I’m not so sure if it’s faster. It might be. But change is nothing new. As with everything new, we think that we’re completely unique. Historically, we’ve always believed that we live in a unique time that is like nothing else. When you look back, similar changes have occurred in the past as well. But yes, there are definitely big changes and a lot of things going on. Some industry players are very stable but new ones emerge, which creates a great amount of change, Lyko explains. He continues:

— Ultimately, there must be an underlying business as well. It’s often about just jumping on the buzz just because it’s a buzz. When you see the trends that are becoming dominant, it’s because there is a profitable business at the bottom of it. If it’s not, then it’s often just buzz. It’s like with AI now, that everyone jumps on it and thinks it will change everything. It won’t, of course. But in some areas, it will change things fundamentally. It’s the same thing with 3D printers, which we use in production and which change a lot for us there. But that doesn’t mean that everyone will have 3D printers and print everything that they’re going to consume by themselves, at home, which was some people’s vision a few years ago. That rarely happens. But in some areas, it disrupts a lot, and if you can identify them as well as find out where it has a true value, that’s when you see great effect.

”It’s like with AI now, that everyone jumps on it and thinks it will change everything. It won’t, of course.”

How do you work with 3D printing?

— In our automated production, for each bottle, we used to have to make a new tool that could grab it properly. That tool probably cost about SEK 150,000 and took a very long time to produce. Now, we can 3D print it, quickly, at almost no cost, and we can customise it and make smaller batches. It has changed everything. For other tools, in Vansbro (the village four hours northwest of Stockholm where Lyko was founded and which still carries its biggest warehouse), it’s helped to optimise our logistics, create better ergonomics, and make things faster. Relatively speaking, it’s easy because you can often just download a CAD drawing. The same thing with AI — once you can apply it to the right area, you no longer need to be an expert. That’s what makes the big difference.

The Vansbro warehouse.

Are you being approached by companies claiming to have the solution to the future of retail?

— No, I think they’ve started to give up. We rarely bring in external systems because the bigger it gets, the more you need to adapt it. It’s almost as hard to bring in an external system as it is to do it yourself because there are so many adaptations in our internal structure. We’ve experienced the rise of VR glasses — which now seems to return — to build virtual environments. The problem with that is that it’s too expensive. The same when 3D films came along, why didn’t it take off? It’s too expensive. The production costs so much more, so to build it up so that you can step into such an environment is not worth it. On the other hand, it can be worth it for a particular launch, like the one we did with Milk when AR created an environment on our Karl Johan flagship (in Oslo) where the material got viral on TikTok and other platforms. Then it is worth doing just that particular thing. What’s important is to find the areas where you also find the profitability. Otherwise, again, it will remain just a buzz.

So you haven’t experimented with a ’virtual Lyko’?

— No, not really. So far, I don’t see that we could do it well — and the reach is not enough. Then, things will happen now when Apple is stepping in, but the question is whether it’s right now or much later. You don’t want to be too early jumping on these things but time them. Luck and timing are both very important aspects here.

”This ’consumer journey’, as it is often described, does not really exist”

Which tech solutions are important for a player like Lyko, now and in the future?

— A lot is about having structured data in order to be able to adapt to all new things coming. It’s important to add up all things information, including product information and reviews. The difference between us and fashion is that our products live for a very long time, so there is value in building up the information around it. Then, it’s about building the systems to be able to catch up as soon as new things arrive. We’re looking at whether we should do things ourselves or whether someone else has done this better. Is it core? If it’s not, we buy it in. There’s still a huge amount of efficiency improvements needed internally when we become bigger, to continue to develop our systems. We have developed our own cash register system and booking system — now, we are looking into our app where we have released some things but where there is a long list of things to come.

Looking at the consumer journey, what is the key to conversion? Simplification, of course, but we also hear about the importance of including video content and reviews.

— It becomes very theoretical. This ’consumer journey’, as it is often described, does not really exist. Instead, consumers move everywhere. What we do know is that there is value as long as the consumer spends time with us, and also that we need different content for different parts of the customer journey. But we won’t know exactly where the customer is — the desired value of being able to follow the customer all the way is just not possible. You can do it in theory and I’m not saying it’s wrong to look at it (to include certain content in certain places) in order to theorise about where you want to spend stuff. It is clear that there is value in it but more important is to create an understanding that you need to invest in things that don’t have a direct return. We need to dare to believe that if we make a certain kind of content and get the views, we might have to be satisfied with that. We may not know how many people will convert from it. 

— It’s the same thing when we have released our own AI. If you add a product to the shopping basket directly in the AI or if it asks to put it in the basket, we can see it. But if you get an answer from the AI, write it down, and go in and buy it later, it’s more difficult to see the connection. We should not measure the conversion as the first thing we do. Instead, this (the AI tool) is a way for the customer to test it, come in and talk, and spend time with us. That has value, and we know that it helps the customer. Even when we talk to them in customer service, or they come into any of our stores, we know that we are building a relationship. That also has value. Then the only question is, how big is that value? It’s the same with our physical stores, if you ask yourself how many stores we should have, and for how long? So far, they are all profitable. The day they are not, we have to decide whether this customer interaction is worth a million or not, calculate, and put a value on it.

— When we’re looking at a macro perspective, it’s about how much marketing we spend year after year to get a certain turnover in certain markets. And the marketing we spend, what do we spend it on? In a country like Sweden, where we have been around longer, we can be less granular in that we need to measure each channel. As long as we stick to the same amount, we can spend it on the right things and whether we appear in this podcast or in that collaboration, we know that it will come back in one way or another.

— That’s also a part of the story with direct-to-consumer brands. Today, if you have great visibility in digital channels, we also know that 70% of all purchases are made physically. So, a direct-to-consumer brand which does not exist physically will probably lose 70% of the business because it can’t be there to capture it. To capture it, you also need the infrastructure. If I’m sitting here and want to buy a Coke, and I go down here and they only have Pepsi, I won’t walk a kilometre to get a Coke. But if I am standing there and I can choose a Coke, I will. So, you need both, to build the brand but also to have the infrastructure to capture the demand you build up.

What macro trends do you see coming in the next 2-3 years?

— In our industry, what’s trending on TikTok now, is not only function. What you’re often stuck with is, which is the best face cream? But now, a lot of the innovations that are coming are visual and an experience; the product is turned into a pink or yellow foam, or it bubbles when I put it on my skin. It may not have any effect, but there is a visual effect or an experience when I use it. This has had a great impact and will continue to grow. 

— I also think that we’ll be able to put even more structured data about the products that will allow us to be much better at navigating towards the customer. And the AR solutions provided by Apple where you can see ’products’ lying on a table bring the digital experience closer to the physical. It’s still not great and it still doesn’t add that much value, but in the long run, it will come; you will get closer and closer to the physical meeting. I don’t think we will get all the way, so we will still have the physical experience but the stores that exist today and are there only to move products won’t remain. Instead, when you go to the store, you will crave a different experience and add something that you cannot experience in the digital meeting. This, we will see more of.

— With AI, to be able to handle huge amounts of data and process it faster will also become much more common, and help us become faster at responding. One of our main challenges today, when we look into our social channel at Lyko, is to manage the enormous amount of data. To build an e-commerce for 10 transactions and to build it for 10 million transactions are completely different worlds. The latter is much more difficult — and quite a few can do it.

Is that where AI will affect you the most, the data management?

— I believe that we will be able to streamline the customer meeting digitally but above all, we will be able to handle many more of them. If today, one in 100 people contact us, it could be every second one tomorrow, because we would be able to take good care of many more. I think there are many people today that we don’t have contact with who would like our help but can’t be bothered to send an email or a chat message because it takes too long. We don’t have the capacity to be there when the traffic is the heaviest, on Sunday evenings, because that’s also when it costs the most to have staff. So, that’s where I think we — and e-commerce in general — can raise the service level. We’ve all been good at making transactions — now, we also want to be good at providing a great customer experience.

What have you learnt from scaling, and scaling so quickly?

— Not too fast — it has taken 16 years. Jokes aside, I’ve learned that it never ends. It’s not two rough years and then you fly. It continues. At least if we are to continue to grow at the same rate. Then you run into the same problems that all other large companies have. Like we are in now, a matrix organisation. If you had asked me 10 years ago whether we would have been that, I would probably have said no. But then it reaches a certain volume, and we realise that we need legal people with all things compliance we have to live up to, Lyko shares, continuing,

— Each company’s journey is unique but it’s probably also very non-unique. If you look at similar companies with the same journey, they have gone through the same steps. Then you can always hope and wish that we can do it a little better and a little differently. And we certainly can. But we will also run into the same problems that all other companies have had when going from a small company to a much larger one, from a Swedish company to a global one, and so on.

And when going from 3 to 10 to 30 billion SEK.

— Exactly. We are a completely different company now, and I do completely different things. 10-15 years ago, I spent most of my time in the warehouse. Now I do ’nothing’ — I’m just in meetings. Going from 10 to 30 billion is a completely different journey than from 0 to 10. And I respect that. It’s a huge change — and a very exciting one.