Faced with declining in-store retail, the beauty industry has rapidly evolved to find innovative and creative ways to sell beauty products.

Younique is a direct sales company specializing in beauty products that markets and sells these products almost exclusively through the use of social media. It has combined the peer-to-peer sales model with digitization to create "Younique Virtual Parties," in which 200,000 women called "presenters" livestream online digital makeup parties from their living rooms, kitchen table, or even their cars. These women are well-versed in the algorithmic models of social media, ensuring their parties are at the top of people's feeds. They can make anywhere from hundreds to thousands of dollars monthly by selling makeup through their personal networks, and have contributed to Younique's $400 million annual revenue. Beauty products manufacturer Coty Inc. (COTY  ) owns a majority stake in Younique.

"The biggest global beauty companies are experiencing massive disruption by the shift in consumer behavior that online shopping and social media has caused," says Irina Adler, MD of Morgan Stanley's Consumer Investment Banking group. "Traditionally, cosmetics companies are one step removed from their end customers. That's because they sell products in department stores, which end up having the direct relationship with the consumer. But through a peer-to-peer sales model, they are able to dramatically grow their direct sales to consumers, at a time when department stores are suffering a decline in retail traffic."

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This notion is also reflected in the brand Ever Skin, which gives its sellers the option to sell not just at special in-person events, but online, as well. It sets up each seller with a personal e-commerce site and provides them with digital marketing guidance for promoting its products on Instagram and Facebook (FB  ). Beautycounter, Rodan & Fields, and Glossier are all brands that follow similar models.

In fact, one of the reasons Glossier has experienced so much success is because of its ability to establish this "anti-brand" movement of sorts, in which the selling model is consumer-oriented. Employees are trained to talk to customers directly across all channels in a casual voice that resonates with its younger audience. Through understating its position as a brand, Glossier has been able to capitalize on the fact that customers are looking for other users' knowledge to make purchase decisions, for example by viewing YouTube (GOOGL  ) makeup tutorials.

That said, there are some limitations to this model that may become more apparent in the future. For one, the peer-to-peer sales model has been likened to a pyramid scheme that rips off its sellers. Another problem is that success of these companies are directly correlated with the popularity of certain social media outlets, so once something is not relevant it could have a huge impact on revenue streams.