Features, The Business of Beauty

Cutting Out the Middleman

Through Online-Only, House Parties and Peer-to-Peer Platforms, Forward-Thinking Beauty Brands Are Skipping Traditional Retail Altogether

In my neck of the woods – the Gulf Coast of Florida – it’s easy to spot one of those Mary Kay powder pink Cadillacs in the church parking lot. And in the hipper, 21st century twist on that tale, one of the moms at my daughter’s school zips all over town in a gleaming white Lexus SUV she earned as a top-ranking Rodan + Fields operative.

Everywhere around me, industrious women are selling something  – makeup, essential oils, organic cleaning products, apparel – from the comfort of their own homes. And while it would be easy to attribute that phenomenon to the fact that I now live in suburbia rather than the hyper-stored, commercialized concrete jungle of New York City, that doesn’t quite tell the full story.

If it did, Coty wouldn’t have just plunked down $600 million in cash for a 60 percent stake in Younique, a global makeup brand built on a peer-to-peer, “social selling” platform. And one of the biggest skincare success stories of recent years – Glossier, a tightly edited range that sprang from the juggernaut beauty blog ‘Into the Gloss’ – wouldn’t have just secured $24 million in Series B funding on the strength of digital sales alone. (That’s on top of the $10.4 million Series A cash Glossier rustled-up prior to its 2014 launch.)

“We knew from the start that we would sell direct-to-consumer online,” says Emily Weiss, founder and CEO of Glossier. “We had already started a one-to-one conversation with readers on Into The Gloss, and developing that digital relationship with our customer is so important. It tells us what she likes, how often she orders, how she interacts with us on Instagram—it enables us to speak directly to her wherever she is. If we had started with a wholesale distribution model, we would have lost this direct line of communication, and the ability to gather data that helps us to create a personalized experience for her. That conversation is at the heart of our business.”

Crashing Confidence In Multi-Brand Retailers

Clearly the beauty biz is keen on brands that blow the age-old selling model, i.e., products stocked in gleaming retail shrines manned by fiercely aggressive “advisors,” to smithereens. And in an era in which many legacy brands, including Kiehl’s, Bath & Body Works and Philosophy, are also ratcheting up their numbers of freestanding stores, it’s obvious the industry has lost confidence in the ability of multi-brand retailers to get customers in the door.

The fact is, women, especially young ones, shop for beauty differently now. They want the immediacy of an Amazon Prime, and product validation from their bestie or fellow mommy rather than a saleswoman in a smock parked behind a counter.

Which isn’t an indictment of the saleswoman in the smock, by the way; I guarantee you she knows more about skincare, makeup and fragrance than any bestie or fellow mommy. But in the new Beauty Democracy, that doesn’t matter. In the new Beauty Democracy, everyone has a voice, every opinion is deemed worthy.

That ‘everyone has a voice’ ethos is pretty much the driving force behind Coty’s new darling, Younique. The five year-old, Utah-based company operates in 10 major markets, including Australia, New Zealand, Hong Kong and a good chunk of Europe, and was expected to rake in $400 million in 2016 net revenues.

According to the touchy-feely verbiage on its corporate website, “Younique’s mission is to uplift, empower, validate, and ultimately build self-esteem in women around the world through high-quality products that encourage inner and outer beauty and spiritual enlightenment while also providing opportunities for personal growth and financial reward.”

Whew. All that from Moodstruck Minerals Pigment Powders and Stiff Upper Lip Lip Stain?

Maybe Younique’s formulas are amazing. Having never tried any of its products, I can’t say. But obviously, having access to Coty’s massive R&D facilities means that even if Younique’s merch wasn’t stellar before, it will be now. That’s always the win-win for brands that get acquired by the “biggies” (in addition to the cash, of course): a huge kick up on the product texture and performance front.

Coty’s Shiny New Peer-to-Peer Toy

But what does Coty get for its $600 million outlay? In short, they get an entirely new way to reach customers – and young ones, to boot. Younique deploys fleets of “Presenters” at varying scalable levels (Entry, Exemplary, Elite and Exclusive) that enjoy a “completely transparent and simple compensation plan” ranging from 20 to 30 percent of retail royalties. In addition, they can earn even more (and possibly a car! or a trip to Punta Cana!) when members of their extended First, Second and Third Generation circles place orders.

And about those orders: They’re all digital, including concentrated sales blocks called “Virtual Parties.” Presenters host the Virtual Parties by sending links to invitees. As invitees purchase during the time block, Presenters build points they can use toward free product. Think of them as the non-mommy, digital version of a house party.

But here’s what’s really interesting about the ever-shifting beauty landscape: You don’t even have to be a brand new venture, or a fresh from B-School, wet behind the ears entrepreneur to carve a new path. You can be a seasoned pro and still pivot toward greener pastures.

Just ask Ellen Lange, who built a business not once but twice around a single product: her Retexturizing Skin Peel. An aesthetician and daughter of a plastic surgeon, Lange first created and marketed her much-lauded peel back in early Aughts. Now, after a hiatus in which she repackaged her peel and re-thought her entire business model, Lange is staging a successful digital-only comeback.

Rewriting the Marketing Script

After first launching on QVC and garnering $3 million in three hours – this was the very beginning of the “doctor brand” wave – Lange’s peel got quickly scooped up by Sephora. “No one really wanted to be in Sephora at first, including the big brands, because they didn’t really know what it was,” Lange recalls. “So we were the number one skincare item for 26 months when Sephora first opened in the U.S. That was from about 2002 to 2004.”

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What followed was basically a decade of trying to make it work, profit-wise, in Sephora and a handful of Saks doors and other department and specialty stores. “In cosmetics, you always have to pay for counter space and personnel. I use to say: ‘Ellen Lange gets exactly one half-foot of counter and a part-time person.’”

And that was on top of all the charge-backs for minor transgressions like not putting an invoice in the “lead carton” of a five-carton shipment.

Even though the writing has been on the wall for quite some time, not a whole lot has changed in Traditional Retail-Ville. “Most brands that are in Sephora – if they’re smaller indies – they’re doing it for the PR,” says Lange. “You aren’t really making money. You need to be in a lot of stores, or to be part of a group like L’Oréal or Lauder, to make a profit. That way, if the group is taking a return on one brand, they can spread it out across the whole corporation. The numbers grow among the corporation, not necessarily among the individual brands.”

Long story short: Lange is back, she’s only selling on her own website, and she literally can’t keep her famous peel in stock. “Early on, with QVC, I tried to reach out to my customer directly. So with the relaunch, we’re going fully direct. I know that’s the way I need to do it, by bypassing the retailer. And now is the right time.”

Three Trending Non-Store Sales Models

  1. House Parties A sector on a decided uptick, these are cozy, ostensibly low key get-togethers held by hosts with financial skin in the game. No one walks out alive. (Guarding your wallet is frowned-upon. If times are tight, don’t go.) They take place in homes large enough to accommodate lots of guests and full ranges of product. Brands successfully operating under this model include Rodan + Fields, BeautyCounter, India Hicks and doTERRA essential oils. To move up through the ranks, saleswomen typically have to bring new recruits into the mix.
  2. Digital-Only This is often the province of smaller brands that don’t want – or simply can’t afford – the expenses that come along with the validation and (theoretical) traffic of a major retailer. New brands aimed at the first generation of Digital Natives – Glossier is a case in point – are achieving huge buzz and sales without ever appearing on a store shelf. E-aggregators such as Peach & Lily and GlowRecipe.com also move a lot of product without having a physical presence at retail. (Peach & Lily, however, has partnered with Macy’s on test-pilot shops-in-shop.)
  3. Social Selling Also known as Peer-to-Peer, this model banks on the fact that many young women wouldn’t be caught dead in a Saks or a Macy’s. In a sense, Avon pioneered this category with Mark, a makeup line geared toward teens and 20-Somethings. Launched way back in 2003, Mark deployed fleets of college types to sell to each other. A decade-plus later, Younique is mining similar turf, but with the mighty might of global social media to power it along.

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