By Pritika Gupta
It has never been easier to start a beauty brand. However, scaling requires distribution paths that … [+]
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The beauty industry often confirms the truth of an important business principle: new entrants can expect harsh reactions from existing players when the market is not growing and their market share is threatened.
The 5.86% revenue growth (CAGR 2022-2026) of the $85 billion US beauty industry (and notably the 30% year-over-year revenue growth of the Prestige Beauty segment of 2020 to 21) allows new entrants to serve niches without provoking a response from the larger ones. , more established players. A key component to becoming players of scale in the beauty industry has been access to offline distribution. The rise of beauty accelerators in the US is increasingly empowering smaller DTC brands to rise to this challenge.
Caroline Weintraub, Vice President of True Beauty Ventures (TBV), which sees more than 30 beauty launches a week, explains: “Starting a brand has never been easier. It’s not as capital intensive and the cost structure has changed because of tools like Shopify and the rise of social media marketing.”
“However,” Weintraub adds, “competition and access to capital make scaling difficult.” Major distribution hurdles are being resolved, to some extent, by major retailers expanding their own brand building expertise and national networks through their accelerator programs. Target introduced 40 new beauty brands in stores and online through the Target Takeoff, Ulta announced its selection of 8 early-stage BIPOC brands to participate in its Muse Accelerator program, and Sephora Accelerate introduced 10 more BIPOC brands in year 2. of the program.
Major distribution hurdles are being resolved, to some extent, by major retailers expanding their own brand building expertise and national networks through their accelerator programs.
Despite the continued rise of e-commerce, small beauty brands rely on the offline networks of large ones … [+]
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It is important to note that these accelerators accept startups at different stages and categories. The Muse program requires “an early stage with market presence, knowledge of, or having revenue from DTC,” while Target requires that the “product must demonstrate existing market traction proven by social media engagement, growth of revenue or growing customer base. They must also have mass manufacturing and supply chain capabilities that are ready for retail.” Sephora Accelerate, however, does not require any of these criteria.
Most of these newer and more innovative brands are Direct To Consumer (DTC), bolstered by the growing nature of online shopping. However, the general sentiment from retailers like Target, Ulta and Sephora remains that for high-experience products like color cosmetics and skincare, retail is still vital. This is further validated by the fact that the majority of TBV’s investments are in omnichannel brands, which see distribution as an important criteria for their investment thesis.
For Nikita Charuza, former leading beauty and fashion editor turned beauty founder, being one of 8 brands and the only South Asian-inspired brand selected for the Muse Accelerator is a dream come true. In 2021, Nikita founded Squigs Beauty, a DTC brand rooted in Ayurveda that focuses on both hair care and skin care, something she likes to call Happy Headcare. She says, “The beauty industry is becoming saturated more and more, and while we at Squigs believe that unlike other hair and skin care brands, it’s a huge seal of approval for a major retailer to see the white space we occupy in the industry.”
The general sentiment from retailers like Target, Ulta and Sephora remains that for high-experience products like color cosmetics and skincare, brick-and-mortar retail is still vital.
Priyanka Ganjoo, founder of Kulfi Beauty and part of the inaugural Sephora Accelerate cohort, echoes Charuza’s enthusiasm and gratitude a year later. “Sephora Accelerate was instrumental in introducing us to Sephora, helping us launch online and in stores. Without the program, building a strategic partnership with Sephora would have been challenging, especially for a BIPOC-owned brand.”
The final player in this ecosystem is the investment arm of the major beauty companies. Most recently, L’Oréal’s venture capital fund BOLD (Business Opportunities for L’Oréal Development) acquired a minority stake in Sparty, a Japanese startup focused on personalized beauty. Similarly, the Estée Lauder Companies (ELC) started with a minority stake in Deciem before acquiring the brand. In general, corporate venture funds are trying to understand the segmentation of these early brands, understand their innovation, and hopefully chart the path for an acquisition.
Weintraub explains this in a more nuanced way. “Even if these beauty leaders have huge research and development budgets, they also have red tape and processes that make it much easier to acquire brands rather than create products to serve those niches. So, for example, rather than creating a clean skincare and makeup hybrid beauty brand, it makes more sense for the Famille C Venture Fund (run by the Courtin-Clarins family) to acquire Ilia, as it allows the brand (Ilia) capitalize on its resources for faster growth and allows Famille C to capitalize on a brand with a strong identity, community and market presence.”
Established beauty retailers can offer a wide variety of products by acquiring brands that are already … [+]
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“Even if these beauty leaders have huge research and development budgets, they also have red tape and processes that make it much easier to acquire brands rather than create products to serve those niches.”
Ju Rhyu, founder and CEO of Hero Cosmetics (recently sold to Church and Dwight for $630 million) emphasizes that finding the right partner for brands is key to any ultimate acquisition. “If you’re a consumer beauty brand, no buyer is going to pay technology multiples. Rather, they will pay multiples for beauty and personal care. So you need to make sure that you align with the right people who have the right expectations for your business so that you can one day come out with success.”
It is unfair and false to say that accelerators are the only way for brands to succeed. And while the next big beauty brand can spring up anywhere, beauty accelerators are creating ecosystems that can address the white spaces in beauty and build a pipeline for acquisition by beauty conglomerates. Perhaps most importantly, they are also inadvertently creating seats at a much larger table for brands that represent underserved segments and paving the way for them to find their way to institutional players on a global scale.
Pritika Gupta (’21)
Pritika Gupta (’21) is an alumna at Columbia Business School. She is currently the Senior Manager of Strategic Operations at Uber and previously served as Director of Partnerships at Kulfi Beauty.
Source: news.google.com