Beauty Pt 4: Can D2C Drive Diversity?
Like the subscription business model, which we talked about in part 2 of this series, the Direct to Consumer Business (D2C) model has been around for a decade or so already. In fact, it’s how many of the beauty subscription models started (including Harry’s and Dollar Shave Club) and how many are still launching today.
But what’s in store for this model in 2021 and beyond?
In the first post in this series, we looked at increasing calls for diversity and inclusion as a key macro trend. This post will argue that the direct to consumer model may be the best route of entry for startups focussed on serving otherwise overlooked customers, and building more inclusive startups from the ground up. We’ll look at startups to watch in this space, and where the model could go next.
First though, what is the direct to consumer model?
What is “Direct to Consumer”
Shortening the value chain, brands cut costs by cutting out third party stockists and sellers and often physical stores too. Typically, this means they offer customers lower-cost products, without compromising on quality.
They’re essentially the modern evolution of the “independent” shop, they’re just online rather than in local premises and so can reach a much bigger scale without geography as the limiting factor.
It’s important to note that while Direct to Consumer can be a business model in its own right, it can also be combined with other models, like subscription, or the Buyer Club model we’re looking at in our next post. It can also be the first business model new brands deploy, but later give way to a more traditional business model for those with sufficient scale to move into the mass market (more on this later).
A non-beauty example we’ve probably all seen is mattresses. By cutting out stores, companies were able to cut their prices for a more luxurious product. To help gain consumer trust, they offered 100 nights to try, and return guilt-free if you don’t love the product. From Eve, who have raised $32.3m since they were founded in 2015, to Casper which is valued at $1.1bn having raised $339.7m since 2014; the direct to consumer model was the enabler of a huge wave of “sleep startups” promising high quality at lower prices.
While Eve may be struggling with execution, having to discount at the last fundraise, Casper is proving it’s not the direct to consumer value proposition which is lacking. They report having grown revenue by $100 million almost every year since launching. In 2019 their revenue was $439.3m.
In the beauty world, Glossier offers another textbook example. It started life in 2010 with Emily Weiss’s beauty blog “Into the Gloss”. With the audience she’d built, Emily was able to secure VC funding in 2014 to start her own makeup company. Since then Glossier has become a cult brand. So much so that in 2019 they had 10,000 on a waitlist when they launched their pink glossier hoody. That’s 10k people waiting to pay to advertise them. In the same year, they were able to raise their Series D round at a $1.2bn valuation. Today, Glossier has an Instagram following of 2.7m followers and Emily Weiss has a following of 539k followers. Moreover, it’s an audience they own. Fans who want to buy have to go direct to Glossier’s website.
Serving the audience directly offers key advantages:
- Lower costs you can pass onto the consumer. Savings on commission given to third party retailers, or on the costs of physical stores can be huge. This allows D2C businesses to tap into the trend of “affordable luxury”: bringing high-quality products to the mass market at more attainable price points.
- Full control to make the customer experience incredible. From ordering to delivery tracking, to the unboxing, to any questions or complaints.
- You own all the data, making it much easier to test and optimise. From which products are brought together, to where the customer moves across the website, to the marketing they respond most to. For a playbook on just how powerful this data can be, look no further than this article on DoorDash.
But it also comes with its own challenges
- Building your own audience is hard, and there’s a lot of competition. Yes, you can reach customers directly with social media, but you still need both your product and content to be of incredible quality and value to keep customers loyal. You’re now up against all the other brands (who will have their own direct channels), plus all the resellers (who will be sharing your competitor’s products too). You’ll need to invest heavily in direct marketing, but don’t forget, it’s not just about optimising your customer acquisition costs to compete- you also need to focus on retention so you don’t lose audience members as fast as you add them. When it comes to key activities this means marketing can’t just focus on new customers, you also have to work continuously on community building audience engagment.
- Adding friction. Coming to your site to shop for certain products may add friction to your customer’s journey. Say they love your lipstick range but are loyal to another brand’s mascara. Now, instead of being able to shop in one basket at a department store or online beauty reseller, they have to go through multiple purchase points. This increases the risk of churn for you, and adds inconvenience and frustration for the customer. It’s why some brands who out started direct to consumer (like Harry’s razors) have had to add another channel later with pop-ups or in store placements (see their partnership with Boots). The unit economics have to stack up for this to work though, so if your business model only works because you’ve cut out intermediaries, you may be hamstringing future growth.
- Online may be enough in Covid, but can you stay e-commerce only? The truth is, in normal times, customers often want to be able to try before they buy. Yes, we’re likely to see a change in behaviours long after Covid, but it’s unlikely to erase the need for a physical buying experience entirely. Especially for certain products which have a sampling component (e.g. mattresses and makeup). Even if you take into account advancement in AR, online consultations and at-home test kits, sometimes if you want to compete with other brands, you need to be where they are. For example, Eve Mattresses can now be tried in John Lewis stores (when lockdowns are lifted at least), and Casper has a partner network of 2,000 stores to choose from in the states. When talking to Matt Meeker, founder of Direct to Consumer startup BARK (a dog treat subscription company) he explained their move to stock toys on Amazon and CostCo as well as their own e-commerce store as key for the customer experience:
“Customers are comfortable buying wherever they want to buy- it’s not for us to say to someone who’s paid $100 for amazon prime for the year, don’t buy there, come over here and buy. You’ve invested there and you want your fast shipping. It’s up to us to put our product there and get it in front of you.”
Matt Meeker, Founder of Direct to Consumer Dog Treat Company BARK
These challenges explain why startups who succeed at D2C are typically not staying that way once they reach scale. However, as a route to market, it allows for a clear value proposition, lower delivery costs, faster speed to market, and forces you to simultaneously build an incredibly strong and loyal audience base, ready for future expansion.
To reach that scale though, startups need a clear USP and an authentic way to deliver value to an underserved customer segment and keep serving their changing needs. After all, in Direct to Consumer, the brand alone won’t set you apart, especially when all Direct to Consumer Brands are starting to look very alike and you don’t have that big name to lean on.
Diversity and Inclusion Meets Direct to Consumer
2020 saw increased cries not just for “inclusion” of more diverse customer segments, but for equity.
For beauty, this could mean skincare tested on black and brown skin, not just white. Makeup that genuinely caters to every skin tone and type. Haircare designed specifically for Afro hair and stocked equitably in supermarkets. It means brands that don’t impose a gender stereotype on products or customers. And it doesn’t stop at serving more diverse customers. You need a more diverse supply chain and a more diverse company. From working with more black-owned businesses to removing biases in your own hiring to stamping out sexism, racism, ablism, and microaggressions, to equal pay and equal opportunities in your workplace. And extending these expectations to the rest of your supply chain and holding your suppliers accountable. Venture Capitalists also have a huge role to play, both in the startups they invest in, and the founders they back.
When startups get it right, their customers will love them. We know it’s something Generation Z and Millenials genuinely care about and are using to decide where to spend their money. But, on the other side of the coin, when you get it wrong, be ready to be called out.
Glossier has faced just this challenge. In 2020, a group of former employees created an anonymous collective called “Outta the Gloss” and took to Instagram to call out the brand for failing to deliver for darker-skinned customers, and for silencing black and brown employees who raised the problems. The page shares accounts of highly problematic comments and practices. Glossier first issued a company blog in response, followed by an apology to the group for their experiences, but are still being questioned on what they actually intend to do to fix these problems, and how fast.
Here, new, direct to consumer businesses may have an advantage. They have full control. They can fully own their impact, and if they design for inclusion from day 0, they can ensure it’s embedded throughout both business and op models. What brands can’t afford to do is treat diversity as an afterthought.
Moreover, they can go a step further, and make diversity their focus. Find a market which still has real needs that are being overlooked and develop not only a product but a community that truly cares about serving them.
Direct to consumer brands have full control. They can leverage that to set them apart in their value proposition, their production, their marketing and their day to day operations.
If they do this with authenticity and meet a real need, they will earn their customers' loyalty.
For those inspired by the model and wondering where to start: look at who is being underserved and how. Can you fix this problem? Can you do so authentically, to create a genuine and consistent brand that tackles the issues with enough real customer empathy to win against established competitors?
Startups to Watch
1 4.5.6. Melanin rich skin is not just underrepresented on the shelves. It’s rarely tested for in the lab. 4.5.6 are a UK startup that have built their own lab to ensure they can actually research and design for diverse skin tones from the beginning. The products are tested and created based on the Fitzpatrick scale — which classifies skin into six different phototypes. Design is done based on skin physiology, rather than colour and ethnicity. Founded in 2019, they raised €700k in 2020, sharing that women of colour spend 2x as much on skin colour as the caucasian women the market otherwise focuses on. Playing on hyper-personalisation trends, customers can customise their formulas based on skin characteristics, struggles, and fragrance. They have helpers on hand via chat on the website to help educate and navigate the choices.
2 Afrocenchix— In the UK, black women spend 6x as much on their hair as white women. But historically, they’ve been hugely underserved by the beauty industry, especially when it comes to products that support natural hair. Instead, black hair has often been treated with highly toxic products like hair relaxers. It’s the same story in the US, leading to Afrochenix. A startup founded with just $50 in 2010 by two university friends who were fed up with the lack of natural and non-toxic products on offer and the resulting alopecia and other health concerns they were suffering. Like most black female funders, they’ve struggled to fundraise to scale, but serve as inspiration for creating an authentic brand, loved by their customers before external capital. In 2017, they raised $650k including a prize from Ashton Kutcher Gary Vee, Kristen Green, and Sean ‘Diddy’ Combs. Their blog is well worth reading for their hustle to raise when just 0.2% of VC funding goes to black women in the US*. Co-founder Rachael Corson even pitched at Afro Tech Fest whilst breastfeeding her baby. They’re now raising $3–5m to scale further. One to watch.
*The funding gap for black founders is far from a US problem. In the UK, black founders get only 0.24% of funding, with black women receiving just 0.02%.
3Glory Skincare. Like Afrocenchix, Glory Skincare is capitalising on the clean beauty trend for more naturally derived products. Founded in 2019, they’ve created a “Toxic 20" list of ingredients they ban in all products. Like 4.5.6 they also use the Fitzpatrick scale to customise their products which were created with dermatologists specializing in melanin-rich skin.
4 Adwoa Beauty. Our final clean beauty startup of this roundup, Adwoa was founded in 2017 to create natural products for kinky afro hair to be worn naturally. They’ve made sure their team is representative of the customers they serve too, comprised of minority women and men with naturally kinky hair so they can really say: “just like you. we get it!”
5 Kindra. A P&G corporate Venture, Kindra offers estrogen free makeup to women going through menopause. Playing into the hypersonalisation trend, they promise not to treat all women the same. From helping relieve hot flashes, to mood swings, vaginal dryness and other symptoms of menopause, you can use their quiz to customise your regime. It took P&G Ventures 2 years of development to launch Kindra, which they previously tested as Pepper & Wits. They were able to pull on P&G’s labs and product development as an unfair advantage.
6 BioGlitz. Their Instagram bio sums it up “✨TAKING THE LITTER OUT OF GLITTER, BLURRING GENDER LINES THROUGH SHINE ✨”. Bioglitz have created a biodegradable glitter made from eucaluptus. Founded in 2015, it champions LGBTQ rights and representation, including ensuring most of its models and creative partners are queer.
7 Guide Beauty was created by Terri Bryant, a former Dior make-up artist, after she was diagnosed with Parkinson’s. She realised how challenging makeup application could be without perfect motor skills, and set about creating a tool kit that would be more accessible. The brand launched in February 2020 and is well worth following for product innovation. They’re also a great example of how accessibility and mass-market don’t have to be mutually exclusive. Cutting out the fiddly and time-consuming elements of makeup is certainly a desirable proposition for the able-bodied too.
‘Drawing a straight line of eyeliner and defining symmetrical brows are just a few examples of techniques that many make-up users find challenging and time-consuming.’ Terri Bryant, Guide Beauty Founder
8 HeTime. Breaking down “male beauty” expectations and leaning into self-care, HeTime have created their own line of facemasks designed specifically for men. While you can use them whatever gender you identify as, the masks are built for the underserved male market, so they don't get in he way of facial hair. They’re also leaning into sustainability trends, as the masks are fully biodegradable
9 Popit and Almirall. Beauty and health are often inextricable, especially for medical conditions with a physical symptom such as Psiorisis which causes red, scaly patches of skin which are not only visible, but itchy and uncomfortable too. A cross-country collaboration between Finnish startup Popit and Spanish startup Almirall has produceed an app to track whether patients are missing doses of their psoriasis medicine, sending them a reminder if they miss a dose. Obviously the potential for this IoT play goes far beyond one medical condition. It could extend to your personalised vitamins, to women’s contraception, or any other wealth of medical complaints with pill treatments. One to watch for the interplay between the Health and Beauty Tech spheres.
10 ASOS Face+Body. Not the traditional D2C play, ASOS are, after all, a marketplace who also create their own lines. However their own brand beauty is worth including here, as they launched the range in 2018 focussed on gender neutrality. In fact, they went so far as to remove the word beauty because they believed it to be too associated with cis-gendered marketing. The range includes bold and bright make-up worn by male, female and non-binary models of all ages, races and backgrounds.
Diversity beyond D2C
While the direct to consumer model certainly offers one route to build an authentic and diverse brand, it’s not the only way.
To end this post, I wanted to highlight 5 exciting businesses to watch, which don’t use the D2C, model, but do offer huge inspiration for how the beauty industry can embrace diversity and inclusion further.
1 A Complexion Company. Supplement brands have exploded in the last few years and big corporates are now joining startups in looking more closely at the space. 2019 saw Nestlé acquire Persona, a 2 year old vitamin supplement company, and we highlighted Nourish3d who raised £2m in 2020 in our first blog in the series. Now, A Complexion Company have entered the market to serve a gap for those of African heritage, who Nomshado Michelle Baca, found to be underserved. She drew on personal experience to create her line, sharing that she was using 8–12 vitamins at once to get the right balance. The company is still trying to fundraise, and following the direct to consumer route, already stocked in John Lewis, but are well worth watching to see how diversity will inform the next wave of the hyper-personalisation trend in health supplements.
“It didn’t feel at all feel how wellness should feel. It didn’t feel like walking into a department store and purchasing something without having to fix and customize it to make it work. There are 1 million women of the diaspora in the U.K. and 105 million globally, and there is no multivitamin for us. It seems almost basic that there should be.” Nomshado Michelle Baca, Founder of A Complexion Company.
2 Volition Beauty is a beauty brand founded in 2015 to crowd-source all its product ideas from its customers. They raised $775k in 2020.
Entrepreneurs submit product ideas and the most popular product on the platform is put into production, to be sold wherever Volition is stocked. This idea could help to democratise beauty- making it far easier for customers to surface concerns and then judge what really solves them.
3 Sigil. Gender-neutral fragrances are a huge trend, and Sigil is championing it. Created by queer perfumer Patrick Kelly in 2015, they refuse to define their fragrances by gender. Again, not D2C as you can find them on “Le Gent”. However, like BioGlitz, the mission extends beyond the product, making for a much more authentically diverse company and one to gain inspiration from. For instance, the majority of their models and those behind the camera are queer artists.
4 Jecca Makeup. Founded in 2017, Jecca was designed for transgender women but is gender neutral. Makeup artist Jessica Blackler created the brand in 2017 when she was just 21. She’d been a makeup artist for 2 years and wanted to tackle problems like covering beard shadows, which she found simply weren’t catered for elsewhere on the mass market. Jessica wanted the makeup to be even more accessible, so partnered with Walmart as a stockist.
5 Thirteen Lune. The opposite of D2C, Thirteen Lune is on a mission to create the world’s first inclusive beauty platform. Their products are for everyone, regardless of skin colour, but they want to make it easier for all these customers to discover black and brown owned beauty companies. Founder Nyakio Grieco, also founder of Nyakio Beauty, had the idea in the aftermath of George Flloyd’s murder and the subsequent protests when calls to buy from black-owned businesses led to a sudden surge in lists on every beauty blog. The platform launched in December 2020 and I look forward to seeing it grow!
“I had this “Aha” moment when all of these beautiful lists were coming out because I was shocked at how many Black and brown-founded brands I had never heard of before, despite being in the space for 20 years” Nyakio Grieco, Founder of Thirteen Lune and Nyakio Beauty
Still to Come
Next in this Beauty series, we’ll dig into the beauty buyer club model; before our final post in the series, Part 6, which will ask when we’ll be ready for beauty Resale.
In the meantime, if you’re curious to see what other trends and business models we uncover, you can join our studio newsletter to stay in the loop with new venture opportunities and market trends on Substack.
