The making of a beauty king

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Noelle King: On Today Explained, way back in the mists of time, 1998, a new beauty store hit the scene. Its appeal was choice. It would put hundreds of these carefully curated beauty brands in a single store. And as a customer, you were free to roam the aisles and test all the products that you wanted to your heart's content. And that was just a very unusual idea at the time. You no longer had to be a Clinique or a Lancome lady. Maybe for you, it wasn't solely Maybelline. And that was fine. In Sephora, you were free. Consumers loved this new way of shopping. Sephora became a kingmaker. It is still a very big deal to get your little brand into a Sephora bay. But now comes a reckoning. Does Sephora have too much power?

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Noelle King: Having a night out with your friends is awesome. Dealing with hangovers sucks. Meet Senorita, the THC-infused margarita that lets you skip the booze but keep the vibe. Made with real fruit, organic agave, and Himalayan pink salt, every sip is like a mini getaway. No fillers, no hangovers, just full flavor and a better buzz. Find your flavor at senoritadrinks.com. Use code VOX20 for 20% off. Must be 21 and over. This product may cause intoxication. This product has not been evaluated or approved by the FDA. This product may contain up to 0.3% THC. It's Today Explained. I'm Noelle King with Fast Company senior writer and friend of the show, Elizabeth Seagren. Hey, Liz.

Elizabeth Seagren: Hey, it's so good to be here.

Noelle King: You recently wrote a big piece about Sephora and just how much power it has in high-end beauty. What is Sephora's deal?

Elizabeth Seagren: Oh my gosh. I think that for all the beauty junkies out there and even people like me who casually wear makeup and don't fully understand how to apply eyeliner, I think it's really easy to understand the appeal of Sephora. It's such a fun place to shop and we love wasting hours there on the weekend discovering new brands. But, you know, actually all of that, all of the innovation around retail has put it in this position of being the most powerful player in the high-end beauty industry, which is worth $30 billion globally. And so we're talking about those brands that are slightly more expensive than what you would find in drugstores. And Sephora has got that market locked. It has 700 stores in the U.S. as well as 1,000 outposts at Kohl's. So it basically now controls the fates of beauty brands on the market.

Elizabeth Seagren: And that is why so many beauty founders are so desperate to break into Sephora. And even though there are other retailers like Ulta Beauty and Nordstrom that are trying to replicate the Sephora model, Sephora is just one step ahead of the competition. And I think that the reason for this is that it is able to identify and pluck these exciting beauty brands and keep the aisles stocked with a new array of beauty brands. And so there's always something to go into the store for, something new to explore the next time you're in the store.

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Elizabeth Seagren: Come shopping with me at Sephora. I want this Dior lip gloss, this pink shade. Let me take a look at some of the new stuff. Maybe there's something good over here. Ooh, the closest sunlit. I saw people. Patrick Ta. I've never bought anything from Patrick Ta. Should we get a blush?

Elizabeth Seagren: And actually, I think that what most of us don't fully understand is that, you know, we think that Sephora is out there, you know, finding these brands, putting them on the shelves, and that's the end of the story. But actually, my reporting uncovered that actually Sephora is getting really deep with the founders of these brands into shaping every aspect of the brand from, you know, the products that they're creating to the packaging. And founders are willing to cede control over their brands, these startups that they're creating, because being in Sephora guarantees their success. Sephora will give these brands mountains of proprietary data to help them succeed. And that's why the biggest brands on the market today, like Drunk Elephant, Rare Beauty, Sol de Janeiro, all of them got their start at Sephora.

Elizabeth Seagren: Is there a brand that helps us understand just how much power Sephora has here?

Elizabeth Seagren: Yeah, I think that the brand that kind of tells the story the best is Glossier. Mm, Glossier. As a millennial, I, you know, I'm very, very well versed with this brand. It popped up in 2014 at the height of the direct-to-consumer movement. My name's Tia, and I'm wearing Generation G in bike. And we all know it because it is this beautifully millennial pink brand, and everything is very minimalist. So I'm using Lidstar and Slip. I'm gonna press it right in the center of my eye. The most important part of my makeup routine, Glossier Boy Brow in black. And it basically pioneered this concept of makeup that looked like you weren't wearing any makeup at all. Like you just woke up in the morning glowing. Rosewater spray. And so Emily Weiss, the founder of Glossier, came up with this brand. And she publicly stated that she wanted to build a beauty brand without partnering with a retailer. We really wanted to offer this incredible new luxury experience. And we were able to do that by going, again, direct to consumer and not be beholden to retail partners or wholesalers who are going to make your brand become something so that it fits on a certain gondola or a certain aisle of a store.

Elizabeth Seagren: Glossier emerged at this time when all of these venture capitalists were just pumping money into startups. And Emily Weiss was really, really good at raising money for Glossier. In total, Glossier has raised $266 million, which is just an astronomical amount for a beauty brand. And its last valuation was at $1 billion. And so it had all of this money to pour into acquiring new customers, creating really innovative products that consumers wanted. Glossier sent me all of their bomb.com. Look at how cute these packages are. Glossier Cloud Paint. I love it so much. It's just, I feel like it looks so natural on you.

Elizabeth Seagren: And even building these gorgeous stores that we're seeing pop up in New York and in Boston and all of these different places. Basically, it's like the Apple store where you can just try on all the products and the associates come up to you. I tried this super glow serum first and I love the internet. It was just a fascinating time because the internet had created this entirely new way for brands to emerge. And so that's why all of these investors were so eager to pour money into these brands, because they really thought that this was going to be the future of the way that we shopped, that we wouldn't need retailers anymore, because we could just go online or go to Instagram, discover a brand and buy products directly from those brands.

Elizabeth Seagren: And actually during this time, we saw just an explosion of beauty brands because it's actually really easy to launch a beauty brand. All you need to do is partner with a lab, you know, come up with some nice branding. And there you go. You know, you could have like a small number of products and you have a beauty brand up and running. And so there were about a thousand new beauty brands that popped up between 2015 and, you know, last year.

Elizabeth Seagren: So Glossier is one of those companies that really makes its bones in the age of the Internet has democratized anything. We can be close to the customer. We can work with a third-party chemist. We can get the influencers to wear our stuff on Instagram. It is boom times for Glossier, but you would not be Fast Company's Liz Seagren if things had stayed that way. What happened next?

Elizabeth Seagren: So Emily Weiss was the face of her brand, Glossier. In many ways, the success of the brand was tied to her being this charismatic female founder who was part of, you know, what we would call the girl boss era. Girl boss. Girl boss. I got excited. That's right. That's right. And at the time, that was still considered a really wonderful thing. But the whole concept of the girl boss sort of soured because during the Black Lives Matter movement and that period where we were scrutinizing what was happening at all of the brands that we shop from, it became clear that Glossier wasn't really treating women of color very well, both in terms of its customers and in terms of its sales staff.

Elizabeth Seagren: In August of 2020, just before Glossier laid off all its retail staff due to the pandemic, the group behind Out of the Gloss published an open letter to Glossier, detailing the many grievances that they had with the company and what change they would expect from the company. I just found an exact dupe for Glossier U because if you don't know, the girlies are girl-cutting. And it was also really hard as a woman of color to find shades at Glossier that really, you know, spoke to me and that I could use. And so I think the world sort of began to see that, you know, there were problems, right, with Glossier.

Elizabeth Seagren: And so at some point, Emily Weiss stepped down and brought in another CEO. And it was this new CEO who basically said, let's just rethink what we want Glossier to be. And in addition to sort of setting new policies in place that ensure that the brand was more inclusive across a lot of different dimensions, she also had the idea that the best way for Glossier to succeed and to grow was to give up the stance that it was just going to be a direct-to-consumer brand and just fully sort of give itself over to Sephora.

Elizabeth Seagren: So about five years after it launched in 2019, it had reached upwards of $100 million in revenue, which is a lot, especially for a beauty brand. There are very few beauty brands that are able to get to that level of scale. But it just wasn't enough. It wasn't the kind of money that would justify Glossier getting acquired or getting a major IPO, which is what its investors needed of it. And so in order to get that kind of money, Glossier had no choice but to enter Sephora. And so in 2022, everybody was shocked to discover that, you know, when you went inside a Sephora store, there were these beautiful millennial pink displays that Glossier had set up. And so Glossier totally reversed its stance, and suddenly it was there next to 300 of its competitors. But it realized that that was the only way for it to get the kind of scale that it needed to satisfy its investors.

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Noelle King: What, Liz?

Elizabeth Seagren: Coming up, coming up, coming up. Okay, how Sephora is changing the way we think about beauty itself.

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Noelle King: Beauty. Style. Today Explained. Today Explained is back with Fast Company senior writer Liz Seagren. Liz, you report that before Sephora was the behemoth it is today, it, in fact, was an innovator. Tell us about the beginnings.

Elizabeth Seagren: You know, what was so interesting as I was reporting this story is that it allowed me to kind of go back to what beauty brands were like when I was in high school. So 20 years ago. And back then, the only way for us to really get access to these high-end beauty brands was to go to a department store. Hi, can I help you? And there, if you recall, there were these beautiful glass cases and there were these brand representatives. You should try this. And the only way for you to try these different products was to have one of these brand representatives talk you through everything. You look amazing. Of course she does. But Sephora in 1998 showed up in the U.S. with this completely different concept. And the concept was that it would put hundreds of these carefully curated brands into a single store and there would be no gatekeepers.

Elizabeth Seagren: And that meant that as a customer, you were free to roam the aisles and test all of the products to your heart's content. And it also meant that you didn't have to be loyal to a single brand. And this was really a wild concept, and it just made the store so much more inclusive. And so consumers just went wild for this new way of shopping. And other retailers quickly tried to replicate this model. Two of the biggest ones I can think of are Ulta Beauty, for instance, and Nordstrom. They're all trying to create this kind of more open, exciting model for shopping for beauty. But Sephora, to its credit, has managed to always stay one step ahead of the competition by ensuring that it has the coolest, trendiest, latest brands in store. door.

Elizabeth Seagren: And also, you know, I think that it has a role to play in actually just kind of shaping beauty trends from the ground up. And so, for instance, I don't know if you've noticed, Noelle, but there are more expensive high-end shampoo brands than I've ever seen. I have indeed noticed. So there's like Pattern Beauty and Olaplex and Virtue. And this is not an accident. Shampoo had always been an inexpensive drugstore purchase. But several years ago, Sephora decided that consumers actually would be willing to drop a lot of money on fancy shampoos and conditioners. So it actually went out there and cultivated a new generation of these brands. And lo and behold, five years later, here we are throwing $40 or more on a bottle of shampoo.

Elizabeth Seagren: And so what I'm trying to say here is that it's basically Sephora's world and we're just living in it. It's a big deal to get your brand into Sephora stores. How do brands become part of the portfolio? What do they have to do?

Elizabeth Seagren: It is a rat race. If you are a beauty founder, you are devoting a lot of time to trying to figure out how to break into Sephora. Okay, there's several different ways to get yourself in front of a buyer at Sephora. Now, we want everyone to tag Sephora right down in the comments and get their attention so we can get our brand into their store because we know it needs to be there. So I've heard all kinds of stories. There are brands that are sending packages of makeup to Sephora on a weekly basis, hoping that somebody at the headquarters will open it up. There are founders who are stalking Sephora buyers so that they can start a conversation. So, you know, these brands are all desperate to break into Sephora, but actually Sephora is kind of holding all the cards, and it's going out there and deciding which brands are going to be the next billion-dollar brands of tomorrow.

Elizabeth Seagren: In order to be in Sephora, you have to spend a lot of money at Sephora. So if you sign a contract with Sephora, first of all, it means signing an exclusivity agreement saying that you won't sell your products anywhere else for at least two years. So that's the first thing. But then you have to pay a lot of money for the in-store fixtures. So when you go into Sephora and you see those beautiful bays of products, the brands themselves have to pay upwards of tens of thousands of dollars, often a lot more, sometimes hundreds of thousands of dollars, to have those displays.

Elizabeth Seagren: And then whenever you make a sale, you have to give 65% of that sale to Sephora, which is much higher than the industry average. And so brands are just paying a lot of money to Sephora in order to be in store. But in exchange for that, they're getting access to this enormous audience of beauty lovers. Their loyalty program alone has 40 million members. And if you think about the number of people who are coming into store every day and going to the Sephora website, there is just nothing like it. So brands and founders are willing to do whatever it takes to be in the Sephora store, to spend all of this money because the upside is just so big.

Elizabeth Seagren: What do the founders say when they asked about the really big trade that brands have to make in order to get into Sephora?

Elizabeth Seagren: If you think about a brand like Sol de Janeiro, you know, a few years ago it was acquired by Lussie Tan for $100 million. And so the founder of Sol de Janeiro had a massive payday. And so it was totally worth it. But they do say that they are basically ceding control of their companies to Sephora. And that means that they're not making all of the decisions that a founder and a CEO typically would make. They're letting Sephora make decisions about things like packaging. There's a brand called Soft Services that creates beautiful skincare products. And it wanted to create these eco-friendly, refillable containers. But Sephora said, no, that's too complicated for us to sell in our store. So they basically had to redesign their packaging to make it disposable.

Elizabeth Seagren: These are the kinds of decisions that Sephora is helping them make. And, you know, there's a lot of pressure on them to sort of take all of this advice because that's basically the only way for these brands to hit the kind of scale that they're looking for.

Noelle King: I would imagine, Liz, that it's really hard for a company to go on record and say, you know, being associated with Sephora, being in the Sephora store was bad for us. Is anybody, will anybody talk openly about the downsides?

Elizabeth Seagren: Yes. And so the people who are willing to talk about the downsides are those who were in Sephora, but then got kicked out. And so I think that's another really important part of this. So there are 300 brands in store, and those brands are constantly rotating because there is a number of brands that are not selling at the rate that Sephora needs them to sell at. And so those brands get unceremoniously kicked out of the store. One very notable brand is J. Lowe's beauty brand. Even she, you know, her brand wasn't able to meet the targets that Sephora had set. And so these brands that are not able to succeed, their founders tell me things like, You know, it's kind of like a pay-to-play model because you have to pour so much money into Sephora in order to succeed that you're basically kind of on this hamster wheel, you know, trying to go out and get VC funding, pouring it into your brand so that you can meet Sephora's targets.

Elizabeth Seagren: And then, you know, that keeps going on and on and on. And it's a very stressful, expensive process. And so those founders would say that, yeah, there are a couple of brands that are big winners, but there are a lot of brands that really struggle to compete in this environment. And it's tough. It's tough to be independent. To be a small brand sounds great, full creative control, all wonderful. But as you've laid out, if you're not able to poke your head up above the parapets, so to speak, no one ever sees you.

Noelle King: That's right. And, you know, there are thousands of beauty brands on the market today. So the market is just so crowded that it is really hard to get anybody's attention. And so in order to succeed here, you really need a retail partner. And Sephora is known for being the most powerful of these retailers. But it comes at a cost. You're spending so much money at Sephora from the in-store fixtures to the samples that you see in stores. to even, you know, training up staff who will be able to do the marketing and doing the in-store trainings. All of this is very, very expensive. And so it's definitely a complicated calculation that founders need to make when they're trying to, you know, break into this world of Sephora.

Noelle King: So, Liz, it was capitalism all along. Everyone listening to this episode will be inside of a Sephora this weekend. I personally guarantee it. What should we think about this when we walk in for our concealer?

Elizabeth Seagren: I think that Sephora has created a really exciting in-store experience, and that's really hard to do. You know, across the retail landscape, we're seeing so many retailers shutter and close. And here is Sephora constantly innovating, creating these really, really exciting experiences for us. But I also think that it is creating this culture of excessive consumption. It's constantly cultivating our desire for new beauty trends. And it's making us feel like we'll never have enough makeup or shampoo or skincare to make us feel beautiful enough. And so that's really problematic as well.

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Noelle King: Fast Company senior writer Liz Seagren. Liz, thank you so much.

Elizabeth Seagren: Thank you.

Noelle King: Amaska Llewellyn produced today's show. Amina El-Sadi loves a red lip. Andrea Kristen's daughter exfoliates with coffee grounds. And Laura Bullard enjoys a little red light therapy. Patrick Boyd shampoos with Atelier Bloom. Most lux on the list. Go figure. The rest of our team, Avishai Artsy, Hadi Muagdi, Victoria Chamberlain, Peter Balanon-Rosen, Miles Bryan, Travis Larchuk, and Devin Schwartz. Jolie Myers is our Deputy EP and Miranda Kennedy is our EP, also pretty. Keep your third eye open for Sean Ramos-Furham at South by Southwest in Austin on March 8th. He's going to be talking to New Jersey native Rami Youssef. I'm Noelle King. It's Today Explained. Thank you.

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