If Beauty Is Doing So Great, Why Do Many Indie Beauty Brands Feel Like They’re Struggling?

In recent weeks, there’s been a deluge of media coverage attempting to decipher why Americans are sour on the United States economy when a slew of economic indicators, including unemployment, gross domestic product growth, job creation, inflation and the stock market, show that it’s in decent shape.

We decided, for the latest edition of our ongoing series posing questions relevant to indie beauty, we would explore similar beauty industry territory. According to market research firm Circana, prestige and mass beauty sales were up, respectively, 14% and 8% in the year through September. However, indie beauty brands often express concerns about the challenges they face in the current business environment, and several have revealed they’re shuttering, including MŪN, Luxe Botanics, Orosa, BalmLabs, Pleni, Soon Skincare and Elm Rd.

To help explain the disconnect between indie beauty brands’ experiences and the beauty market more generally, we asked 17 consultants and investors the following question: Why do many indie beauty brands seem to be struggling when the beauty industry as a whole is seeing strong growth?

Donnet Bruce Founder and Business Coach, Nubian Oasis

There are a few layers of complexity to the already challenging landscape that beauty brands navigate while working toward growth. A competitive market, limited fund resources and supply chain impacts can affect the growth of indie beauty businesses.

Even with the thriving beauty industry, many independent beauty brands still need help to thrive due to the market's competitive nature. Despite unique product offerings and commitment to niche markets, indie brands often need help achieving customer trust and recognition.

This makes it quite challenging to expand reach and achieve sustainable growth. Although attractive to a specific demographic, the specialized nature of products can sometimes limit the potential for broader market penetration.

Funding issues also pose a significant challenge for independent beauty brands. Access to financial resources, critical for everything from product development to marketing, can be limited. These resources include business bank loans, interest rates and investors. This can make it particularly challenging during periods of slow growth or times we are in right now.

In addition to funding hurdles, changes in the supply chain can have a significant impact on brands. Fluctuations in the availability or cost of raw materials can directly influence product pricing and production schedules.

Moreover, if a brand prides itself on using specific, niche ingredients, a disruption in sourcing these components can lead to an unforeseen increase in production costs. This increase often trickles down to the customer, leading to higher retail prices, which could potentially alienate a portion of a consumer base.

Jessica Chan Indie Beauty Brand Consultant

Indie brands have different objectives compared to larger, more established brands. While there are many reasons to be optimistic about where the industry is headed, that doesn’t make it any easier to launch or scale, which is the primary goal for most of these smaller brands.

If anything, it’s harder than ever before because consumers are smarter. Faced with their own economic instability, they are more discerning, seeking value in the brands they are willing to try.

Influencers, who indie brands depend on to grow in lieu of massive brand budgets, are also becoming more selective in the brands they support organically. Strategic partners, critical for scale and success, such as beauty retailers and investors are demanding performance from product and teams much earlier on.

Ultimately, these days, having a founder story is not enough. Having a good product is not enough. The two need to tie together and make sense so that everything from product to positioning to messaging is in perfect alignment.

This is actually a good sign. This holds brands to a higher standard. With the sustainability crisis, founders are challenged to be more purposeful, ensuring that we’re only creating products that have positive impact and move the industry forward in a meaningful way.

Ransley Carpio VP of Business Development and Head of Venture Investments, Front Row

2023 has certainly felt like a tale of two beauty economies. I think we’re amidst an industry “hangover” of sorts after a proliferation of brands flooded the market over the past number of years. It’s been tough for those that haven’t had a strong value proposition, weren’t capital efficient and/or didn’t adapt quickly enough to industry shifts.

That said, during that same time, we’ve also been introduced to new brands that have moved from strength to strength, catalyzing the industry’s resilience. They’ve buoyed the industry by absorbing market share from others, while also driving new customers into the category. As an investor and brand advocate, I try my best to develop a point of view on which are the brands who are indeed championing this shift change we’re all navigating.

Karen Hayes Founder, Indie Global Strategies

Just like in our personal lives, brand founders and their teams are not immune from the basic psychology of our often self-imposed pressure to keep up with the competition. Whether in the industry trades or in social, we are bombarded with stories about rocket-ship brands that are excelling—picked up by Sephora, winning awards, getting acquired.

We don’t hear about those brands’ struggles or all the other brands that are grappling with any number of challenges, building their businesses brick by brick. So, we feel we are alone in our struggles.

That said, both things can be true: Brands are doing well, and even those same brands are struggling.  Companies that are experiencing strong topline growth are also subject to a very challenging business environment.

At a macro level, there is still very low visibility—and a fair number of contradictory signals—on the big economic indicators like inflation, consumer confidence and recessionary pressures. As an example, BF/CM numbers came in strong for the beauty category, but softer for other consumer segments.

Beauty consumers are still buying, but many are either trading down or are holding out for discounts. So, there are positive signs amid strong headwinds, and it’s difficult to feel on solid footing in such an environment, even if you're experiencing growth.

Exacerbating the issue, brands are faced with rising costs for everything from labor to cost of goods to advertising expense. Earning and keeping a customer is more expensive than it was three years ago, and marketing tactics that used to be fail-safe have once again shifted. In a way this is nothing new, but you have a generation of new brands who are going through it for the first time.

Elizabeth Lim Strategic Advisor, Joyance Partners

The beauty industry has consistently proven to be resilient even amid economic uncertainty and in turbulent macroeconomic environments. Despite witnessing higher interest rates and declining consumer spending this year, the beauty continues strong growth compared to other consumer sectors. And, while the beauty industry as a whole is experiencing strong growth, many indie brands seem to be struggling due to several factors:

• Competition remains high with the continued flood of new brands launching on a daily basis while also trying to capture share away from the established brands. It’s important for brands to offer a unique value proposition along with a strong communication strategy to stand out and gain consumers’ trust and retention.
• Insufficient funding as fundraising became a grueling task for many indie brands this year. Without proven performance and a clear path to profitability, securing investments was challenging which led to limited resources for indie brands to grow.
• Limited resources can affect many facets of the business, including organizational structure, product innovation, marketing, distribution and more. Without resources to harness key tenets of brand building, indie brands will struggle. Cash management, strategic planning and cost efficiency will be crucial when operating with smaller budgets. Make every single penny count towards your goals.
• Distribution challenges as retailers tend to support more established brands that can drive sales during risk adverse times. Equally, indie brands who are able to secure placement on retail shelves should secure enough resources to succeed in store. This may include funds for efficient supply chain, sampling, merchandising units, signage, promotional participation, standard chargebacks and more. Fostering strong relationships with buyers can be beneficial as indie brands can gain valuable insights that leads to more visibility and positive customer experiences that generate sales.

Indie brands should remain steadfast and stay agile when necessary. A commitment to quality and innovation, focusing on niche markets and implementing a 360-degree marketing approach that builds trust with consumers will help indie brands overcome struggles and find success in the new year.

Ivana Pur Founder and President, Living Pur Cosmetic Consulting

The beauty market is thriving, but it is overcrowded. Today, thanks to social media marketing, the rise of online shopping and accessible manufacturing options, including white and private labels, it is easier than ever to start a cosmetic brand, but it is much harder to carve out a white space in the very saturated market.

Products that will stick long term need to have a unique value proposition. What is new and exciting about your product? What unmet needs are you addressing? And are you able to capture the attention of your ideal, target consumer?

Some brands like to cast a big net and go after every consumer they can reach in hopes of higher sales. This is, in my opinion, a big mistake for an indie brand. Consumers today are not just looking for a good product, they want a product that speaks to them, and they seek out brands who share their values.

Another big no-no that I see is indie brands trying to compete on price with the big players. It takes almost the same amount of money and resources to develop a mass market product and a high–end, luxe product. And L’Oréals of the world have all the resources and know–how to beat you on price.

Thanks to their large quantities, big companies can negotiate insanely better prices of raw materials, packaging components and pretty much everything else. So, an indie brand that tries to compete on price often eats up its own margins and prices themselves into oblivion.

This pricing strategy also backfires when a DTC indie brand decides to go into retail. If they didn’t price their products high enough, their profit margins might be gone after big retailers take their 50% to 60% or more in the case of international distributors.

And, ultimately, consumers will only repurchase products that perform. Indie brands sometimes cut corners on R&D and formula development and testing due to budget constraints or lack of know–how, but cutting corners here will give you a subpar product, resulting in less repeat customers.

Since indie brand customer acquisition cost can be very high, keeping your customers is the key to long term success. This is why I always tell smaller brands I work with to invest in a good cosmetic chemist, contract manufacturer and all necessary product testing. Otherwise, you might end up being penny wise and pound foolish.

Aggie Burnett Founder, AB Creative

Supply chain costs are the biggest hurdles indie beauty brands face now. So, while top-line revenue may be increasing, margins are tightening, thus profit is shrinking. This results in brands having less disposable income to reinvest in the business at a time when pay-to-play is almost unavoidable.

The path forward thus is to increase pricing, unfortunately, to have a sustainable business that can last for the long run. Many brands are not regularly assessing their profitability, and if they are, they may not be increasing their pricing proportionally with the increase in costs.

Lila Sharifian Fractional CFO for Consumer Products, Stage 1 Financial

Broadly speaking, indie brands tend to have smaller teams, smaller budgets, less cash and lower brand awareness. When investors and lenders are cautious like they have been this year, it is more difficult for indie brands to raise capital, which exacerbates the aforementioned challenges.

Distribution also plays a role. For example, DTC hasn’t been the high-growth, high-profit channel it was during the peak of the COVID pandemic, and indie brands who relied more heavily on their own e-commerce have had to recalibrate their distribution strategy and mix.

Sloan Symington Marketing and Brand Consultant

The indie brands that are making the biggest splash right now in the beauty space are the ones who are leaning into the authenticity of social media platforms like TikTok. When brands act like there's real, everyday people behind them, that resonates with consumers.

We're all so tired of being told the benefits of Vitamin C. I think people expect more than that from beauty brands. In general, I think the indie brands that are going to win at the end of the day are the ones that are working on diversifying their revenue (omnichannel is a must), leaning into the human element of beauty and partnerships (be it influencer, brand or like-minded beauty brands).

If you're an indie brand reading this wondering how to break through, it's likely just getting in front of the camera and talking in your lane of expertise. Your audience will find you if you put it out there consistently.

Rose Fernandez Beauty Industry Expert and Advisor

There are a massive number of indie brands as we know, with more launching all the time. A sea of sameness has continued to emerge.

Brands must have strong DNA that emanates at every touch point, incredible product that works and is differentiated, grounded in science and/or formulas that can deliver as promised with a clear view on their mandatories. Biotech-derived ingredients, natural, clean, cruelty-free, vegan, sustainability efforts, etc., all these items are table stakes at this point. It’s how the brands that are winning have their share of wallet from the beauty consumer.

There are indie brands weak in these areas that are relying heavily on promotion and discounting at the expense of margin and customer loyalty. I have observed several brands with heavy discounting most of the year well into the holiday timeframe.

The other harsh reality is that cash is tight for most Indie brands, and without clear strategic vision and focus, the reactive promotional tactics guarantees poor performance.

Kemper Brennan Founder, Bravura

While the industry may be seeing growth overall, the space is extremely crowded. The brands that have strong storytelling and the budgets to get in front of millions of consumers are winning.

Unfortunately, it is becoming harder and harder to get the visibility needed without major marketing budgets, a savvy marketing team and retail partnerships to help access consumers which several indies just don't have.

Founder-facing brands with authentic storytelling and activated communities are also winning the race when it comes to building their wholesale channels for commercial success.

Meredith Kerekes Principal, Working Title Ventures

This is a necessary market correction as the indie beauty space has been oversaturated in past years with too many similarly positioned brands.

Allison Slater Ray President, ASR Consulting

There is such an influx of indie brands today and new ones launching every day. The customer has too many choices and is more discerning than ever. So, breaking through the noise to reach your target customer is becoming more and more challenging.

In addition, once you've made the large investment in developing and launching a brand, there's little money left to invest in marketing. The indie brands that will break through have differentiated product, clear messaging and creative ways to reach their customers. And as any brand founder will tell you, it takes more money and more time than you ever imagined!

Angelica Kanter VP of Business Development, The Beauty Connectors

In my opinion, perhaps the reason some indie brands seem to be struggling is the lack of budget to promote brand awareness in in a climate where consumers and even beauty professionals are seeing what’s in the digital space (i.e., TikTok, Instagram. Consumers and beauty buyers in the retail space alike also look at followers and engagement to add to a brand’s validity.

Jessica Fisher Founder, The Marina Consulting

The indie beauty segment is crowded and highly competitive. The onus is on smaller brands to cut through the noise by offering a unique value proposition to consumers and retailers. They need to clearly articulate why they deserve the customers' attention and share of wallet.

With the sheer number of brands that launch every month, it is important for brands to have a clear messaging strategy, develop a loyal community and find retail partners that will offer opportunities to connect with their clientele.

Leila Rochet Chief Inspiration Officer, Cosmetics Inspiration & Creation

Indie brands must consistently stay relevant and appealing in today's market. Modern consumers are adept at managing their budgets, are well-informed and are willing to invest in products that offer value.

To sustain their allure, indie brands should focus on continuous innovation across various elements, including the narrative and product performance, and must stay ahead of emerging trends. 

Lipika Hegde Product Development Consultant

The beauty industry is experiencing remarkable growth through viral TikTok and short-form content, propelling brands to prominence. While some brands dominate, the industry remains resilient despite economic slowdown.

Innovation and storytelling are crucial for brand sustainability, as consumer purchasing power may be affected, yet the desire for trending products persists. Although micro-level conceptual growth is lacking, the overarching view indicates the industry's overall success.

If you have a question you’d like Beauty Independent to ask beauty investors and consultants, please send it to editor@beautyindependent.com.