What Does Glossier’s Impending Sephora Launch Signal About DTC Distribution In The Beauty Industry?
Last week, Glossier, a brand that epitomized the direct-to-consumer craze of the mid-to-late 2010s, announced Sephora will start carrying its products both online and in stores across the United States and Canada in early 2023. Glossier had short-lived pop-up shops at Nordstrom in 2019, but the brand’s Sephora entrance will mark its first long-term retail partnership.
Launched in 2014 as an offshoot of founder and former CEO Emily Weiss’s digital beauty industry fanzine Into The Gloss, Glossier quickly established itself as the ultimate no-makeup-makeup millennial brand. Its sleek understated packaging, dewy skin products and “real people” campaigns were antidotes to the Kardashian-style aesthetic cresting on social media.
Besides its website, beauty consumers could only shop Glossier’s assortment at the brand’s so-called showrooms, a restrictive distribution approach that added to its mystique. In 2018, Glossier reportedly surpassed $100 million in sales. The next year, it reached unicorn status with a $1.2 billion valuation. Last year, it secured $80 million at a $1.8 billion valuation. In total, Glossier has amassed about $266 million in funding.
Glossier’s reputation isn’t nearly as glossy as it once was. In the last few years, it came under fire from employees who accused it of racism and a toxic company culture, shuttered brick-and-mortar stores due to the pandemic, instituted two rounds of layoffs and appointed Kyle Leahy, who joined Glossier as chief commercial officer in 2021, as its CEO to replace Weiss. In light of Glossier’s rockiness, the Sephora move could be viewed as a last-ditch effort to salvage its business.
However, Glossier has plenty it can boast about. Its name still has cachet with many beauty consumers, and it achieved more than most beauty brands have in digital distribution, albeit initially when customer acquisition costs were lower and competition was less fierce. Today, the online landscape is crowded and unforgiving, and people want to be able to shop their favorite brands anywhere, anytime.
Adapting to contemporary consumers’ demands, Glossier is coupling its Sephora partnership with continued expansion of its own stores. So far this year, it opened locations in Washington D.C., London, Los Angeles, Miami and Seattle. Locations in Atlanta, Brooklyn and Philadelphia are set to open soon.
To further explore Glossier’s omnichannel shift, we asked 11 investors, e-commerce specialists, brand founders and beauty industry experts the following questions: What does Glossier’s Sephora partnership say about the evolution of DTC beauty brands? Do you think DTC brands can no longer be as successful as they once were in the industry?
- Rich Gersten Co-Founder and Managing Partner, True Beauty Ventures
We have been strong believers in an omnichannel strategy even before it was cool to say that. When we pitched the importance of omnichannel for beauty and wellness brands during our 2020 fundraise, people told us we were crazy, and that retail was dead.
I think Glossier's launch into Sephora is the latest example that proves we were right. To scale a beauty brand profitably, you must be in retail channels.
The Glossier x Sephora partnership makes a ton of sense. Sephora is looking for brands that drive demand and will bring more consumers into their stores, and although Glossier has had its up and downs, at the end of the day, people use a lot of their core products.
Also, for those who might not have tried Glossier in the past because they couldn't touch/feel/try it in store if they were not in major cities like LA, NY and Miami, they now will have a chance to discover the brand in Sephora. Sephora is great at amplifying a brand that already has strong awareness. Through animations, merchandising and brand building activities, both Glossier and Sephora have a lot of potential upside from the two joining together.
While omnichannel is so important, that doesn't mean disruption can't come from the DTC channel. Many indie brands who ultimately take market share from the legacy brands begin their journey online. Owning that customer relationship and speaking with your customer on a one-on-one basis is incredibly valuable to a brand.
DTC should always be an important part of a brand’s growth strategy, just not the only one. The natural next best step for a brand who has generated buzz online is to exploit that buzz with a strong anchor retail partnership to accelerate growth and expand awareness.
Over the past decade, the industry—both consumers and investors—have become obsessed with the concept of digitally native DTC brands: Glossier, Away, Casper, Allbirds, etc. While DTC is ideal for premium branding, distribution control and consumer education, it doesn’t necessarily write the recipe for brand growth.
There is a certain growth cap you eventually reach as a DTC-only brand, limiting yourself to one channel, before the need for retail distribution comes in. DTC brands are realizing this and have been expanding quietly. The key is to find the right partner. For example, Madison Reed entered Ulta Beauty and then Ulta Beauty at Target this year, while Allbirds entered Nordstrom in May.
The beauty consumer’s path-to-purchase journey is omnichannel, not linear. Glossier recognized that, as CEO Kyle Leahy commented that the Sephora partnership "marks a new chapter in our omnichannel strategy." For example, consumers can discover on social media, research on DTC, test out a sample at Ulta or Sephora and ultimately buy at a digital retailer (Amazon, Target, Walmart). Having one very strong retail partner can be the game changer for a brand's business. Fenty Beauty has clearly demonstrated this with Sephora.
Brands must meet consumers where they are in their purchase journey rather than limiting them to one channel. In this case, Glossier's consumer is already at Sephora. As the queen of DTC brands, Glossier entering Sephora clearly indicates that they are focused on omnichannel growth and are prepared to take the brand to the next level. I am confident this launch will be wildly successful and the next chapter in Glossier's evolution.
- Neil Saunders Managing Director, GlobalData
Digital-only distribution is relatively easy to set up and initiate, which is why a lot of direct-to-consumer beauty brands choose that model for their initial foray into the market. The problem comes when those brands want to expand their reach.
Digital-only models are not so good at consistently delivering on that goal. There are a few reasons for this. Digital marketing and the cost of acquiring new digital customers is becoming more and more expensive, and the economics often don’t stack up.
Digital doesn’t always allow consumers to connect and engage with a brand in a deep and meaningful way. And most beauty sales are still made through stores, which is also where people like to discover and try new products.
On top of this there is also the cost of fulfillment. Beauty is nowhere near the lowest-margin category, but, even so, packaging, shipping and dealing with returns all erode margins. Comparatively, wholesale is usually a much more profitable route to market.
Against this backdrop, it makes sense for Glossier to look to physical retail to expand their reach and bolster their profits. Sephora is a great partner as it is a powerhouse of innovation and attracts beauty-lovers who are receptive to trying new brands. With a presence in Sephora, Glossier should be able help both its top and bottom lines.
Does this signal that digital direct-to-consumer is dead? Not really. Glossier isn’t giving up on the channel, and nor are many other brands. The point that really comes out of this is that as most beauty brands mature and grow, they need multiple routes to market to be successful.
- Joel Palix Founder, Palix Unlimited
When it was launched, Glossier was an original brand created around what was then called a blog. It combined a strong community of followers and a line of distinctive products. In my opinion, the brand did not keep up with the same level of innovation overtime.
The execution of new products, market openings and retail developments somewhat lacked consistency. Sephora is a great chance to reboot the brand and recruit new customers if it is accompanied by constant innovation that surprises and delights consumers.
Because the brand is so iconic of a pure beauty DTC model, it does send a signal to the industry that omnichannel is the best model for most beauty and wellness brands. However, everyone has been saying this for a year or two now.
I still believe some specific concepts can gain success in a direct-to-consumer model. For example, when products are highly personalized or combined with a high level of individualized services such as an online app or based on a subscription.
And I still think the most disruptive brands get born online because it is such a powerful model to create a community of early adopters that will become the co-creators and ambassadors of your brand.
- Ryan Babenzien Founder, Jolie
As someone who founded a brand in the heyday of the DTC movement, I can honestly say that there shouldn't be a DTC-only strategy for any brand. Brands should show up where the customer is and should think of DTC as a distribution channel, not a business strategy.
There was a very brief moment in time where you could arbitrage quality traffic for very little cost, and in the beginning, that allowed DTC to appear to be this new way of building a business.
But as soon as Facebook dialed in their ad model and started charging more and more to acquire customers, the DTC-only model collapsed. I still believe launching digitally is important and having robust direct business matters, but having multiple channels for the customer to experience/transact with the brand is what all brands should strive for.
That means direct, wholesale, digital marketplaces and owned retail, but not just one. The percentage of business a brand does in each of the channels will be unique and should likely be majority direct, but not 100% direct. Frankly, I'm surprised Glossier has not gotten to this point sooner, and I absolutely agree that it's the right strategy.
- Laura Meyer Founder and CEO, Envision Horizons
2014, the year Glossier launched, was also during what I consider the Facebook marketing gold rush. This allowed Glossier to acquire customers at phenomenal acquisition costs, but, in the last two years, digital marketing costs have skyrocketed and effectiveness has declined. The two main reasons being the iOS14 update and the large volume of brands rushing to digital platforms during the pandemic.
As a result, many DTC brands have had to explore alternative ways to reach new audiences. Moving forward, consumer brands with large growth initiatives will need to be multichannel to survive and to ever have a chance of turning a profit.
Retail isn’t dead, it’s simply evolving. Traditional brick-and-mortar brands need to become digitally savvy and the digitally savvy will need to learn traditional retail. I think this is a great move for Glossier, and I hope they find the partnership successful!
- Ransley Carpio VP of Business Development, Fortress Brand
Since launching in 2014, Glossier set the tone for DTC-at-all-costs driven by an unparalleled community of fans who manifested their emotional connection to the brand via conversion and loyalty. However, Glossier customers like many customers today have shifted their desire to interact more frequently with their brand(s) of choice in IRL environments. For Glossier, this meant supplementing their stores in select metropolitan cities. Enter Sephora.
It’s been reported that Glossier is already one of the most searched brands on Sephora's website. With this built-in demand, I suspect this will be one of the more exciting combinations in recent memory or at least one of the most talked about. I will personally be watching whether Glossier can continue to maintain its strong brand-building identity within someone else’s environment and if they can clean up recent product diversion in other channels ahead of the launch.
Moreover, this partnership exemplifies a trend we’ve been observing for the past couple of years: Brands choosing a primary retail partner earlier in their life cycle. Further, many of them elect to choose inclusive, masstige retailers such as Sephora, Ulta, Target or even Walmart.
Compelling masstige offerings from exciting new brands, a new breed of consumers who are hungry for in-store consumption, and reduced economic sustainability with the DTC-only model, we believe that brands who are thinking omnichannel early will be better positioned to win in today’s consumer climate.
- Cynthia Matar Head of Platform, Swiftarc Ventures
Glossier’s foray into wholesale is truly a watershed moment and a bold, yet necessary move that marks the importance of retail distribution for brand success. Considering the current landscape of the market and the rising effect of macroeconomic factors on brands today, omnichannel capabilities have pivoted from a “should-have” to a “must-have” in order to be agile in this ever changing market.
The golden age of DTC as we once knew it is no longer as we’re witnessing a new era where DTC is only part of the strategy. Brands are now pressured to adapt by meeting consumers where they are. This partnership will be pivotal in reaching an abundance of new customers amid rising online acquisition costs. Strong, strategic retail partnerships are key to sales growth, and in this case, will only elevate the established presence that Glossier has built with its consumers.
- Jodi Katz Founder and Creative Director, Base Beauty Creative Agency
The beauty industry is really saturated, and all brands have to work harder than ever to rise above the clutter and get noticed. To scale a business like Glossier with the growth expected by investors, a successful marketing approach must encompass all ways to reach the end user: brand-owned DTC, brand-owned retail/pop-ups, third-party e-commerce and third-party in store, a true omnichannel distribution strategy.
The Glossier/Sephora partnership is a reminder that nothing can ever replace human touch and connection, and a brick-and-mortar distribution provides an experience for the consumer like no other.
- Odile Roujol Founding Partner, Fab Co-Creative Studio Ventures
The best partnerships for retailers are built with brands that can do one of or all of the following three things: truly fix a problem, tackle underserved needs or be just that hot, trendy brand that can help drive traffic. Glossier can generate traffic for Sephora in stores as long as they keep their edge and focus on what matters most to customers: delivering great products.
More than ever, direct-to-consumer brands are powered by their community. They gain a deep understanding of their customers more and more everyday, and through that process, can improve both their customers’ experiences and their own products.
Retail partnerships are a way to scale faster but, in the end, a brand’s value comes down to the data that it owns. This is especially true when a brand is being acquired. No global brand, even with sustainable growth, can match that in an era where things move fast. That's the secret power of DTC brands.
- Mehir Sethi Founder and CEO, True + Luscious
The digitally native, DTC business model is taking a beating across all categories in this economy. I’ve personally been wary of this with my own business. Having multiple revenue streams (Amazon, DTC, wholesale/retail) has proved to be a key factor in our survival as a brand.
Having said that, I don’t believe we can apply Glossier’s trajectory and pivot to omnichannel/wholesale to the entire beauty industry in general. As a standalone case, it doesn’t bode well for the brand, especially if we look at the chain of events that preceded this move: shuttering of its Glossier Play division, staff layoffs, downsizing, plus its products currently appearing at T.J. Maxx.
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