Realizing The $2.6B Opportunity Beauty Is Missing By Not Fully Supporting Black-Founded Brands

In the wake of George Floyd’s murder, consumers, retailers and media companies rushed to support Black-owned businesses in an attempt to level a playing field that was historically off-kilter.

It seemed the country had woken up—or at least opened its eyes slightly—to the injustices and barriers to advancement faced by Black people. Companies and consumers took action. The former pledged to change boardrooms and behavior, and the latter sent sales at Black-owned brands soaring. Now, more than two years out from the racial awakening, a new report by McKinsey Black Economic Mobility Institute indicates that not enough was done, and the beauty industry has a long way to go to achieve an equitable market. The management consultancy estimates it’s leaving $2.6 billion on the table by not fostering a supportive ecosystem for Black-founded and -owned beauty brands.

In 2020, it appeared that the beauty industry could have a different future. The Lip Bar was among the myriad of Black-owned beauty brands that saw sales spike that year, when its daily till jumped 40% to 60%. Back then, eight years into its business, the makeup brand had experienced virality, but the past virality didn’t prepare founder Melissa Butler for the incredible cascade of orders. Reflecting on the phenomenon, though, she characterizes those that flocked to the brand in 2020 as low-quality. “We got lots of customers, but they were really just there for support,” says Butler. “They were buying their one purchase to clear their conscious, and it made it very difficult the following year to chase those numbers.”

The customer rush created a false impression of the environment for Black beauty entrepreneurs’ businesses. As Butler explains, in response to spikes in sales, some getting their first real taste of success hired staff or purchased inventory they couldn’t necessarily afford in anticipation of customers sticking around. For the most part, they didn’t.

While it’s complicated to tease out the multiplicity of factors affecting businesses, the fallout from those decisions is hurting businesses today. A 2022 state of small business report by technology and social media company Meta found that, compared to last year, businesses run by underrepresented founders are 14% likelier to report lower sales than other businesses. The report further found that sales at 51% of Black-owned businesses were at record lows compared to January 2021 versus 36% of businesses in the United States on the whole. Out of all the businesses, Black-owned businesses are the likeliest to report closing in the past year as a result of pandemic-related issues and a decline in demand.

Data provided by global measurement and data analytics firm NielsenIQ shows a substantial lift in search interest for Black-owned brands in June and July of 2020, and slight bumps during the holiday shopping season, Black History Month, and June and July of 2021. However, interest flatlines outside of those periods.

There was a substantial lift in search interest for Black-owned brands in the wake of the murder of George Floyd in 2020, but it tailed off after.

The Lip Bar’s typical customer retention rate is 39%, but customers from the Black business-focused stretch of 2020 stuck around at less than half of that rate. “When you get a new customer into your sales funnel, your goal is to get them into other parts of your business, but, if those customers had no intention of being upsold, then it really puts us in a position where we misuse our already limited resources,” says Butler. “Black-owned businesses, women-owned businesses don’t need your support, what we need is loyal customers. We need people who are actually interested in the business and the story and the product and the value we are offering. Because if you believe in the value, that means that we have a high likelihood to retain you.”

In 2020, Pholk Beauty went from receiving five orders a day to 100 in a matter of two weeks. Founder Niambi Cacchioli expected the flood to slow, but she seized the spotlight—and the 200 press impressions her skincare brand garnered—to secure wholesale partnerships. Pholk Beauty launched with Credo in March 2021 followed by Goop and Thirteen Lune.

“I realized that the opportunities for getting on the shelves may not last forever for Black-owned brands, so let me say yes to this,” says Cacchioli. Seizing the retail opportunities paid off. With 2020 in the rearview mirror, she says, “We’ve had a drop in our DTC sales, but, at the same time, retail has really taken off, and I think financially we are a much stronger and a much more viable brand than we were in 2020.”

According to the report by McKinsey, beauty products by Black-owned brands account for under 7% of the beauty products on store shelves and capture only 2.4% of beauty revenue despite Black beauty shoppers being responsible for 11.1% of beauty sales. In efforts after George Floyd’s death to rectify representation disparities at stores, Ulta Beauty, Sephora, Credo and Nordstrom agreed to the Fifteen Percent Pledge, an initiative started by fashion designer Aurora James to push retailers to commit 15% of their shelf space to Black-owned brands, and select retailers implemented accelerator programs to assist Black-owned brands.

Ulta shares that it met a goal to double the number of Black-owned brands—from 13 to 27—it carried by 2021. Currently, it offers 35 Black-owned and -founded brands, a figure that constitutes roughly 5.8% of its total assortment of 600-plus brands. Target has increased its spending on Black-owned companies by more than 50% over 2020 and doubled the number of Black-owned brands within its assortment. It stocks over 100 across every major product category.

Bringing Black-owned brands into stores doesn’t mean they’ll remain there, and retailers have been faulted for celebrating short-term gains related to Black-owned businesses without setting them up for the long term. Accelerator programs instituted by Target, Sephora and Ulta are intended to guide brands on the ins and outs of retailing in order to fortify their wholesale operations and keep them on shelves. In addition, Ulta dedicated more than $10 million this year to market Black-owned, -founded and -led brands, up from $6 million in 2021.

The Lip Bar founder Melissa Butler

Rosen Skincare founder Jamika Martin says her brand has been supported by Target’s and Ulta’s marketing initiatives and by fair terms from the retailers. Calvin Quallis, founder of Scotch Porter, says his grooming brand’s retail partners have been “more supportive than I would have thought.” Scotch Porter’s products entered Target and Walmart in March 2020, and Target has offered it off-shelf and endcap placement. Quallis was in a national campaign for Target last year featuring BIPOC brand founders. “That kind of additional support makes a difference in terms of helping a brand to perform really well at retail,” he says.

It’s great when retailers grab headlines for their initiatives aimed at Black-founded brands, but Young King Hair Care co-founder Stefan Miller says retailers should pay attention to them when there’s no headlines involved. He asks, “How are we getting the opportunities outside of just Black-owned? How am I showing up in just a regular spring activation versus a Black History Month one? How can retailers provide more opportunities in those non-identifying ways so that your product can stand not just based on the person that made the product?” His wife and Young King co-founder Cora Miller chimes in, “For example, we serve kids and young people, so back to school is a really important time for us. The holiday are really important for all brands. So, just thinking about those bigger moments where small brands like ours can get those extra eyes.”

Along with often being spotlighted solely or primarily during Black History Month, Black-owned brands have been segregated into Black-owned sections in stores. “It’s one thing to put us in your stores, but also it’s another to then segment us out from just your general assortment,” says Brianna Arps, founder of fragrance brand Moodeaux. “When we say inclusion and representation, we don’t mean inclusive representation on just one particular shelf. We want to really be immersed with the other retail offerings.” She lauds Credo for how it’s incorporating Moodeaux. Arps says, “The spotlight isn’t necessarily on the fact that I am the first Black-owned fragrance in the store, it’s really just that this is a great product that our community would love.”

Isolating Black-owned brands can send the erroneous message that they’re only for Black people. “There are very few companies that are only for Black people, specifically when you look at the entire beauty landscape and even brands that are Black-founded or Black-led,” says Butler. She underscores that it’s up to retailers, editors and consumers to alter their thinking and reverse biases. “If we don’t get in front of that, we will continue to permeate this idea that Black brands have to stay small, that they are not universal, that they are not true solutions for humans,” she says. “Because, at the end of the day, it’s just about humanity, it’s not about your skin color.”

Beauty retailers have enacted initiatives to add Black-owned and -founded brands into their assortments, and used their accelerator programs to help them understand the ins and outs of retail to support long-term business at stores.

McKinsey suggests a step retailers can take that they haven’t to bolster Black-owned brands is open stores in “beauty deserts” where Black consumers tend to live. The consultancy’s report says, “Many chains choose new locations based on their existing footprint, expanding only into locations that match sites with currently successful stores. Since retailers perceive low-access locations as risky or unprofitable, being the first to populate relatively empty retail landscapes falls low on the list of priority investments. Yet our analysis indicates that these can be profitable moves.”

A lack of diversity perennially plagues the management of leading beauty companies and retailers. McKinsey asserts hiring more Black employees in positions of power at them would “significantly influence product placement and radiation, including product design and development, merchandising and brand management, marketing, and store operations.” On top of generating better products for a panoply of consumers, McKinsey reasons diversifying the ranks would boost sales, too.

For emerging Black-owned brands, access to capital is a game changer. Rosen, The Lip Bar, Young King and Scotch Porter are in a rarefied group of Black-owned brands that have drawn in excess of $1 million in outside funding. Scotch Porter announced in April that it closed an $11 million series B round. As of August last year, a mere 16 Black-founded beauty brands had obtained venture capital funding. Overall, 213 beauty brands had reeled in VC funds. The VC funding amount Black-founded beauty brands obtain is less than the amount of non-Black-founded brands. Black-owned beauty brands raised a median of $13 million. Others raised a median of $20 million. Early-stage Black-founded beauty companies raise 64% percent less in VC funding than early-stage non-Black-founded beauty companies.

The report states, “Without sufficient funding, and with weak industry-specific social networks, Black beauty brands can struggle to recruit and retain top talent, to scale up, and to operate at their full potential. Being hampered in this way makes it hard to meet the operational expectations of retailers or funders, leading to a vicious circle where the repercussions of operating below par can lead to a lack of further funding.”

Scotch_Porter_CEO _and_founder_Calvin_Quallis
Scotch Porter CEO and founder Calvin Quallis

Julian Addo, founder of Adwoa, theorizes that Black-owned brands that received support in 2020 have weakened because those brands have largely not drawn external funding. Her haircare brand has been self-funded since its launch in 2017, but it’s in the process of fundraising. “It takes more than just knee-jerk reactions and pity for Black businesses to grow,” she says. “You cannot make money without money.”

Quallis stresses that enacting real, measurable change will take a 360-degree approach with participation from a host of stakeholders. McKinsey’s report concurs, stating, “Better serving Black consumers and supporting Black beauty brands could lead to greater equity across the entire beauty industry—for shoppers, entrepreneurs, large beauty houses, retailers, and investors.” The deep and wide approach is essential because, from Quallis’s perspective, the efforts from 2020 haven’t caused lasting improvement.

“We’re still having the same conversations and, unfortunately, experiencing the same issues as it relates to fighting for investment and social justice and equality and a bunch of other things,” he says. “There is a lot more work to do, but I think the one thing that I have learned is to stay committed to building a brand that has a purpose with a strong mission behind it. One of the things that always sticks in my mind is the word ‘legacy’ and how important it is for brands like Scotch Porter and others to succeed and do well in order to act as a pinnacle so that, when folks go to consider other brands of color, they give them a shot.”

KEY TAKEAWAYS

  • Two years ago, companies and consumers rushed to support Black-owned brands in the wake of the murder of George Floyd.
  • Two years later, there's plenty of progress yet to be made toward racial equity in the beauty industry.
  • In a recent report, McKinsey & Co. estimates the beauty industry is leaving $2.6 billion on the table by not cultivating a supportive ecosystem for Black-owned and -founded brands.
  • Currently, Black-owned companies are closing and experiencing sales drops at greater numbers than companies not owned by Black entrepreneurs.
  • The sales rush in the wake of George Floyd's murder had an unforeseen consequence as brands investing in staff and inventory as a result of it suffered substantially later when it vanished.
  • When they're brought into stores, Black-owned beauty brands are frequently isolated in Black beauty sections and spotlighted only or primarily during Black History Month.
  • Inadequate access to capital is a huge impediment to the growth of Black-founded and -owned brands.
  • McKinsey recommends retailers open shops in "beauty deserts" where they don't have locations and Black people tend to live, and beauty companies address the persistent lack of diversity in their workforces, particularly at the management level.
  • It will take effort on the part of the beauty industry's multiple stakeholders, including investors, editors, consumers, big and small brands and retailers, and entrepreneurs, to make lasting change addressing racial disparities.