Skincare Company Stratia Opens Contract Manufacturer Sespia To Serve Small Beauty Brands

Stratia, the science-forward direct-to-consumer skincare brand, is branching out to serve other brands with Sespia, a new contract manufacturing, formulation and fulfillment subsidiary.

As medium and big beauty manufacturers consolidate, Sespia’s objective is to fill a gap in the behind-the-scenes market for small brands getting squeezed out as minimum order quantities rise or being put at the back of the line as orders from their large competitors are prioritized. Specializing in skincare and haircare, it typically handles production of MOQs under 1,000 units and doesn’t have a monthly minimum order size requirement for fulfillment.

“As an independent DTC brand, we know the ebbs and flows of DTC and small independent brands,” says Alli Reed, founder of Stratia and Sespia. “We know there are periods where there’s a sudden flow of orders, and you need to make a batch quickly, not schedule it for eight weeks out. We also know there are periods where sales are slower, so we aren’t requiring you to schedule right away to take advantage of our offerings.”

In the nine years it’s been in business, Stratia has made four attempts to outsource logistics—one attempt led to a customer receiving dental floss instead of skincare and another led to Stratia’s products being placed in unnecessarily gargantuan boxes—and learned it was more efficient and affordable to keep it in-house, and Reed vows that its capabilities are more efficient and affordable for Sespia’s third-party clients, too. She declines to share the prices it charges them.

Sespia’s facility covers 20,000 square feet encompassing formulation, manufacturing equipment, fulfillment and office space in downtown Los Angeles. In its initial year, Reed anticipates it will account for 10% of Stratia’s revenues, but it could increase to 20% to 30% of its revenues in the years to come. She named Sespia for an extinct herbivore among the estimated 7% of animals that survived the asteroid that killed the dinosaurs.

If brands already own their formulas, Sespia welcomes technology transfers that allow it to make them with its equipment, with the brands retaining ownership. However, if brands don’t already have formula ownership, Sespia will own the formulas at the outset and coordinate with the brands to turn formula ownership to them after it produces a certain number of agreed upon units in its facility.

As beauty entrepreneurs understand the pain points of their small brands—for example, lack of responsiveness from and open communication with their beauty manufacturer—venturing into manufacturing for similar small brands isn’t unheard of. The brands Earth Harbor and American Provenance preceded Stratia in building manufacturing enterprises. American Provenance’s manufacturing offshoot is called Natural Contract Manufacturing.

“My No. 1 goal is to make sure that the people who work here are treated well.”

Sespia is entering contract manufacturing at a probable inflection point for the sector. President Donald Trump’s tariffs on China, the originating country of over 25,000 beauty goods sold in the United States, according to market research firm NielsenIQ, and possibly elsewhere has brands exploring U.S. manufacturing options. Today, NielsenIQ figures 7% of beauty products sold in the U.S. are manufactured domestically.

The focus on U.S. manufacturing could escalate scrutiny on quality assurance and labor practices in U.S. beauty factories. Reed reports Sespia pays employees above the minimum wage in LA and provides health care and unlimited sick leave. She says, “My No. 1 goal is to make sure that the people who work here are treated well.”

Simultaneously, the beauty industry is experiencing slower growth and a reduction in product launches. Business data resource eMarketer revised its U.S. beauty industry forecast for 2024 down to $99.57 billion from nearly $102 billion, and it predicts beauty sales will climb 5.5% this year, a rate above expected retail sales progress of 2.9% and above 2024’s beauty sales growth of 4.8%, but lower than beauty sales’ 11% growth in 2023. Market research firm Mintel’s data shows that beauty product launches were at an all-time low last year.

Reed doesn’t think the beauty product launch plunge is bad. “We reached an unsustainable level of launches hopping on every microtrend to see if something sticks,” she says. “Now because it’s harder to get capital, people are being more strategic. They are researching to see if a product will actually resonate, which leads to fewer launches, but, overall, a higher quality of launches. Beauty is starting to move away from the equivalent of fast fashion.”

At Stratia, Reed is embracing the slower pace. The brand’s sales are advancing at a single-digit clip. Compared to two years ago, its spending on paid social media advertising has decreased around 90%, and its contribution margin has tripled. Stratia has 10 products priced from $16 to $29, including bestsellers Liquid Gold, Rewind and Velvet Cleansing Milk. Outside of its own website, the brand is sold by New London Pharmacy, Senti Senti and Amazon.

In 2021, Stratia raised $2 million in funding from Fable Investments, the venture capital arm of Natura & Co., owner of Natura and Avon. Reed hasn’t felt pressure from Fable to supercharge the brand’s expansion. “They are in it for the long haul,” she says. Of retail, she adds, “I grew this brand from when I was mixing it in my kitchen. It’s really hard to give up control over it. So, it’s about finding the exact right partner at the exact right time and with the exact right circumstances.”

Speaking of partners, for brands vetting contract manufacturers, Reed advises they ensure their copackers have the ability to not only satisfy their current demand, but greater demand in the future. “Definitely talk to other brands and ask to tour their facility. If they don’t allow a tour, that’s a really big flag,” she says. “Really take your time, ask a lot of questions because it’s a big step. No matter how great your branding is, no matter how strong your social media presence is, if your product isn’t made right or isn’t made consistently and is always sold out, that can’t be overcome.”