Birchbox: Beauty Business for Modern Times
I like Birchbox. I like it A LOT. I like it fine as a subscription beauty service, but I like it most as a business and a modern retailer.
For those of you who are not on the verge of crushing and snorting cosmetics like some of us, Birchbox is a monthly subscription service which sends you a box of 5-6 samples ranging from skincare to makeup to haircare. Harvard Business School grads Katie Beauchamp and Hayley Barna founded Birchbox in 2010 with $1.4 investment from First Round and Accel Partners. (The last estimated valuation of the company was $485 million in 2014, despite later developments such as Barna leaving the company, two round of layoffs in Birchbox staff, and growing customer base.) It has one brick and mortar store, its beautiful SoHo headquarters which opened in 2014. And despite Beauchamp having commented in the last few months that Birchbox has transitioned into a profitability mode from a growth mode, WWD reported recently that Birchbox will be opening its second brick and mortar store in Paris in Spring 2017. France is in fact the biggest European market Birchbox has after having acquired Jolie Box in 2012, and it also operates in U.K. and Spain.
(You can see the Birchbox store below, and I'd highly, highly recommend making a stop there if you are in New York.)
The monthly subscribers to Birchbox are currently around 1 million people - both men and women, after the launch of Birchbox Man in 2012. A million subscribers for a monthly beauty box subscription that has only been around for 6 years is quite impressive you guys. This is not cable TV. I mean HBO Now has 1 million subscribers, and they have Game of Thrones and Westworld.
The amount of subscribers is also central to Birchbox as 65% of its revenue comes from monthly subscriptions while the other 35% comes from full-size purchases, as WWD reports. In other words, it is both important to keep the subscriber numbers high, but also have good conversion rates to full-size purchases - which Birchbox seems to be doing better than a lot of retailers in that it converts 50% of its subscribers to full-size product purchasers. And this not only helps Birchbox, but also its competitors like Sephora and Ultra, which get a 5% and 6% boost from new Birchbox subscribers as reported by Bloomberg.
However as Beauchamp points out, Birchbox is not actually in the business of selling samples. It wants to be a competitor in the proper beauty market, but do it by curation and sampling - where users “experience” the products and finding out what they like. From star to finish, Birchbox is the business of introducing people to new and ideally better product, allowing them to use it at least a couple times, and being the retailer one buys the full size products easily on mobile, online or at the store. Furthermore, for many (including me), receiving that month’s Birchbox in your mailbox is an exciting experience in itself. In fact, as WWD suggests: "The unboxing experience can be a real ritual for many customers, something to which they look forward, even posting videos and photos across social channels as they open their latest shipment. Fostering community around your brand, which encourages that kind of viral component in the experience, provides a great way to reach Millennial customers."
The "unboxing ritual" - especially the way it is shared on social media - has become a "thing" and a business driver on its own. It is no small feat in an economy that capitalizes on experience. Brands have always cared a good deal about their packaging so much so that trend forecasting services such as WGSN keep track of packaging in the beauty industry as they keep track of the product itself. Granted, it makes a huge difference for a lot of consumers that the products not only work, but also look alluring enough to purchase in the first place. But the socially-shared unboxing experience takes the importance of packaging design to a new level, and increases the impact of product experience - an especially important piece of the business for subscription services like Birchbox.
(To be perfectly honest, I don’t always love my samples - not necessarily because they are not good, but because I don’t really care for that kind of product. I mean already have Mediterranean eyebrows that do not need extra filling in unless I want to house a pair of caterpillars on my face. Despite that, it is always fun to try out new things that always seem like they are free because you haven’t paid for them in the last 30 minutes - evil genius retailing yo. Separating the purchase from the time you receive it makes all the difference in the world, especially for repeated payment purchases like subscriptions.)
Another advantage Birchbox has is that a lot of its customer base already shops Birchbox on their mobile. Mobile purchasing is different from online purchasing in that mobile purchasing is expected to take over 45% of the entire e-commerce market in the U.S. Think about it, your grandmother can buy knitting needles on Amazon. But you can shop on your mobile almost anytime - in fact, 62% of smartphone users made an online purchase through their mobile device within 6 months in 2016. That people have an access to you as easy as holding a phone and clicking on a website that works is a big deal. That’s why Birchbox is one of the most active accounts I have on my Facebook, Instagram and Snapchat with live videos and stories that post every day. In fact, I feel like I’d recognize if I saw Birchbox's Senior Creative Manager Lorelei Orfeo on the street at this point because she is always on Facebook live. And you guys, that girl is COOL. She is like the cool gal that is not snotty. She’s never over the top made-up. And she has cool short hair. And she wears bright lipstick so well. And I suspect maybe flies a plane, has a biochemistry degree, and a kick-box champion?
I mean why not. Liking makeup and doing all these things are not mutually exclusive. Or doing all these things and not having makeup on. There are a gazillion ways to be a kickass woman, and you are free to do you however you want.
One of the advantages that would keep Birchbox in the game given every brand (wanting to survive) today needs to adapt to online, and especially mobile. The customers who shop Birchbox on their mobile make up 70% of their customer base. This is huge. Granted, Birchbox has one single U.S. store, and since they provide so many labels you’d not find in a lot of other retailers you have to shop online from Birchbox. And in its core, it is a subscription service which create profiles for each of their 1 million subscribers - that not only allows them to connect with them through email but also to collect data on customer categories, their preferences, needs, full-price purchases and how it corresponds to the samples they’ve been sent, popularity of products, and what kind of products are missing from their selection that their users would be willing to pay for. That kind of reach into the preferences of their customers is an advantage that a lot of brands which are willing to give discounts for people to sign up to their email lists - which I am assuming mostly end up in the junk folder because that’s what I do. (I am sorry Michael Kors, I do not want to hear from you everyday. I love you, but NO.)
I also like Birchbox because its founders and the majority of its employees are women. It is a female entrepreneurial success story, and I have the utmost respect for female business owners. But I also like Birchbox because they do beauty retail in a somewhat different, and I think a smart, way. They kind of “do their own thing” which means that they do not go after behemoths like Sephora or Ulta, and try to become the next chain beauty store. (I mean, good luck with THAT. Sephora is owned by LVMH - which is the fashion conglomerate that also houses Dior, Marc Jacobs, Louis Vuitton, and Bulgari among many others. That is some major international business that you can reach probably in decades rather than years.) Instead, I think they are doing two things: One is to be the destination to buy “special” products - the things they sample and fall in love with (don’t knock it till you try it, ahem, R+Co Analog), products that are specially curated for their needs, and exclusive products that other retailers might not carry. Converting subscribers into full-size purchasers, and getting the word of mouth (an especially powerful today thanks partly to most consumers’ wariness of traditional marketing, and partly to easily accessible product reviews, blogs, vlogs, and smoke signals) about products is the core of Birchbox’s strategy. But another is to be more utilitarian by offering product curations for women who are looking for some specific kind of product rather than wanting to spend hours shopping and researching. That is also why of you visit the Birchbox store in SoHo, you will see that products are categorized according to function rather than brand. Skincare is its own thing, separate from color cosmetics - something that Sephora and Ulta have adopted in the last few years through the curated sections in their store targeting specific makeup trends and skincare needs.
And no wonder why many emerging and foreign brands love working with Birchbox. It makes their entry into the market much easier than trying to get into a Sephora or a department store. If Birchbox carries your brand, you have the possibility of exposing it to hundreds of thousands of people, if not being sampled by a good chunk of them. Introducing yourself to customers who are engaged enough in beauty products to pay each month to try new ones isundoubtedly a smarter way to market yourself than trying to get on traditional media - especially given since some of these people are writing reviews, blogs, articles, Instagramming, and talking to their friends about the best makeup remover EVER (which is Dr.Jart Microwater, if you’re curious.) It is undoubtedly a much more efficient use of limited marketing funds for smaller companies or start-ups. (It is not uncommon for Sephora to start carrying brands that first appeared in Birchbox either. I suspect the owners of these brands probably cried tears of joy when this happened.)
But I don’t want to make it sound all is glitter and giggles for Birchbox. It is still a business that competes in a saturated market, despite beauty retail kicking apparel retail’s size 0 butt the past couple years. There are risks that Birchbox faces due to its own business model, as well as being a player in the overall beauty market. As a business model, it needs to keep its flexibility to change as its customers’ needs and wants change. It needs to be a trustworthy source with efficient products - and it needs to do a good job of curating interesting and special product depending on customer needs. And at the base of it all, as a subscription service it needs to be worth what you pay for it month in and month out. People still need to want to receive the box every month - both for the experience by itself in addition to the samples.
Especially since there has already been two rounds of layoffs in Birchbox in the past year, it seems like this is no walk in the park. Since they are prioritizing profitability to growth at this point, reaching more people will also be a priority - and some of the recent changes in Birchbox brand portfolio shows it. For example, while it was more of a collection of niche(but solid) brands, now Birchbox also has a variety of products from mainstream brands like Bobbi Brown, and most recently, MAC. To me personally this looked odd at first, and I wasn’t sure if I was crazy about this development since I can purchase Bobbi Brown and MAC in a dozen different places - a reaction that also shows what kind of retailer I think Birchbox is (speciality of specialty retailers), how it has differentiated itself from others in the market (very important if you want your brand to succeed), and why I like it - because it is a different experience than the one I get at Sephora, where I buy my mainstream brands. It seems Birchbox is trying to grow by reaching customers who did not know or shop at Birchbox before, and possibly introducing a variety of new brands to them along the way.
And all is good and fine with that, but it is another question whether Birchbox wants to lose its brand positioning as a specialty beauty retailer. I certainly don’t want to go to Birchbox to buy Bobbi Brown - despite it being a brand I really, really, really love. Arguably, curation, exclusivity, and experience are foundations of the Birchbox business model. And I agree with all this, despite also understanding the need to reach a bigger group of people to stay in business. All I am saying is that it is going to be a delicate balancing act for Birchbox, especially considering why it is different than Sephora, and how it works for their positioning in the market. It is a fine line between introducing yourself to a bigger audience by brands they already might be using and becoming a “one stop shop”, and chipping away on what makes you interesting and exciting - especially if you cannot actually offer everything you would need to become a one stop shop in the first place. But, hey, I am sure people who run Birchbox know their business better than I do. I’m just being the peanut gallery.
(I also identify with the two old guys who hackle The Muppet Show. In fact, I am somewhere between Pepe The Shrimp, Scientist Beaker, and Statler and Waldorf. I have a winning personality that is both sarcastic and jumpy.)
One of the things I have been curious about Birchbox with regards to them being an innovative, modern retailer was how they would fit into the "customization" trend. As you might have heard, along with "experience", "customization" is defined to be the future of retail. In other words, customization will become one of the foundational principles of brands that will survive the current transition in retail which has already started weeding out a lot of companies. WWD last week reported Birchbox will be rolling out "Birchbox Beta" - a more individualized box for $15 a month in addition to the usual monthly $10 subscription. As far as I can tell, the sample selection will be more customized according to each profile - and subscribers will be able to pick more of their samples, or swap the monthly box for points if they choose to. There is currently a waitlist on Birchbox Beta, and I am assuming a more customized service would peak the interest of a good portion of existing Birchbox subscribers. The Beta no doubt aims to offer a better service, but it also means higher potential for full-size purchases for Birchbox - which is a win win situation. It is yet to be seen how well Birchbox's move to more customization will work, but hey, I am already on the waitlist.
I'd love to know if you shop from Birchbox, and what you think of your boxes if you are a subscriber! You can follow the Birchbox Insta here. And you can thank me later about Microwater.
[Thanks a million to Christian Hernandez for being The Dapper Post's eyes in New York! You can follow Christian here.]