By  on September 10, 2010

The days of starting an indie beauty brand with a dollar and a dream are gone.

During the golden era of the indies, one great idea was enough to rocket entrepreneurs such as Bobbi Brown, Horst Rechelbacher, Jo Malone, Jean and Jane Ford, Nicholas Perricone and many, many more into riches and stardom.

Today, it's just a starting point.

Surviving in a postrecession-ravaged market requires more dimensionality than ever before: cutting-edge science, a steady stream of capital, an innovative business model and—not to be overlooked—the artistry, craftsmanship and innovation that has historically propelled the beauty industry forward.

What retailers once saw as new and exciting is now often considered an untested upstart. In some cases, retailers are removing the risk of stocking independent brands altogether by churning out exclusive lines of their own. It's a marked reversal from when stores welcomed entrepreneurial brands with open shelves.

"For every 20 brands today, there is going to be one gem that flourishes," says Robin Coe-Hutshing, who has cultivated independent brands as the founder of Studio BeautyMix and created her own, including Mémoire Liquide fragrances and Burn candles. "None of us can just create something and expect it to stick. The stakes are higher. We all have to get better at what we do."

Whereas once both large and niche brands worked synergistically in a retail environment—the former providing the resources, the latter, excitement, which drew shoppers into stores—today, that balance of power has been upset due to overall stagnant sales. "Five years ago, beauty was a growing industry," says Jani Friedman, a managing director for Demeter Group, noting that years of solid growth help spawn successes such as Bare Escentuals, which went public in 2006 and was purchased by Japanese cosmetics giant Shiseido Co. Ltd. for an estimated $1.7 billion in March. Those days are now gone, says Friedman. "There's no rising tide anymore for entrepreneurs."

Instead, independent brands have seen their sales rise and fall with the vagaries of the economy. According to the NPD Group, smaller brands posted solid returns in 2009—in some cases, double-digit increases—while their larger counterparts struggled to attract shoppers in the tough economy. In the makeup category, for example, at the height of the recession— the first half of 2009—brands with sales greater than $10 million suffered the most, declining 8 percent overall, while brands with sales of less than $10 million posted strong growth of 15 percent, says Karen Grant, vice president and senior global beauty industry analyst at NPD, adding that expanded distribution likely helped drive growth.

But now, in the second half of 2010, smaller brands are experiencing a reversal of fortunes. "The positive trend with smaller brands continued to a degree as we ended 2009," says Grant. "But now, bigger brands are positive, up 2 percent in the first half of the year, while smaller brands, up against stronger comparisons, are having a tougher time, down 2 percent."

While historically, independent brands have vied with the major players for market share, today the antagonist is as likely to be the retailer, many of which—such as Sephora, Target and Wal-Mart—are backing their own exclusive brands. "The retailers have all of the power," says Friedman.

As consumer shopping patterns continue to shift, so, too, do strategies when it comes to merchandising the right mix between majors and indies. "Retailers have found it difficult to find the right balance," says Wendy Liebmann, founder and chief executive officer of WSL Strategic Retail. "In 2000, everything that was niche retailers were happy to drop into the store, without real validation. Both sides got burned by that. Now, it's the niche brand's job to convince key retailers why having these brands is important."

Marcia Kilgore, a beauty trailblazer who founded Bliss, FitFlop and Soap & Glory, has come up with the perfect litmus test for independent brands hoping to get buy-in from a retailer: The "So what?" test. "It's brutal and you should be able to do it to yourself," Kilgore told a roomful of beauty executives at the WWD Beauty CEO Summit in May. "Every new brand has to have a voice. If, within three seconds, your product doesn't communicate to the customer what's in it for them and why she should like it and buy it, it's not going to be interesting—you don't have a chance."

It's a test industry veteran Rob Robillard experienced firsthand. A former veteran of L'Oréal, Robillard became ceo of the problem-solution hair care range Living Proof in 2008. The firm's first brand, No Frizz, uses a proprietary molecule developed by scientists at the Massachusetts Institute of Technology rather than the more conventional silicone to fight frizz. To convince retailers of its effectiveness, he brought along three models to buyer meetings. "I took a hand steamer close to their hair, and the hair didn't frizz. Jaws just dropped," he recalls. "The moment QVC saw it, they said, 'We'll take it.'" Within a week, Sephora was testing Living Proof in 50 doors, and two months later, the chain rolled out the brand.


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