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Born Leaders: Beauty’s Brand Incubators

As the race for innovation accelerates, brand incubators have become beauty's new breeding ground.

At a time when innovation, relevance and agility are driving the industry, brand incubators are beauty’s newest growth engines. Such companies, started by both beauty veterans and newcomers alike, are introducing brands at a blistering pace. Most have been conceived in the last three years or so and brought to market on an accelerated schedule not feasible for larger, more established companies.

As with so much else, their very creation is enabled by the digital revolution. “Five years ago this would not have been viable or successful,” says Laura Nelson, cofounder of direct-to-consumer brand incubator Seed Beauty. “The consumer was at a different point then. I don’t know that she was willing to buy beauty online. Her purchasing behavior, what she is buying and where, and the influencers she is following — this has converged to change her willingness to go on a Web site and try a new brand.”

While e-commerce sales represent less than 6 percent of all beauty sales, according to A.T. Kearney, the much-coveted Millennial shopper is buying online — and she is the primary target consumer for many brands being launched by incubators. “Online beauty purchasing is really targeting 18-to-34-year-olds, especially with trend-driven products like color cosmetics and nail,” says Stephanie Romanowski, senior beauty analyst at Mintel. “Older woman are following the more traditional model of going to the store.”

ColourPop, Seed Beauty’s first market entry, was created with Millennials in mind. The equivalent of fast-fashion in the beauty sector, it has rolled out several hundred stockkeeping units — blushes, shadows, highlighters, lipsticks, etc., priced mostly from $5 for a single item to $40 for a kit — within a year. “We saw a gap in the market where the opportunity is to have amazing formulas with great pigmentation in a wide range of colors that are affordable. People don’t have to overly commit to a trendy color that is going to cycle out over time,” says John Nelson, Laura Nelson’s brother and cofounder of Seed Beauty.

If ColourPop courts online consumers with plenty, Wander Beauty does so with presentation. Its Web site shows its initial product — the On-the-Glow Blush and Illuminator — on six models of varying ethnic backgrounds. Shoppers can hover over areas of the models’ faces (for instance, eyes or lips) to see exactly what the makeup looks like on those areas. Simultaneously, Wander Beauty can gather data about its customers based on the models they
click on. “Our customer, who is the over-30 woman, is not going online to do a try-on app to see what a product looks like on her,” says Divya Gugnani, founding partner of Concept to Co, which launched Wander Beauty on QVC in April and will release a men’s skin-care line called Brinx later this year. “How does she know what is going to work for her? We’re solving that problem.”

Leveraging social media is clearly a key strategic aspect for such brands, not just for commerce purposes but to crowd-source product ideas as well. BIG Beauty, which was founded by Philosophy creator Cristina Carlino two years ago and will officially launch products this summer, avoids consumer research. Instead, it vets products on social media after they’re fully formed. “We never want to turn off the creative faucet,” says Rebecca Fleming, the vice president of product innovation at BIG, an acronym for Beauty Incubator Group. “[Cristina] has a desire to try a lot of small concepts and see which ones fit.”

Wander Beauty regularly consults its Instagram audience on makeup shades to guide the colors it ultimately produces; at Seed Beauty, every post, e-mail and comment is read to glean ideas. For example, an Instagrammer mentioned she wanted a hot-pink shadow from ColourPop and, about a week later, the brand put the shade into its rotation. “It is about actualizing feedback, not just hearing it. It isn’t within the next quarter or product launch — it can be in the next day,” says Laura Nelson.

Adds Gugnani, “With digital businesses, you own the relationship with the customer. When they like something, you know it because they tell you. When you have a product in development, you can have a bunch of customers tell you they like product x, y or z. There is a product-development loop.”

Speed is another critical element. Deciem, an incubator founded by Brandon Truaxe, developed its hair-removal brand Inhibitif in a little more than three months. Its skin-care brand, Hylamide, took eight months to come to fruition.

Seed Beauty looks to take brands from concept to launch in three months. ColourPop is its only brand on the market now, but its Web site lists three brands — ColourStyle, Jupe and Fluid Beauty — that are in the works. “It is about rapid turnaround and bringing high-quality products to the consumer in real time,” says Laura Nelson. “The rate of consumption of content is continuing to accelerate in this segment, and the overall cycle of trends is shortening and intensifying.”

Other beauty incubators have longer development periods. However, most share the tactic of bombarding the market with multiple brands, often simultaneously. A loaded brand portfolio can diversify risk. BIG Beauty has set up seven brands, but Fleming indicates that two of those brands — Archetypes, a fragrance line, and Butterfly, a topical pheromone — will get the most support, especially in the firm’s early days.

Since its founding three years ago by Truaxe, an Indeed Labs alum, Deciem has unleashed eight brands and has at least two more in progress. Truaxe is very aware not every brand will be a hit, but says those that are will fund those that aren’t. “We are in a position were we have to do risk-oriented things [big beauty companies] would never do. We are a rabbit surrounded by a number of elephants. We know we can run much faster,” he says.

A multibrand strategy helps incubators secure a beachhead in retail distribution. Luxury Brand Partners has four brands distributed to salons — R+Co, V76 by Vaughn, Smith & Cult and Oribe — with five more salon-oriented brands scheduled for launch in the next six to 18 months, not including new lines it will create for Sephora under a new specialty-retail division. “Our model is built off of 3,000 [A-list U.S. salons] and, in order to go deep in those 3,000, you can’t have only one brand,” says president and chief executive officer Tevya Finger, adding, “The days of the Aveda salon are done. People like different brands.”

Romanowski underscores that consumers today aren’t a one-brand-fits-all bunch, and notes big behemoths are losing market share to specialized com- petitors. “You go to Pantene, and there are 15 variations for every hair type. Women are like, ‘Which one is for me?’ It loses its appeal,” she says. “We are seeing brands with a more-targeted focus do better.”

Fleming agrees. “We are not creating a 20-sku line and bringing it into a brick-and-mortar retailer,” she says. “We are cherry-picking ideas and looking for big winners in those spaces.” Even Seed Beauty kicked off ColourPop with one shadow product, although it was available in 20 shades.

Such a strategy seems to be paying off. Deciem generated roughly $16 million in wholesale
revenue in the 18 months since its first product hit shelves and is projected to generate $180 million by 2017. Luxury Brand Partners is forecast to register $100 million in wholesale volume this year, $150 million next year, $200 million in 2017 and will reach $250 million by 2018. Citing GlamGlow as an example, Romanowski says, “[The beauty sector] is so saturated, yet these brands can come and make a big splash. A lot of companies fail, of course, but because women are seeking information and looking for something different, they can be successful.”

Those kinds of figures are attracting the attention of strategic buyers, particularly L’Oréal and the Estée Lauder Cos. And while most incubators insist they have no intention of selling—“Our mission in life is just to build and create disruption in the beauty market,” says one — recent market dynamics would suggest otherwise. After all, as every parent knows, there comes a day when children have to leave home if they are to mature and grow.

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