The new Birchbox space in Walgreens.

Birchbox is moving into Walgreens.

The drugstore chain and online beauty subscription purveyor are teaming up for an 11-store pilot of 400- to 1,000-square-foot Birchbox shops within select stores. Walgreens has also taken a minority stake in Birchbox.

Starting in December, and rolling out through early 2019, branded Birchbox boutiques will be transplanted into handpicked doors in Chicago, Dallas, Los Angeles, Miami, Minneapolis and New York. The locations were selected to road test the concept in a cross-section of markets. The presence of Birchbox builds upon and supports Walgreens’ Beauty Differentiation program where about 3,000 stores spotlight exclusive brands, improved store ambience and amplified service.

“We think that by bringing this digital and extended assortment of brands into our Walgreens’ Beauty Differentiation environment, it’s going to provide a real pop for beauty customers by bringing the best of those organizations together,” said Richard Ashworth, president pharmacy and retail operations at Walgreens. The move also fortifies Walgreens’ commitment to beauty, which he said is tightly knit with wellness. “We can help you not only feel good, but look good, too. We feel just as passionate about beauty as health.”

The heavy lifting Walgreens has done to polish its beauty position set the groundwork for the Birchbox collaboration. “We’ve been working very hard and felt that now is the right time to make a bigger step into expanding the assortment with more indie and prestige brands,” said Lauren Brindley, group vice president of beauty and personal care at Walgreens and the architect of the ongoing improvements. “Working with a partner like Birchbox enables us to create something really new and fresh in the U.S.”

There is a payoff in beauty, Ashworth added. “Over the past few years, every time we’ve invested in beauty, we’ve gotten a return — not only financially but also more customers.” The beauty category is said to comprise about 9 percent of Walgreens’ total retail sales — a number considered higher than industry averages.

The Birchbox shops will offer 40 brands not traditionally found in the mass market, including prestige logos and digitally native lines that are expected to court new customers. “It is really an edited and curated assortment,” said Brindley. “It isn’t that we’re bringing in hundreds and hundreds of one brand. Through Birchbox, we’re able to bring in the best items of the best brands. We can build brands and bring new brands into the space based on what customers are asking for. The digital world has changed beauty, we need retail models that are more flexible. Birchbox will give us the chance to offer that.”

In turn, exposure in Walgreens can help bring Birchbox’s subscription model to even more consumers (there are 2.5 million total active customers). Katia Beauchamp, cofounder and chief executive officer at Birchbox, sees big potential in what she calls “casual” beauty shoppers. “She’s actually the majority of consumers, representing 70 percent of the population,” said Beauchamp. While they are interested in beauty, they aren’t the ones gazing at influencer tutorials. They like new and exciting, but like to be presented with edited choices, she explained. Two-thirds of Birchbox customers don’t consider themselves proficient in beauty when they sign up for a subscription.

Once these consumers join Birchbox, their beauty spending doubles. “The challenge is finding these customers. Walgreens gives us a way to reach her. We want to be the destination for the casual consumer to buy beauty and we’ve known it wasn’t going to happen as a single channel company. This accelerates our plans to be with her. Their [Walgreens] customer is America.”

Beauchamp said Birchbox brand partners were convinced of the merit of adding Walgreens to their distribution because of the incremental, full-size sales opportunities. “It will grow the pie because they aren’t reaching this customer base,” she said, adding she had little pushback. “Brands have come a long way in their thinking. The world has changed since I started Birchbox. Putting brands into a mass or prestige bucket is no longer helpful,” she said, noting direct-to-consumer brands have blurred the lines.

Walgreens has also morphed into a new breed of mass retailer. Brindley harnessed her experience with prestige brands during her time with Boots to convince beauty companies to broaden their distribution. “After the past two years and bringing in No7 and Soap & Glory, the customer is ready for this,” she said. “And brands we work with know we understand what it takes to be successful and that’s given them the confidence.”

Rose-Marie Swift, makeup artist, pioneer in green beauty and founder of RMS Beauty didn’t blink an eyelash. “We have been partnering with Birchbox since 2011 and have been able to gain meaningful, measurable access to a new audience by introducing our organic nontoxic beauty products to their subscribers,” Swift said. “It is a great opportunity to scale RMS Beauty with Birchbox and reach millions of women in a really smart, effective way. I embraced Birchbox and Walgreens’ vision and see this as an excellent experience for today’s consumer. I believe that this partnership will create a really impactful channel for prestige beauty.”

Lee Peterson, a former retail and executive vice president of thought leadership and marketing at WD Partners said he’s pleased to see retailers making an effort to try something new. “If it works, higher-end brands will want to be a part of it. The more eyeballs you can get, the better you are going to be.” Even learning simple things from Birchbox like lighting will benefit Walgreens, he said. “Any incremental changes you can make in 10,000 stores is going to bring millions of dollars to the bottom line.”

Walgreens will also acquire a minority equity interest in Birchbox. If the concept resonates with shoppers, more stores could implement the Birchbox experience. “I don’t see any limitations in scaling a model like this. But I would say the customer is in charge of that,” said Ashworth. “The customer will determine whether we scale it or not. We have the financial and operational expertise capability to go as fast and wide, but the reality is we want to take direction from the customers. That’s what the pilot will do — get feedback.”

Stephanie Wissink, equity analyst for Jefferies LLC, added the collaboration is an example of ongoing physical and digital convergence. The model also gives Birchbox an avenue to monetize beyond its sample model.

Products are merchandised by need or usage rather than by brand. 

Inside the Birchbox experience is a curated product assortment featuring full-size skin-care, hair and makeup products from notable brands including RMS Beauty, Embryolisse, Wander Beauty and Sand & Sky. The Birchbox space was designed to be warm and inviting so shoppers feel at home and cared for, according to Beauchamp. “Yes, we’re bringing all-new prestige brands to Walgreens, but we didn’t want the space to feel ‘precious’ — like something you couldn’t touch. We want it to have a fun, yet comfortable vibe.” That’s carried out by fixtures that feel like furniture, framed Birchboxes as artwork and powder-room-inspired sanitation stations.

A unique twist designed to help shoppers cut through confusion is that products are merchandised by use or need rather than by brand. A grid-style format breaks down the key steps in a beauty routine, along with specific goals or concerns (such as dry skin or hair breakage), with Birchbox-trained Walgreens Beauty Consultants on hand to offer advice and guide the customer through the experience. “We’re really merchandising by ‘what’s the job that has to get done,’” said Beauchamp.

The BYOB display to build customized sample boxes. 

Additionally, within the Walgreens pilot stores, Birchbox will offer subscriptions to its monthly delivery services of personalized samples and a “Build Your Own Birchbox” experience, which is a signature element of Birchbox’s flagships in New York and Paris. The BYOB section will feature samples from additional Birchbox brand partners such as Amika and Winky Lux. Each space will also have other features, including product tutorials, sanitation stations and areas to test and play with products. Birchbox subscription gift cards will be sold within the department. Additionally, a curated Birchbox shop will be included on Walgreens digital properties.

Through its Look Boutiques, initiated in its Duane Reade stores, Walgreens has shown it can move premium lines. The company said the Birchbox concept does not replace Look Boutiques. “They can live side by side, it is a completely different approach,” Ashworth said. “Look Boutique is another example of us innovating in beauty.”

Brindley added that the move into prestige doesn’t negate Walgreens’ commitment to heritage mass lines. “The brands we have today are just as important. We recognized our customers are asking for extended choice and different price points and the chance to discover indie brands, but that doesn’t mean existing brands are not a fundamental part of our story going forward.” She said space for Birchbox was created by using existing footage more efficiently rather than dramatic cutbacks in other beauty brands.

The mass market is gearing up to halt the migration of shoppers to online competitors and specialty stores. The most recent Nielsen data through Sept. 22 puts mass makeup and nail flat on a 52-week basis with skin care. Although skin care is up 6 percent, fragrance is down 4 percent.

Retailers are trying to change the trajectory. Last month, CVS announced it linked with Glamsquad to offer services in an elevated beauty experience called BeautyIRL. CVS also made an investment in Glamsquad. “The partnership mind-set seems to be emerging among drugstore chains,” said Wissink. “There appears to be an economic and strategic rationale for both parties.” With Walgreens investment in Birchbox, the retailer joins Viking Global, which secured a stake in the company earlier this year.

 

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