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Glossier on the IPO Path

Glossier may be outgrowing private funding with founder Emily Weiss’ plans for a “massive” company.

The stage is set for a Glossier IPO.

With a fresh round of funding and sky-high valuation, Glossier’s debut on the public markets seems more a question of when, not if.

The quintessential Millennial beauty business just completed its third round of funding — $52 million — valuing the business at about $390 million, according to industry sources. The raise follows a $24 million Series B in late 2016, and $8.4 million Series A in 2014.

The investments and the valuation are major for a business that beauty sources say is not yet profitable and that has an estimated $40 million in sales.

Weiss said in an e-mail to Glossier subscribers that the new capital will keep the company doing “more of the same, really” — but that belies her grand ambitions for the brand.

“We are building a massive, stand-alone business with customer experience at the core,” Weiss said in an interview with WWD. Henry Davis, Glossier’s president and a former venture capitalist, echoed that sentiment, saying Glossier “will be as big as any of the beauty businesses that are around today.”

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But there’s no denying that Glossier has a ways to go, considering the size of many in the industry.

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L’Oréal, for example, raked in more than 26 billion Euros in sales for 2017. The Estée Lauder Cos. posted $11.8 billion in sales for fiscal 2017. And Coty Inc. had more than $9 billion in sales last year.

“In the way that those companies built generations of businesses by owning a channel, we can do the same thing,” Davis said. “We’re going to build as big of a business as we can.”

“If an IPO is the best way for us to get there, then we’ll do that,” Weiss said. She added that there aren’t any specific plans or a timeline for an IPO “at this time.”

What Glossier is focused on right now is growth. Since its Series B closed, the brand has expanded its product line with Body Hero, a body lotion and wash duo, Glossier You, its first fragrance, which comes in liquid and solid forms, and Solution, a face exfoliant that’s seen as Glossier’s foray into “serious” skin-care, among other makeup products.

The company also entered Canada, the U.K. and is soon to hit France, started its rep program, committed to a new larger office space in New York’s SoHo and to adding 282 employees to its already 150-plus staff in order to secure a $3 million tax break.

Monthly traffic to the site, aided largely by referrals from Weiss’ beauty blog Into the Gloss, which Glossier grew directly out of, hit an all-time high of 2.15 million in January, according to data from SimilarWeb. Although stats within that traffic number aren’t stellar, like a bounce rate of 52 percent and an average visit duration of just over three minutes with about two pages per visit, traffic has grown by nearly 1 million visits since August.

It’s this rate of growth, coupled with a dedicated fan and shopper base of mostly women in their teens and 20s — including 1 million and growing Instagram followers — and its productive direct-to-consumer model that seems to have financial types, eager for growth stories, in a tizzy.

While Glossier’s valuation is a fraction of some other independent businesses in the beauty industry, like Anastasia of Beverly Hills, which is said to be considering acquisition bids in excess of $2.5 billion, Glossier’s rise has been much quicker. The company was founded by Weiss in 2014, four years after starting her blog.

According to Kathy Smith, a cofounder and chairman of Renaissance Capital, which conducts extensive research on newly public companies and those with the potential to go public, Glossier’s new valuation puts it in pretty good range of an IPO.

“There are other ways than going public to grow, but bottom line, an IPO is very worthwhile and very valuable,” she said. “Companies will say [they don’t want to go public], but the reality isn’t that they don’t, it’s that they can’t. If they were good enough, they would do it because it’s the best way to get maximum value.”

But going public has a lot to do with timing, as well as profitability, which is generally paramount to success. Investor patience quickly wears thin when a company not only reports a loss, but doesn’t sustain an expected rate of revenue and profit growth.

“[Glossier] seems to rely on a ton of advertising, so they’d have to make a profit after all of that, and that can be tough,” Smith added. “It’s kind of the same issue that Stitch Fix has…how do you get people to sign up and buy those boxes? They advertise like mad, but is that sustainable? Do you have to keep doing that to keep adding customers? That’s a concern with all these types of companies.”

A Glossier spokeswoman said the company gets about 20 percent of its traffic from advertising, and the remaining 80 percent “comes from owned, earned, and peer to peer referral.”

Another industry source said that the market seems to be growing less tolerant of unprofitable companies, but given the size of Glossier’s funding rounds and the level of product the company will need to roll out to keep up with the “new” addiction in beauty, “an IPO may be the only way to go to raise more.”

Glossier on the IPO Path
Glossier’s popular Phase 1 set, priced at $40.

Clara Sieg, a partner at Revolution Growth, agreed that it would make sense for Glossier to go public one day. “I’m not sure about the timeline, but there’s no question that there will be more IPOs in this space and Glossier is a very good candidate,” Sieg said.

But, from her viewpoint, profitability is not the most important thing for Glossier, public company or not. “From an investor perspective, if you’re focused on profitability instead of growth, you’re really undercutting your opportunities.”

Nevertheless, Weiss may have a particularly good window into the machinations of an IPO and related profitability hurdles given her link to Stitch Fix, where her sister-in-law Maria Dueñas Jacobs last year became the company’s director of brand development.

Stitch Fix went public last year with an estimated market valuation of $275 million that has since turned into a market capitalization of $1.88 billion. While the company hit the public markets after seeing modest profits in 2016 and 2015, it sunk back to a nearly $600,000 loss last year, despite $977.1 million in sales. The company cited a hiring run and marketing investments, but some financial analysts grumbled about why a company supposedly relying heavily on artificial intelligence needs so many employees, and shares of Stitch Fix have fallen since the report.

Glossier’s focus, for now, is on building out its mostly digital community for anyone who wants to be a part of it. The “customer experience,” Weiss said, is really why Glossier raised $52 million, but her definition of that term is broad.

“We have physical experiences, we have offline experiences, we have our product experience, we have our community experience,” she said. “Offline has been really incredible in terms of community building, so we’ll be investing in offline, but in a much smaller way than we are investing in our digital experience and building that out in the next 12 months.”

Emily Weiss Doctor Strange cape
Emily Weiss, promoting Glossier at a Proenza Schouler show in late 2016. Chinsee/WWD/REX/Shutterstock

One of the things Glossier is working on is a way to get even more in on the conversation that peers have about beauty products, and hopefully start them.

“Increasingly, those peers are not necessarily people [who customers] go to school with, but they’re the people they follow on social media or look at on the Internet,” Weiss said. “Given that Glossier is so people-centric, in the sense that our customers are really extensions of our team and extensions of our company and talk so much to each other not just about Glossier products but all products and beauty and their own expertise, we’re going to be working to facilitate those conversations, digitally.”

That endeavor will tie in with Glossier’s “reps” program — a direct-sales setup with customers acting as salespeople for Glossier — Weiss said, declining to comment on the size or scope of the program.

In the next 12 months, Glossier plans to “fundamentally change what it means to shop and buy online,” Weiss added. Looking further ahead, Davis threw out the idea of reinvention.

“Our long-term vision, five years out or whatever it is, is to be a massive stand-alone company that has reinvented the way people engage with beauty brands, beauty products and the customer experience,” he said. “The customer today, facilitated by technology, is eager for and able to get a new and differentiated experience, and we think that if we can help deliver that, we can continue to build things that customers want. We don’t know how big this company will be, but we believe that opportunity looks massive.”

And while many beauty start-ups launch with the dream of selling to a strategic buyer, the emphasis from Weiss and Davis on “massive” and “stand-alone” makes it pretty clear that’s not where Glossier is headed — though sources said there is plenty of acquisition interest. Unusually, the brand’s products, which beauty sources describe as “just OK” and not particularly innovative, are not the allure.

Instead, they see the business as a marketing machine. The innovation, they say, is the business model.

In beauty, Weiss is credited with being first-to-market with a direct-to-consumer beauty business developed out of a blog community. The brand’s no-makeup-makeup approach was also one of the first to market — Glossier launched sheer concealers while others launched full-coverage and contour. Glossier said “be yourself” while many other brands implied, “be Kim Kardashian.”

That point of difference, coupled with a cool-girl community that extends far beyond the Millennial audience has had the G-Team (as Glossier refers to itself) thinking big for a while.

At WWD’s June Beauty Summit in New York, Weiss likened the brand, which makes stickers and branded sweatshirts in addition to skin care and makeup, to Nike, one of the most successful and recognizable brands in history, which has a market capitalization of just under $110 billion. In the mainstream press, Weiss and Glossier have also been everywhere — a recent high-shine shoot with New York Magazine’s the Cut (which credited products from MAC Cosmetics, not Glossier) and a corresponding gusher of a story deemed Weiss “the Millennial’s Estée Lauder.” (Glossier is a frequent advertiser by way of affiliate links on New York Mag’s web site).

It’s a “flattering” comparison, Weiss acknowledged. “She was a pioneer in many, many ways.”

Lauder’s 72-year-old company has grown into a prestige beauty behemoth — a home for many beauty brands, both built and acquired — with a market cap of more than $52 billion.  

Asked if that was the plan — to eventually buy brands, or build other ones — Weiss said it all comes back to the customer.

“Regardless of how big we get, we’re always going to create things that customers want and…maintain this direct relationship with them. By doing that, we’ll be guided by their feedback,” she said. “If we can make what they want, great, and if we can’t, then we’ll figure out the best way to get them what they want.”

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