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Markwins’ Eric Chen Takes the Long View

The founder and ceo of Markwins Beauty Brands is charting the path to an IPO — one careful and cost-conscious acquisition at a time.

Don’t call Eric Chen cheap. 

The founder and chief executive officer of Markwins Beauty Brands is proud to admit he likes a good bargain — in June, for instance, the company announced its latest acquisition, the cosmetics brand Lorac, which sources referred to as “financially distressed” — but he has a better word for it. 

“You can quote me on this — Markwins is a very thrifty company,” said Chen, of the beauty company he founded as a young business school graduate on July 4, 1984, three days after his 26th birthday. “We treasure every dollar.” 

An immigrant from Taiwan, Chen’s penchant for frugality, humble nature and entrepreneurial mindset run deep in Markwins’ company DNA — from its unconventional acquisition strategy that bucks the industry trend of buying brands with sky-high valuations, to its vertically integrated manufacturing infrastructure and its unassuming headquarters in an office park on the outskirts of Los Angeles. 

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Under Chen’s pragmatic watch, the business has chugged along for the past three decades, from its beginnings selling imported cosmetics kits to department stores, to today, where a stable of acquired brands — Wet n Wild, Physicians Formula, Black Radiance, Bonne Bell and Lip Smacker — are among some of the fastest-growing in a sluggish mass market, and in 85 countries globally. 

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Though presently Markwins is a midsize company, its self-sufficient vertical integration set-up allows it to function “more like that of an Indie brand,” said Chen, meaning the company acts more like a scrappy start-up than a behemoth-in-the-making, and its sizable growth last year is reflective of that. 

Sales for the company increased 35 percent last year, reaching $538 million according to WWD Beauty Inc’s Top 100. Markwins is a private company and does not disclose sales figures, but Chen noted that 2018 has been “another banner year” for the company. Industry sources with knowledge of the company projects sales thus far have nearly doubled, meaning the company is hurtling toward $1 billion in sales. International sales are a smaller fraction of the company’s business, but have nearly doubled in 2018, up to $100 million according to an industry source. 

Markwins’ stable of brands is likely to grow in 2019 — the company is “actively seeking” to further build out its portfolio in the makeup and skin-care space. 

An initial public offering is Chen’s ultimate goal for the company he founded as a young man, and it’s likely a few years away — “maybe 24 to 27 months,” if he had to make an educated guess. (A certified public accountant by trade, he’s a numbers guy at heart.) The company’s rapid growth is the reason it is receiving the 2018 WWD Honor for Best-Performing Company, Small Cap. 

Chen has a tendency to ignore what others in the industry are doing, and forge his own path forward, on his own timeline. He has built the company slowly but surely through a steady stream of careful acquisitions over the past 15 years — Wet n Wild and Black Radiance in 2003, Physicians Formula in 2012, Bonne Bell and Lip Smacker in 2015 and Lorac Cosmetics in 2018. Rather than shell out the big bucks for a brand that is already profitable, Chen prefers to evaluate acquisition targets for the potential he sees in them. Chen’s strategy is to find diamonds in the rough — oftentimes struggling brands that private equity firms and other beauty companies might pass over — and polish them up to drive sales for the company. 

“With today’s valuations, very successful brands [are expensive.] Some brands can outrageously have [valuations] 20 times [that of sales],” said Chen. “Our criteria is the future potential — the future potential profitability and size of the business, rather than latching onto something very profitable or [already] well-established. All the brands [we’ve acquired] all had great potential, but through different variables were somewhat struggling.” 

Each brand in the Markwins portfolio has a unique identity — for Chen, everything has to serve its own purpose. When evaluating an acquisition, Chen looks for gaps in the Markwins portfolio that can’t organically be filled by existing brands in the company purview.

“If [a brand is valued] for too much money, there’s a lot of conversation about overlap with the brand positioning,” said Chen.

Wet n Wild is trend-driven and affordable; Physicians Formula speaks to consumers looking for clean, doctor-recommended products with a natural positioning; Black Radiance makes makeup designed for multicultural consumers; and Lip Smacker captures the teen and novelty markets. The acquisition of Lorac provided an entry for Markwins into prestige and specialty retail.

“We have not one brand that overlaps with one another,” said Stefano Curti, Markwins global president, who was brought into the company in January to oversee day-to-day operations. “In my previous roles at Johnson & Johnson and Pfizer, we had brands that would compete with each other and that would pose dilemmas in which brands to invest in, which brands could grow.”

Markwins’ vertically integrated infrastructure is designed to facilitate brand-building in a nimble, fast and cost-effective way, bringing everything from manufacturing to research and development and e-commerce and social media marketing in-house. Markwins is working on building an R&D innovation center inside its headquarters in the resolutely unglamorous City of Industry, 30 minutes outside of downtown Los Angeles, which is home to the offices of many trendy beauty brands. Marwkins doesn’t make an inauthentic move, said Chen. It wasn’t until the Lorac acquisition that the company created a satellite office in downtown L.A. — Lorac’s brand positioning is a Hollywood makeup artistry line. The company does all of its manufacturing in-house, via facilities it owns in China, Mexico, California and Canada. Doing everything in-house allows the company to react faster. It also helps with retailer relationships, as Markwins can quickly customize trend items for drugstore retailers, or produce limited-edition products as soon as a trend pops up.

“I believe, in the end, what has contributed to the success of Markwins over the years has been a number of successful acquisitions and turnarounds,” said Curti. “The company had a vision of identifying brands that had opportunities, that could be relaunched both domestically and internationally. We behave as a company much more like an indie brand than a multinational. We are very agile, very fast and we internalize a lot of things that other companies take from the outside world — especially in color cosmetics.”

Wet n Wild is the case study the other Markwins brands are following. The brand’s sales grew 15 percent year-over-year in 2017, despite no category growth in mass market makeup. In the Nineties, the brand was known for its 99-cent eyeliner and glitter nail polish, but In 2012, Markwins began reformulating Wet n Wild’s products, shifting its focus from cheap beauty to “fast beauty” and churning out high-quality, trend-driven innovation at the quickest speed and lowest price possible. Evelyn Wang, formerly the senior vice president of marketing, came on board in 2015 to overhaul the brand’s digital and social media presence. Now, the brand is beloved by influencers and has launched a slew of hit products: The MegaGlo highlighter is the top-selling highlighter in the mass market, according to IRI, and Photo Focus foundation was the top-selling foundation in 2017, the year it launched.

Physicians Formula is in the midst of its own makeover. Acquired in 2012, the brand had lost meaningful retail accounts — most notably Walgreens — and its  stockkeeping unit count had grown cluttered and confusing. Chen brought in his own daughter, Alice Chen, vice president of marketing for Physicians Formula and head of corporate communications for Markwins, to streamline the brand message and product assortment. The brand introduced its new assortment, focused on better-for-you products like The Healthy Foundation at $12.99 and has gained back Walgreens — 1,500 doors to date. It is also making strides on e-commerce and in China, where the growth of the brand has outpaced Wet n Wild. In the U.S., there have been dramatic gains in key categories — blush sales are up 63 percent versus a category decline of 8 percent, bronzer sales are up 78 percent versus a category decline of 12 percent and makeup remover sales are up 174 percent versus a category decline of 6 percent.

The online channel is of increasing focus for Markwins, particularly as sales in the U.S. mass market, where the majority of its brands are sold, remain flat and the retail landscape looks bleak. “We’re awfully strong on Amazon,” said Chen. “We’re building [out] our own sites and putting a lot of effort into it — it [could be] one of Markwins’ biggest growth drivers.” Like everything else, Chen is bringing digital capabilities in-house, preparing to ramp up digital and e-commerce further in 2019. In June, Markwins absorbed the web design and digital agency Sitejet, and brought on its founder and owner as chief digital officer.

A re-brand on Lorac that is expected to roll out next year will deepen the company’s partnership with Ulta Beauty and open doors in the prestige market, including HSN.

One thing Chen isn’t too worried about next year is President Donald Trump’s trade war with China — in fact, he’s thinking optimistically about it. Chen expects the beauty industry to be hit harder by tariffs in January, and he’s ready for it. “We will definitely be among the lowest-impacted companies,” said Chen. “We’ll weather the storm — we’re ready for it. We have the infrastructure.”

In 2017, Markwins expanded its manufacturing facilities in North America. Much of the space in its Chinese facilities is now dedicated to products sold specifically in China. Beginning to sell its Wet n Wild and Physicians Formula brand has set the stage for “explosive growth,” said Chen, who noted that China accounted for 30 percent of Markwins’ international growth this year. With the launch of his brands there, he has seen luxury-obsessed Chinese Millennials become engendered with the affordable, trend-driven items his company peddles.

Said Curti: “We’re only scratching the surface [in Asia], quite frankly. Everyone says that Asian consumers are very much attracted to premium brands. That’s true. As the market has grown in prestige, they’re starting to be more savvy and smart about value — not just price, but what they get for their brands. A strong American brand with an edgy equity like Wet n Wild with good quality at a reasonable price is ground-breaking not just in China, but in Asia overall.”

Chen is an admitted fan of dad jokes and platitudes. When he thinks about the success of his company, he often refers back to its name, which he chose when he was a young founder, inspired by an adage from his native Taiwan. “In Taiwan, name means mark,” said Chen. “I’m a mark, a human being is a mark, Physicians Formula is a brand, but it’s a mark. Maybe it’s an old cliché, but this mark wins.”

A self-professed nice guy with a “big heart” who refers to his workforce as “family” — and in some cases, like the three Chen offspring working at Markwins, they are — Chen views going public as a way to cement his personal legacy and reward his longtime employees (“family members”) after he retires.

As much as he likes to talk about the future, he also likes to talk about the family-like atmosphere he’s fostered at Markwins. While he gives most of the credit for running day-to-day operations to executives like Curti, he likes to view his own role as more of a patriarchal figure — setting the tone for how the business is run, and signing off on financial decisions.

“If I have any strength over the other guys — not putting people down here — if people know me, they know I have the biggest heart. People make the difference [in a company] and you have to treat people with heart. I always play a supporting role to make sure [my employees] reach their dreams — or at least get their jobs done in a constructive manner.”

Chen’s humble spirit has allowed Markwins to fly relatively under the radar in the beauty industry. He’s aware that “the other guys” might not think of Markwins as a “real powerhouse.” That is likely to change soon, as the company barrels toward $1 billion in sales.

“Maybe I’m a humble guy and I never brag about Markwins,” said Chen. “I’m taking the long-term view.”