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Pete Unplugged: Indie A-Go-Go

A handful of major companies hope to find growth by tapping into the consumer’s reawakened appetite for novelty.

The indie spirit is getting infectious.

Not only is there a building surge of startups by young entrepreneurs, but a handful of major companies, searching for fresh ponds of innovation and newfound relevance, hope to find growth by tapping into the consumer’s reawakened appetite for novelty by incubating their own hatchling brands. For example, L’Oréal acquired Baxter of California, a small men’s personal-care brand, last year, and more recently entered the world of YouTube creating from scratch Michelle Phan’s EM makeup brand—doing all this in addition to acquiring Urban Decay, an original indie dating back to 1996. Meanwhile, Unilever has developed Iluminage, a brand of personal-care topical and laser devices, and Sephora has produced an ambitious color cosmetics brand by Marc Jacobs, as well as a raft of other projects.

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A recent flurry of new makeup artistry and nail brands—such as Troy Surratt, Charlotte Tilbury and Ciaté—accelerated an already gathering trend, mostly consisting of skin care and artisanal niche fragrance entries. Fragrance developer and marketer Ann Gottlieb notes that the profusion of small artisanal scents has prompted the major manufacturers to up their game in product creation, apparently to tap into the audience that made Tom Ford and Jo Malone mainstream players. “Creativity is back in a much greater way,” she observes.

Generally, the new indie resurgence, the most notable since the heyday of the late Nineties, is being driven by demand from recession-weary consumers.

People want whimsy,” says Marla Malcolm Beck, cofounder and chief executive officer of Bluemercury Inc. “It’s not like everyone wants to buy black clothes because they last forever. They don’t want to accessorize. They are looking for some excitement. There was too many years of boring necessity.”

Citing winners like Daniel Kaner’s Oribe hair-care range and Sara Happ’s lip glosses, Beck points out, “If there is a great product on a store floor, it is selling out.”

Barneys New York has done a strong business with Troy Surratt and its Mila Moursi spas. Bettina O’Neill, vice president and divisional merchandise manager of cosmetics and fragrances, observes, “the consumers are less loyal. They are loyal to themselves; they are loyal to what they like. They may be loyal to certain treatment [items] and foundation, but they are more experimental with color. In color, you get bored and you need something to excite you.”

Retailers say there is no shortage of new ideas to stimulate consumer interest. “The level of brands coming in has become prolific,” says Misha Anderson, chief executive officer of Woodley & Bunny, which has salon-apothecaries in Brooklyn and West Hollywood. “The majority has been skin care,” she adds, noting that there has been a movement lately of beauty brands originating out of Brooklyn. Apparently operating out of the belief that “if you mix it, they will buy,” many entrepreneurs bank on word of mouth and the power of the Web. “The majority of brands have no idea what is coming down the road,” Anderson observes. So she is lending a hand in brand-building by showcasing artisanal brands with special dedicated sections in her stores displaying 20 to 25 labels.

A showcase is needed more than ever, according to Vennette Ho, a managing director of Financo Inc. “[The indies] can’t rely on the retailers to give them a presence anymore,” she says. “The indie brands have to own their customer and own at least part of their channel to make an impact.”

One new brand that certainly is looking down the road is Ardency Inn, a color cosmetics line with a downtown hipster position heavy on music. It won a WWD Beauty Inc Newcomer of the Year award in December. While acknowledging that securing financing is always an issue, the partners—Gilles Kortzagadarian and Stéphane Siboni—have bigger worries. “Brand awareness is the main challenge,” says Kortzagadarian, “getting the brand known with minimal investment. You have to be smart about how you spend your money.”

One strategy that the founders are contemplating is to find alternative distribution that will not impact their home-base business in Sephora—perhaps a national fashion specialty store.

Money should become less of a problem. “The good news for small brands is that investor interest in beauty is growing, because, relative to other consumer-product categories, you have growth, high margins and it’s consumable. It has favorable dynamics, versus other categories,” says Kelly McPhilliamy, a managing director of Wells Fargo. “That’s positive for young brands,” she says, adding that “we are seeing a lot of startups.”

Beauty offers low barriers to entry; small startups have been known for innovation and Ulta and Sephora are still investing in small players, McPhilliamy says. “The brands that are focused on niche areas that others are not targeting at all or are not targeting effectively and the ones that are selling in channels where they can make the financial model work are the ones experiencing the greatest success.”

Bluemercury’s Beck, who only last year called for more niche brands—particularly in makeup and hair care—now says the spigots are wide open, both in product development and investment. “The development this year is unbelievable,” she says. “We are actively looking at tons of indie brands. The question for us is what to choose.” The rate of brand development is matched by the eagerness of private-equity funds to join the party, she notes. “You are going to see a million acquisitions this spring. This is the first time in a long time where private equity is dipping in in a big way. If private equity is buying brands, what that means is it will provide incentives for new brands to start out, and that provides an incentive for [investment] angels.”

But in the view of brand creator and former retailer Robin Coe-Hutshing, the pump doesn’t need much priming: “We do seem to be going into a more fertile period.”