By  on February 23, 2018

First Sephora and now Ulta Beauty.The once exclusively direct-to-consumer brand ColourPop has inked its second retail partnership with Ulta, the beauty firm confirmed to WWD. Come Feb. 25, liquid lipstick shades with names like Bae, Cheap Date and DGAF (or in post-Millennial speak, Don't Give a F--k) will launch on and enter select Ulta doors across the country.ColourPop burst onto the beauty scene almost four years ago, fast becoming a social media sensation among digital first Gen Z and twentysomething consumers for its $5 eye shadows and $6.50 liquid lipsticks.But the move into traditional retail at such scale — and at such a rapid pace — is a sharp departure from ColourPop’s founding principles, which are to sell fast and manufacture faster, all while delivering the end consumer wholesale prices. It follows other digitally native mass and masstige beauty players — Winky Lux, Morphe and BH Cosmetics, for example — that have diversified distribution channels through partnerships with Nordstrom, Bloomingdale's, and in the case of Winky Lux, opening freestanding stores.“We're reimagining the relationship between brands and retailers, ultimately delivering more value to the customer," John Nelson, ColourPop cofounder and chief executive officer, told WWD, of the company's goal to "disrupt the beauty space." Nelson is also cofounder and ceo of Oxnard, Calif.-based Seed Beauty, the parent company of ColourPop and manufacturer of Kylie Cosmetics and KKW Beauty (Seed Beauty does not have equity in either). Ulta declined to comment on the partnership.As for the assortment, the retailer will carry a selection of ColourPop's greatest hits. These include $5 creme powder Super Shock Shadows, $8 Super Shock Highlighters and $6.50 Ultra Matte Lips liquid lipsticks for a palette, the four-finish Element of Surprise Shadow Palette, $16.The Ulta rollout comes just six months after ColourPop said in August it would be sold off-line for the first time via Sephora. Previous to the line hitting the LVMH Moët Hennessy Louis Vuitton-owned retailer in November, the brand had just a single point of distribution: its own digital flagship at the time, ColourPop maintained that the extension to physical retail stemmed from demand from consumers seeking same-day fulfillment and an in-store experience. With Ulta, though, according to Laura Nelson, ColourPop's cofounder and president, the expansion and branching into new categories — especially complexion — was a key driver for an increased brick and mortar presence. Even though color matching tools online have gotten to be more sophisticated, complexion remains a category where in-store try-on is often preferable, especially in the age of 30 to 40-plus shade ranges of foundation.The industry, however, still isn't convinced.While there are pros to a Sephora (and soon Ulta) presence — the brand has exposure to a more mature customer shopping at Sephora and the retailer is banking that the cool factor of aligning with ColourPop will help lure a younger generation of mobile-first shoppers into its stores — the initial partnership was met with controversy.For starters, there's the issue of margins, which will take a hit since products cost only $6.50 at retail to begin with. But there are also other brand partners to think about. Namely, many questioned how industry giants like the Estée Lauder Cos. Inc. would feel about crown jewel La Mer, which entered Sephora around the same time, being sold along the likes of $5 "Set to Stun" eye shadow. "Not great" was the consensus.But not all are skeptical."You have to remember that Ulta has both the mass and the prestige side. I think it will fit great in there," said Ilya Seglin, managing director at Threadstone Advisors. "Strategically for Ulta, ColourPop makes a lot more sense than Sephora."He's optimistic ColourPop will still come out ahead, even if margins are slashed."Ultimately, more than 90 percent of beauty purchases are still made in brick-and-mortar. If you want to generate a larger volume of sales you should be in brick and mortar distribution, with the exception of a superinfluencer like Kylie Jenner," Seglin continued. "The traffic will definitely drive volume. So if they sell to Ulta for $3 then what's their cost — 30 cents? Remember, it's Seed Beauty's own facility."He called it nearly impossible to break through and sustain a business through online only. This is because — like every direct to consumer category to come before — the unit economics of maintaining an e-commerce-only business get challenging once customer acquisition costs are factored in. When it comes down to it, the high price for new customers sometimes doesn’t outweigh the $5 or $10 they might spend. Couple this with shipping fees and a onetime purchaser and the brand loses money. In other words, the bulk shipping costs to a single retailer and not having to pay for individual customers outweigh a cut in margins.Natalie Mackey, cofounder and ceo of Winky Lux, now sold at retailers such as Nordstrom, Bloomingdale's and Riley Rose, isn't concerned about margins either."There's probably going to be a macro margin squeeze in the industry in general. There has to be. Look at it: ColourPop is wholesaling to the customer; they are giving the customer this really great value and the customer is getting accustomed to it and is now starting to demand better value," Mackey said. "Companies are going to have to explain why their products are so expensive. It's going to be a new day."Robin Tsai, managing director at VMG, a San Francisco-based private-equity firm, agreed.He believes the paradigm where the brand dictates to the consumer is close to extinction. Largely because of the emergence of ColourPop-esque brands, consumers today have more control.But where businesses are thrown a learning curve is at the blending of digitally native and legacy retail operations. For the former, being e-commerce first allows for testing, learning and rapid-fire manufacturing, while the latter needs to plan months out."Most businesses are good at one or the other. The ones that are going to really emerge here are the ones that can deal with the convergence of both of these business models," Tsai explained. "You're at this inflection point where people grew up doing different things and now all of a sudden you're asking people to do two things simultaneously — and that takes a bit of time. There are going to be growing pains."

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