DermStore has quietly become the second-largest specialty beauty e-commerce destination in the U.S., but it is starting to make some noise.
Since chief executive officer Dan Obegi joined DermStore, which was acquired by El Segundo, Calif.-based Intelligent Beauty Inc. in 2008, three years ago, he’s shored up its operations, reached out to customers beyond its original base of patients refilling their dermatologists’ clinical skin-care product suggestions, and introduced companion sites HairEnvy.com and blush.com to push DermStore into the hair-care and cosmetics segments. The goal today is to accelerate sales, projected to cross the $100 million mark this year, by enhancing online video content and solidifying DermStore’s business beyond advanced skin care.
“The bulk of our business is clinical skin care and what we want now is luxury skin care, luxury hair care, luxury cosmetics. We see our business as four major categories, and we have a material presence in one of four,” said Obegi. “By getting a bigger presence in the other ones we think the business can be four times as big times the future growth.”
Obegi noted DermStore’s revenues have grown 50 percent annually in each of the last three years. About 70 percent of DermStore’s sales are from skin care with sales from cosmetics and hair-care products roughly splitting the remainder. Among the best-selling brands are Le Métier de Beauté, Eve Lom, Sanitas and Eminence in skin care; Klorane, Miss Jessie’s, Phillip B and Julien Farel in hair care, and It Cosmetics, Face Stockholm, Ellis Faas and Jane Iredale in cosmetics.
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DermStore’s hair offshoot, HairEnvy.com, is making a statement by launching a line of hair tools from Harry Josh, a hairstylist known for working on the tresses of the likes of Gisele Bündchen, Rose Byrne, Jennifer Garner, Gwyneth Paltrow and Amanda Seyfried, beginning on July 1 with a $300 hair dryer designed to maximize energy efficiency and performance. Its air flow reportedly can get up to 80 miles per hour, but does so with a filtration system that reduces energy consumption by 60 percent compared with most dryers on the market.
The tools in the Harry Josh line are aimed “at the professional market as well as the very, very, very high-end consumer,” explained Obegi. He estimated the cost of goods for products in the line is two to three times that of its competitors, and DermStore can afford those costs because it sells the tools on its own site, where it captures the entire profit margin. “Having Harry’s incredible personality, amazing client list and incredible skills — he is a press darling — and literally the best products in the world, and the margin to be able to create and sell them at a price that is comparable to the other high-end products, that’s a reason why people have to transact with HairEnvy, where they will only be available,” said Obegi.
Outside of its affiliation with Josh, the new hair tools line follows the strategy DermStore has been pursuing with its existing house brands, particularly Intelligent Beauty Labs, which constitute 20 to 30 percent of its business. Unlike many online retailers that advertise their third-party brands to snag customers, DermStore has focused on advertising its house brands and then later familiarizing customers with its vast array of third-party brands. DermStore’s ad budget is around $25 million this year covering online banner and search engine advertising, and traditional print and television ads.
Using SmartLash, a house product, as an example, Obegi said, “You will see a banner ad that says, ‘Do you wish you had longer lashes? Try SmartLash. It’s a safe and effective way to create the appearance of longer lashes.’ Every ad is store branded. It says available exclusively at DermStore. You decide you want to go buy it, and then you see we have 27,000 other things from 800 brands….On a re-marketing basis, customers never are going to see SmartLash again. They are going to see SkinCeuticals or Obagi. We use the house products to bring people into the store and then eventually cross-sell them into third-party products because we see the most enterprise value in being the store as opposed to being the product.”
Obegi is intent on making DermStore’s selection the broadest it can possibly be, and part of firmly establishing HairEnvy.com and blush.com will be to continue to expand their assortments. Because DermStore doesn’t try to compete to price, he views abundance as a differentiator in the marketplace. “Every time a brand is not available on our site, that gives a consumer reason to shop somewhere else,” declared Obegi. He also contends that the expansive selection will allow DermStore to provide an experience unique to online shopping by giving customers both a seemingly endless array of products and a customized offering, especially as DermStore augments its personalization capacities.
“There is no reason why in a digital environment you couldn’t have a store the size of 10 Costcos filled with all sorts of things, with a boutique in the very front of it where you walk in and get access to literally everything in the market, and a professional telling you what’s the best thing for you,” said Obegi. “You could never have that in the physical retail world, but in a digital world, we can have everything and a curated selection just for you at the same time.”
DermStore has been dipping its toes into online video by testing videos out on brand pages, product pages and in e-mail. It’s learned from those tests — videos do produce sales lifts, especially those with good hosts and clearly demonstrable products, pointed out Obegi, speaking about early findings — and is diving wholeheartedly into video content creation. To help do so, DermStore has constructed a video studio at its offices. “I wouldn’t expect video everywhere. I would expect to see shorter video presentations on product pages, and a much more editorial feel around categories,” said Obegi, adding, “The goal is to make a shopping environment that is educational and entertaining for things you don’t know you want to buy yet as well as a place to get the stuff you know you want to buy.”
DermStore’s brick-and-mortar store, which opened last year in Hermosa Beach, Calif., serves as a backdrop for its videos. Further stores are not in the plans at the moment, but that doesn’t mean that DermStore doesn’t have a future in retail. “As an independent company, we are not going to go and take over the world of retail,” said Obegi. “Within five years, for us to be competitive, we will have to have national retail. That could be from us acquiring a national retailer or a national retailer acquiring us or a partnership where we can do e-commerce for somebody and in exchange we will share inventory and customers. It’s not very long until all national successful retailers are going to have to be omnichannel.”