Picking between fast, cheap and good is no longer an option in today’s beauty climate, according to E.l.f. chief executive officer Tarang Amin.
“We were always told that you had to pick between fast, cheap or good…no longer is it the paradigm that you get to pick one or two of those, you really have to go after all three,” Amin said. It’s what E.l.f. does with its business, which was founded on a fast-fashion-turned-beauty premise of selling quality makeup products online for $1 each in 2004.
It created a different business model — one without a marketing budget — that forced the business to take consumer feedback to heart. “Most people thought you could not sell cosmetics over the Internet, and you certainly couldn’t make money selling them for $1,” Amin said. “[Founders Alan and Joey Shamah’s] focus on high-quality cosmetics at this extraordinary value, direct to consumer, creates a very different engagement model.”
More than a decade later, E.l.f. still uses that consumer-engagement model, though it has built up the business through retail partners and influencer marketing. “There was no money for marketing, there was no money for anything else, because all the money went into the quality of the product,” Amin said. “The only thing was to do was to respond to what consumers said.”
And E.l.f. consumers have said a lot — the company’s web site has more than 130,000 product reviews. “We engage, we take their feedback,” Amin said. “We believe it’s one of the reasons we’ve been able to grow — this active two-way dialogue [rather than] just throwing stuff at them and hoping they buy.”
And one year after taking the company public, Amin is aiming for the $1 billion mark.
He declined to provide a specific time frame, but E.l.f. is projecting full-year sales of between $285 million and $295 million. The business posted 5 percent sales growth via Nielsen scanner data for August, a slowdown from 17 percent in June and 12 percent in July, and it’s stock price dipped into the high teens in mid August. But that number isn’t something Amin wants his nearly 400 employees paying attention to — their job is to execute on the company’s strategy — selling luxurious beauty products at an accessible price point.
“We try to keep our people focused on our overall growth strategy,” Amin said. “I tell our employees, ‘When the stock hits $35, don’t pay attention. When it hits $19 don’t pay attention. Keep executing against what we know we’re capable of accomplishing, and everything else takes care of itself.’”
One of the things E.l.f. is capable of executing is bringing products to market with almost unrivaled speed. And as the business grows, that speed-to-market time is only getting faster.
This September, E.l.f. unveiled a launch-a-day program that includes new products such as Mattifying Bubble Mask, $14, Eye Makeup Remover Balm, $4, and Satin Eyeliner Pencil, $1. The beauty company also ventured into the see-now-buy-now arena during New York Fashion Week, where it partnered with Christian Siriano and makeup artist Polly Osmond to create the makeup look at Siriano’s fashion show. It then debuted five beauty bundles of products used on the runway and inspired by the collection.
WWD: Small beauty companies are often nimble beauty companies. How does one execute that at scale?
Tarang Amin: We’ve been doing it. We’ve gone even faster. Last year, right before we did our IPO, we measured how fast we were to market and it was an average of 27 weeks from initial idea to selling in our direct channels, and as fast as 20 weeks. This year, it’s an average of 22 weeks from initial idea to selling in direct channels, and as fast as 13 weeks. Next year, we’ll be even faster.
It’s less about scale and more about how you do your innovation. For us, it’s how we innovate together. We have our headquarters in Oakland, Calif., but our other two main offices in New York and Shanghai. Our innovation team, twice a week, is on the same video call talking ideas and concurrently talking everything from product design to formulation to potential approaches on production, and have prototypes often within a week.
Having a really strong direct business definitely aids our speed to market. Our ability to have an outlet where we can put that innovation as soon as we come up with it, learn from it, and then expand in national retailers. Having a lot of innovation aids us when it comes to business with national retailers, and helps us with consumers who love that innovation. Each of these things reinforces each other. Sometimes the mistake people make is concentrating on one aspect and wondering why they fell short.
WWD: What’s the main thing the initial public offering brought to E.l.f.?
T.A.: The IPO allowed more capital into the company. We’ve seen tremendous margin expansion, mainly through innovation, and we’ve been unapologetic in terms of reinvesting it back into the business. That has allowed us to continue to make the investment to be able to drive growth, we’ve made tremendous investments in the team, the structure to be able to scale.
The second advantage is really getting our story out there in terms of our business model. It’s so different — how we engage consumers, how we go to market with innovation, our own direct business and how that relates with national retailers, our operations advantage — it’s always helpful to have a different point of view, and one people resonate to, including investors.
WWD: You’ve thrown out the billion-dollar number publicly – is that your goal?
T.A.: We never gave a time frame on that, but that can be a long-term aspiration. If you look at our algorithm, over the next three years we’re one of the few public companies that have talked about a 20 percent CAGR on net sales for the next three years, 100 basis points of margin expansion and a 20 percent CAGR on [earnings before interest, taxes, depreciation and amortization] growth. If you follow that out, you can hit some pretty phenomenal not only growth rates, but size of business.
The bigger piece driving the billion-dollar aspiration is just to see how much room we have in every dimension of our strategy. We’ve made great progress…but we still only have about 13 percent unaided awareness. We’ve doubled that over the last couple of years to get to 13 percent, we still have a significant amount of room to grow. I tell our team all the time that if the only thing we realize is our potential at Target and Wal-Mart, this would be a great growth business for years to come, and we still have so many other places to grow, including our direct channel.
It’s a nice round number. We continue to grow in the right way. In 2016, three quarters of our growth came from existing doors, versus a quarter in new doors which is very different from a lot of growth companies, where it’s all about how many doors can I open as fast as I can. I love the disciplined approach.
We’re focusing on things like Beautyscape, a way of using up-and-coming influencers to engage our community and not only build their brand, but our brand, in the process. It’s a much greater depth of engagement, which we love. Same with innovation — it’s all about how do I innovate as fast as I can on elfcosmetics.com and in our stores. Our consumers are part of the process by which we decide what we’re expanding — that’s a thing that actually gives me the greatest confidence in our growth.
WWD: What are some ways to give consumers a voice in the products?
T.A.: Beauty Squad, our loyalty program, is a great example. While there are points for how much you purchase, one of the best aspects of Beauty Squad is the ability to weigh in on everything from what our latest products are as well at get sneak peaks. Some of our Beauty Squad members come to our Beautyscape events, with some of the key influencers, who are women they really admire.
WWD: Is E.l.f. a fast-beauty business?
T.A.: In some respects, the genesis of the company started that way. If you look at the Shamahs, they came out of the apparel industry and had seen the rise of fast fashion and wanted to apply that model to beauty. But the business is much broader than that — it is a better model of what consumers want and it transcends any particular trend to something that’s more fundamental.
WWD: Is fast beauty a sustainable concept?
T.A.: You need quality because during trial it is about how to keep consumers coming back, and it comes down to their experience with you. In other product categories — apparel and fashion — you find a brand that will pop for a little while and then disappear. For us, it’s about the fundamental proposition. The quality matters because this is a core category to our women and they don’t want to compromise.
WWD: What dynamics do you see at play in mass-market beauty?
T.A.: Women are engaged. There’s a real passion for new ideas and new items. There are different periods where you have faster growth, slower growth — we saw a slow growth period at the end of 2013, beginning of 2014, and we have a little bit of a slowdown right now. But at the end of 2014, growth came roaring back. This is an area and a category that continues to have tremendous consumer interest.
More women seem to be acknowledging this insight that you need to have good skin to have good makeup coverage, that’s one of the reasons I believe we’re well positioned having both skin care and color cosmetics together [on some store shelves]. Tools and sponges and brushes have done well, masks have done really well, metallics are hot right now. That’s one of the things I love about beauty, you have such interest and so many new ideas that you can participate in that it’s a very exciting and dynamic area. I don’t see that changing any time soon.
WWD: How do you think about E.l.f.’s place in a market dominated by some household-name stalwart brands?
T.A.: The results speak for themselves, we continue to take share in the marketplace, and brands like us do, too, mainly because of our model and the way we engage consumers — through our innovation and ability to give them what they want. This is a very different model than the traditional model of broad scale advertising or media pushed out a couple of times a year. It’s highly disruptive from a standpoint of how people have traditionally competed.
I sometimes get asked the question of how the others will react. We’ve been in Target eight years, growing every single year. It’s just tough if you don’t have this same business model. They can price promote, but it doesn’t really affect us. They can advertise more, but that’s not how we engage our consumers.
I’ve been in the consumer sector for more than 25 years, and the truth has always been the brands that engage consumers with relevant innovation in a way that speaks to them inherently always wins. I’d say the same thing when it comes to national retailers. Those who bring consumers the best new items and the ability to partner to build their category will always win. They’ll always be rewarded with more space, they’ll always get preferential treatment in terms of how they partner.
WWD: What do you think about E.l.f.’s positioning when it comes to demographic shifts in the U.S.?
T.A.: We’re twice as developed [as the average] among Millennials, twice as developed among Hispanics and African-Americans and Asians, overdeveloped amongst the core enthusiast. That’s just the reality of the U.S. and has been for a while, just look at the core demographic shifts and trends. I go back to many of our products and they reflect that. More importantly is how we engage. This is a key element of our mission — making luxurious beauty available for all — is inclusiveness, that there isn’t this unattainable aspiration for beauty. We want to invite our entire community to be part of this brand. A lot of what you get is what you aspire to be, and who you have, and it’s one of the real reasons I’m so proud of our workforce being the same consumers that we serve. It makes it a lot easier. You look at the diversity and you look at the inclusiveness that we have both within our employee base as well as our key suppliers and everyone we work with — I believe it gives us a real advantage. People want to see the brands they use be a reflection of what they want to be or want the world to be.
WWD: What parts of E.l.f.’s practices could translate to other companies?
T.A.: It starts with world-class people. Out of 390 employees, we’ve hired 367 of them in the last three and a half years. We’ve handpicked almost every single employee, and we’ve done that consciously. We tend to pick from blue chip backgrounds rather than consumer beauty — people who move much faster, who really buy into our mission. Making sure you’re providing that team a culture and an environment that drives high performance [is critical]. We don’t do performance reviews because we can’t stand the idea that it would take an entire year to give you feedback. Our consumers give us feedback every day, so we like giving feedback always in the spirit of helping the team succeed. First and foremost, who is in your company and do they reflect who you are trying to serve, and are you creating an environment and atmosphere that allows ownership, empowerment and the ability to make a strong personal difference?
The second thing any company can take away is the approach to how they want to engage consumers. We don’t broadcast to our consumers, we involve them in creating and developing the brand. Whether it be how we engage with them on their reviews, or programs we have like Beautyscape or Beauty Squad. Sometimes people get too tied up with how they’ve done things in the past versus where has the consumer evolved to and how do we want to build our world with them.
The third is challenging the notion that size equals bureaucracy, or that as you scale you’ve got to go slower or any of the other paradigms people grow up with. We have an entire culture that’s constantly challenging. Hey, how can we do that faster? Can we do that better? What’s getting in the way? I heard so many people when I came back to beauty about three and a half years ago throw all these paradigms at me. ‘It takes three years to launch products’ and we’ve clearly proven it doesn’t. This comes back to the consumers — she knows what she wants and she wants it now so how do you make sure your company serves that need?
It would be a good thing for the industry if everyone was faster. We think it would be a good thing for beauty if everyone was more inclusive.