This week’s briefing looks at why a growing number of indie beauty brands are closing their doors. Scroll down to use Glossy+ Comments, giving the Glossy+ community the opportunity to join discussions around industry topics.
In 2019, the brand now known as Athr Beauty was on a roll. Only one year old, it had already entered Sephora and was earning buzz for its innovations on plastic-free packaging. VC investors were eager to get in on the action.
“So many people reached out to me because we were getting so much press; we were at Sephora,” said the brand’s founder Tiila Abbitt. In 2020, it won an Allure “Best of Beauty” award.
Just five years after launching, the brand announced on Instagram last week that it would be shuttering, to the dismay of its fans.
“It is with great sadness that I am announcing we are closing Athr Beauty. It has been an incredibly difficult decision but it is the right one for our company,” read the note by Abbitt posted to the brand’s Instagram account. Athr is in the process of selling off its final stock of products on its DTC site and will honor rewards points through May 31.
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Athr is not alone, but rather the latest in a string of closures by beauty brands since the start of the pandemic. In October 2022, fellow clean beauty label Lilah B announced it would be closing, and Vapour Beauty announced its closure in December. These makeup brands joined many associated with the YouTube beauty influencer world that have also struggled: Morphe parent company Forma Brands filed for bankruptcy last year, while YouTuber Marlena Stell shuttered her brand Makeup Geek in 2022, after Tati Westbrook closed hers in 2021.
“The last two years have been pretty extraordinary, in terms of the amount of brands closing,” said Donna Lopez, founder of beauty consulting agency Making Lemonade and a former vp of merchandising at BoxyCharm.
While startups face risk in any category, experts say that there are multiple headwinds impacting indie brands right now, including market saturation, a decline in funding and increased customer acquisition costs.
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“We’re definitely in a consolidation, not just in the beauty space, but broadly,” said Tina Bou-Saba, co-founder and co-managing partner at Verity Venture Partners and an early investor in Kosas, Saie and Volition.
Founding a startup can be risky in any industry, and every startup faces its own unique setbacks. But the challenges in beauty right now are making the risks even higher.
Athr Beauty, for example, faced a financial blow in 2019, just as it was entering Sephora. Called Aether at the time, it was hit by a trademark lawsuit by apparel brand Aether.
“They were like, ‘We don’t care if we put you out of business.’ They were just so aggressive. They sued me and my husband individually, on top of the business lawsuit. My husband has nothing to do with my business. We thought we were going to lose our house. We have kids. It was one of the most awful things I’ve ever gone through,” said Abbitt. A request for comment sent to the apparel brand received no response.
To settle the lawsuit, Aether agreed to change the name to Athr. But it created a domino effect for the brand. While most startups entering a major retailer for the first time secure an investment round to support their scaling, potential VC investors were spooked.
VCs “are the first ones to run away if you sneeze the wrong way,” said Abbitt.
On top of that, the rebrand meant more expenses than those that the average brand just entering Sephora would have to take on. The brand had to produce packaging with the new name and quickly sell its existing stock at a discount. And then the pandemic hit, causing makeup sales to plunge.
Funding has become much harder to come by for new beauty brands. According to data from BeautyMatter, beauty deal volume in the first quarter of 2023 fell 43.4% year-over-year, after being on a downward trajectory in 2022. This counted both M&A and investment deals, with M&A deals making up the majority of transactions.
VC funds that invested in tech and a wide range of companies are becoming less interested in beauty or any DTC consumer product brands, said Bou-Saba.
“The beauty investor tourists — the generalist VCs, the tech VCs who were maybe dabbling in consumer over the past five to eight years — they’re gone. They’re not interested in investing in brands anymore,” she said.
“When DTC was this big thing, there was a brief period of time where VCs were investing in consumer DTC businesses because they felt they could scale super fast,” said Bou-Saba. But the investors learned that physical goods do not have the “hyper growth” that tech companies can achieve.
Not helping matters is the fact that “online customer acquisition costs are extremely high,” said Bou-Saba. The iOS changes in particular became the “nail in the coffin” for DTC brands. Former DTC-only holdout Glossier finally made the decision to expand to retail last year after laying off a third of its staff. But “the cost to succeed at retail is high” as well, said Bou-Saba.
Brands are now rushing to enter retailers as quickly as possible, making that space more competitive than ever. Romain Gaillard, founder and CEO of The Detox Market, which has stocked both Athr and Vapour in the past, said that the number of brands pitching the clean retailer has increased by around 400% in the past five years. In addition, he sees the market getting more competitive, with many more brands featuring slick branding. Around five years ago, “it was very mom-and-pop type of brands, and now it’s very well marketed,” he said.
Among investors that remain active in beauty, “everyone’s just very cautious and kind of wait-and-see,” said Gaillard. “They don’t want to invest in anything that is losing money. They want something that is profitable. Two years ago, everyone was obsessed with high growth. Right now, stability is very important.”
But making it to profitability often takes funding.
“It’s very rare that you see a brand come out the gate and be profitable. And then you [have to] add in everything else, [including] the rising cost of goods and the rising cost of creating the goods,” as well as the rising cost of packaging, said Lopez.
The other problem, according to experts, is the saturation of beauty brands on the market these days.
“it’s not difficult to start a brand. It’s very difficult to scale a brand,” said Lopez.
Even for brands that have big funding, competition is tough as the market has become flooded with new competitors. Since the pandemic, big conglomerates have also shut down brands: ELC closed Becca Cosmetics, and LVMH’s Kendo shuttered Bite Beauty.
“You’re seeing a saturation specifically across makeup right now, and that’s been the case for quite a few years, probably since 2015,” said Lopez. “Eventually, the consumer gets burnt out. There are only so many of the same type of products that you can create within certain categories.”
“It’s a lot harder to start a brand now bootstrapped and be successful than it was even five years ago,” said Abbitt. “Everybody’s jumping on the beauty bandwagon, so margins are getting smaller for everyone.”
While Vapour, Lilah B, Athr and Bite Beauty were all in the clean category, experts believe this was more a problem of saturation than clean itself seeing a decline. “It’s not that clean beauty is a problem. It’s that all the indie brands over the past half dozen years, generally, were clean,” said Bou-Saba.
“If you created a brand solely based on the positioning that you’re a clean, sustainable brand, that is not enough for the consumer because now that is something that is easily replicated by anybody,” said Lopez.
All of these factors combined mean growing precarity for startups.
“What happened to us is really unique with our struggles, yet not unique because all small indie brands have these sort of issues,” said Abbitt. “People don’t realize how hard it is to run a small business when you don’t have the financial means to really propel the business forward,” said Bou-Saba.
Experts agree that more shutdowns can be expected to come.
“Next will be skin care,” said Lopez. “We had a humongous boom in makeup back between 2013 and 2017, and maybe even a little bit into 2018, as well. Makeup really dominated the category, in terms of growth, innovation and just what people were buying. A lot of brands that started in makeup wanted to increase market share and continue their growth when makeup started to slow down, and they moved into skin care. And now that’s starting to suffer as well.”
M&A activity will continue to be more common than growth investments in this market cycle, predicted Bou-Saba. “And we’re going to see more indie brands in beauty and beyond close or do a do a deal with some sort of roll-up aggregator, or something like that.”
“I will definitely not be the last to go,” said Abbitt. “But what’s going to happen is that you’re not going to see creative, innovative brands being able to break through anymore. They’re going to have to start with a ton of funding and, a lot of the time, funding dilutes any sort of innovative messaging.”
She added, “I don’t know if mom-and-pop beauty is dead, but it definitely getting harder.”
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