Indie hits

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Welcome to our second installment of The Pragmatist from our US office. We hope that you had a wonderful holiday season and are off to a prosperous 2019.

As we mentioned back in December, our NYC office continues to grow, with more highly experienced team members joining us in January and February. We look forward to having the opportunity to discuss how Pragma can be a strategic partner in the coming year and beyond.

Indie beauty brands 

Indie beauty brands have been a key driver of growth in both the US and UK markets in recent years.

A key difference between indies and big FMCG brands is the assets and capabilities the latter have built over time – including sales and marketing, manufacturing, fulfilment, formulation IP and packaging IP.

To bring their products to market, indie brands leverage external partnerships, giving rise to evolving business models. These include:

"Full-service" brand development, manufacturing and marketing businesses

Kylie Jenner started out with (just) her fame and 117m Instagram followers.  She developed the incredibly successful Kylie Cosmetics brand through partnership with US based SEED Beauty.  SEED provided the formulation IP, product range development and manufactured the range through its subsidiary Spatz Laboratories.

SEED has gone on to develop highly successful brands itself, including Colourpop and more recently Fourth Ray.

In the UK, SLG ($49m revenue) has created and manufactured ranges under the Zoella and Millie Mackintosh brands, via a licensing model.  It has created private label ranges for brands like Top Shop.  And it has developed its own brands, including Johnny’s Chop Shop and COLAB.

And in 2016, Swallowfield, a UK beauty private-label manufacturer, acquired Brand Architekts, which has developed successful brands like Superfacialist, Kind Natured and DrSalts.

Specialist marketing and product development service providers

Brands like Jenna Hipp, Dollar Shave Club, Naturewell and Bliss have turned to US-based Hatch Beauty ($59m revenue) for specialist marketing support, product range development and manufacturing.

Crème Collective is a sales and marketing agency behind brands including The Beauty Chef, Kari Gran and Patyka. Crème offers a range of sales services (including a national sales team, stock and promotions management), alongside broader creative and distribution services.

Ecommerce platforms

Kylie Cosmetics initially sold her range exclusively through the Shopify ecommerce platform.  Where brands selling through traditional retail channels invest significantly to do so through listing fees and promotional support, it has been reported that the cost of Shopify to Kylie was less than 1% of sales.

A range of e-commerce platforms have emerged, including EKM which is used by brands including Optimum beauty shop and Roullier White.

These models are creating interesting opportunities for investors in the beauty space. The potential benefits of investing across the value chain include:

  • Risk dilution – investors benefit from exposure to the sector without being reliant on single brands and a host of associated risks, such as waning popularity, or over-reliance on a single founder

  • Attractive multiples – potential for better value with beauty service/manufacturing businesses that still have brands in the portfolio

  • Greater control over sourcing

  • Ownership of IP – this can be a key differentiator for brands

If you would like to learn more about Pragma's work in the beauty sector, please get in touch.

Dan Stolarski
Managing Director
Pragma Consulting