The jury is still out on how indie direct-to-consumer beauty brands will perform long-term, says Blythe Jack, managing director of TSG Consumer, a firm that has successfully invested in brands such as e.l.f., Perricone MD and IT Cosmetics. While the barriers to entry are undeniably lower than ever, there remains an unanswered question: how big can these brands get before their customer acquisition costs spiral out of control?
Blythe Jack will take part in The Beauty & Money Summit in New York on September 28.
Social media offers these exciting young brands low-hanging fruit, Jack points out, but there is a high attrition rate among beauty consumers. The antidote? Expand into traditional retail -- home shopping, specialty stores, etc.
The things that matter to strategic buyers are growth, profitability and future growth potential.
Jack explains that IT Cosmetics typifies the key elements of a successfully executed upstart brand: strong founders, great products, a meaningful mission, repeat purchases and high profitability. Strategic buyers buy on profit -- on multiples of EBITDA -- said Jack, which likely accounts for why L'Oreal snapped up IT Cosmetics in 2016 for $1.2 billion.
If investors and founders want lucrative strategic exits they have to "internalize" the importance of profitability. To ensure profitability it's critical to consider retail partners, says Jack. While brands may sacrifice margin, they stand to gain consumer awareness, exposure, credibility and growth.
Because, ultimately, the things that matter to strategic buyers are growth, profitability and future growth potential.
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