Is The Era Of DTC Beauty Officially Behind Us?

In July, Glossier announced its first-ever retail partnership with Sephora, marking a critical deviation from the brand’s previous direct-to-consumer business model. After years of demonstrating the branding power of a digital-first approach by reaching a unicorn valuation of $1.8 billion as of 2021, Glossier’s move raises questions about the future of direct-to-consumer and the indie brands that overwhelmingly rely upon it.

The last decade of growing consumer appetite for discovering new products online and the power of going viral has fueled a new era of beauty brands operating solely through social media. Where product success once hinged on the ability to land on store shelves, Facebook and Instagram allowed brands to side-step the red tape of traditional retailers and build profitable businesses — quickly. Social media skincare favorite, Farsáli, perhaps best exemplifies this trajectory. Launched direct to consumer in 2014, the brand’s Intagrammable products and early co-signs from influential content creators won significant success. So much so its hero product sold out within 24 hours of landing on Sephora shelves for the first time three years later.

The newly democratized playing field made way for diverse and first-time founders to break into beauty. “We decided to start with DTC only for Youthforia because it was the easiest way to get started,” says Fiona Co Chan, Youthforia CEO and Founder. “I didn’t have experience in beauty and we didn’t launch with a large range of products.” Launching DTC keeps new businesses lean and flexible in an industry that typically requires significant capital and powerful connections to be successful.

Over the last two years, store closures and stay-at-home measures also reinvigorated the health of DTC as department store foot traffic slowed and online shopping increased. But as restrictions lift, beauty shoppers are eager to stretch their legs again. “Retailers provide brands greater access and opportunity to be discovered and allow consumers to experience products IRL,” says Muffy Clince, Director of Emerging Brands at Ulta Beauty. “Beauty is personal and many of our guests prefer a retail setting when shopping so they can engage with the products in person.” Additionally, increased competition from a DTC-fueled brand boom and rising costs to reach digital consumers are now eating away at the once plentiful online opportunity.

“Maybe five years ago, your advertising costs were much lower,” says Camille Bell, CEO and Founder of Pound Cake Cosmetics. “One of my mentors who [ran] a really big haircare brand told me [she’d] spend $200 or $300 a month on ads and make $10,000 or $15,000 in sales. Now people are spending that much on ads just to compete.”

A constantly changing social media landscape has increased pressure to adapt, but not all brands have the infrastructure to keep up. “We’re seeing more emerging and indie beauty brands embrace physical retail [in the early stages],” says Clince. “Unfortunately, many indie beauty brands face obstacles when entering retail. This is especially true for BIPOC-owned brands which have historically lacked access to appropriate resources and funding.” Retail requires brands to have ample inventory and funding to design display items, educate salespeople, and support potentially hundreds of store location placements. “There are a lot of upfront costs to retail,” says Bell. “And you’re not going to see a return on that for at least the first year or year and a half.”

For example, barrier-focused skin care line, BYOMA, demonstrates the infrastructure required for meaningful retail growth. The fledgling brand launched in the U.S. as a Target exclusive in January. Since then, it has become one of the fastest growing brands on Tik Tok and celebrated as Target’s most successful beauty launch of 2022. Led by Future Beauty Labs, the same skin care incubator responsible for Tan-Luxe and Tanologist, BYOMA is now expanding into 715 Ulta stores by October 16th.

Despite new hiccups, young brands are remaining diligent and getting creative. Luxury candle brand Terminal B is taking on a divergent retail strategy by stocking its destination-inspired candles at boutique hotels. This includes an exclusive, co-branded candle at the Andaz West Hollywood, opening a new door in hospitality aligned with the brand’s ethos. “We want to be very strategic with who we partner with,” says Co-Founder Chris Breedlove about the one-year-old brand. “Ideally travel-related retailers like hotels and airports.”

Founders Fay and Chris Breedlove say, outside of these efforts, they are still placing their bets on DTC where they can better control their messaging and brand presentation. Youthforia, on the other hand, has taken its first steps into retail with an initial load it can carry. The brand recently entered Credo Beauty and sells a limited product selection on Amazon. As Pound Cake similarly prepares for retail, Bell says she is focused on continuing to build an audience on newer social platforms like Tik Tok.

Retailers are also responding to a changing market by making new commitments to smaller brands that maintain their viability on and off shelves. The Ulta Muse, Sephora Accelerate and Credo For Change programs prepare brands to scale up, enter retail and, in some cases, directly funnel into store launches. Pound Cake Cosmetics will be among the inaugural Ulta Muse cohort. In the same vein, Ulta launched its internal Sparked initiative in 2019 which provides premium visibility in-store and online for strong brands retailing for the first time. “We’re focused on helping standout, up-and-comers thrive,” says Clince. Online retailer Thirteen Lune’s recent partnership with JC Penney similarly seeks to support its roster of primarily POC-owned brands with innovative retail initiatives.

“DTC is slowing down but I don’t want to say it’s dying,” says Bell. “There’s always a start and stopping point for things that are trending.” For now, the growing significance of retail looms while the internet poses new rules to its players. Although smaller brands with fewer resources are most vulnerable, these circumstances could be what’s needed to weed out predatory branding and encourage undeniably good products that positively impact customers. “We’re moving to an era where brands need to work hard to build brand equity and I enjoy it.” says Chan.