The beauty industry is valued at $500 million annually. The Covid-19 pandemic led to an increase in online sales. A London-based beauty startup announced today a major round in funding to capitalize on the trend. The storefront will be selling its own products online and direct-to-consumer.
Beauty Pie is a buyers club that sells high-end beauty and wellness products. Any consumer in the U.K. and U.S. can join the club to get deep discounts on their products. It has raised $100 million to expand into new categories and target customers with more sales channels.
Marcia Kilgore, a Canadian founder and CEO, stated that she doesn't believe in business models that require a lot of marketing. We want to use the funds to open new warehouses and expand into new areas. We're Sephora and Costco.
Index Ventures and Insight partners are co-leading the Series B funding. Previous backers Balderton Capital and General Catalyst, Latitude VC (a sister to LocalGlobe, a London-based seed investor) are also involved. Beauty Pie was founded in 2016 and has raised $170 million. Although it is not disclosing its valuation, estimates on PitchBook for $1.33 Billion are inaccurate (close sources inform us that the current valuation is below $1 billion).
Many beauty products are a discretionary purchase. This is especially true for luxury and high-end brands. There are many options for very affordable alternatives if you absolutely need a product.
The last year and half of Covid-19 living have had an interesting effect on this relationship. Consumers have noticed that the opportunity to spend money on entertainment has been severely curtailed. They have also sought out ways to pamper themselves during these difficult times. This is combined with the fact that many non-essential shops were forced to close or saw significantly decreased footfall in many parts, has resulted in a significant boost in online shopping for beauty products and particularly nice ones. Treat yourself is now a full-fledged business model for beauty and wellness. McKinsey reports on the impact of Covid-19 in the beauty industry. While in-person sales had dominated sales (85% of revenues), online sales had taken 30% of the pandemic's revenue. This is a significant shift in a very short time.
Beauty Pies model works because it purchases high-end products from many producers and then sells them under its private label. Beauty Pie's private-label ventures are similar to Amazon. This allows it to sell products that can compete with high-end brands while undercutting them. The average mark-up for brands is 10x the product's cost.
The startup can offer products in two levels, one for members and one for non-members. This allows it to make a profit on all the items it sells. Beauty Pies' simple approach to products is also evident in their packaging. They emphasize the contents of the product more than the exterior. This is ironic considering that Beauty Pies is all about making people look and smell better.
Even with its initial stumbles at the beginning of the pandemic, the model has been a success for the company. Kilgore explained that when Covid-19 was launched, Beauty Pie took its foot out of ad spending because it could see supply problems and managed how much it would get in to ensure customers were not disappointed. The company now offers between 300 and 400 SKUs.
Kilgore claims its customer retention rates are higher than Spotifys or Netflixs, and twenty times more than other D2C beauty company's. This is partly due to the buyers club model. The company's members increased by more than doubling in the past year. Revenues grew more than 100% and it became profitable for the first-time last year.
Beauty Pies monthly and annual subscriber numbers are amazing after only 48 months of operation. Danny Rimer, Index Ventures partner, wrote last December (likely a post that subtly launched the fundraising we are discussing today). Index has never seen customer retention this high before.
Kilgore isn't a first-time founder, which helps. Fitflop, Soap and Glory and many other apparel and beauty businesses are also her inspirations.
Marcia has spent decades creating businesses that treat customers as she would like to be treated. Beauty Pie is the perfect example of this philosophy. Its transformative value chain, membership model, and its best products allow members to have their pie while still getting the best price, said Rebecca Liu (Principal at Insight Partners).
