Deep Dive
Shownotes Transcript
On Today Explained, way back in the mists of time, 1998, a new beauty store hit the scene. Its appeal was choice. It would put hundreds of these carefully curated beauty brands in a single store, and
And as a customer, you were free to roam the aisles and test all the products that you wanted to your heart's content. And that was just a very unusual idea at the time. You no longer had to be Teen Clinique or a Lancome lady. Maybe for you, it wasn't solely Maybelline. And that was fine. In Sephora, you were free.
Consumers loved this new way of shopping. Sephora became a kingmaker. It is still a very big deal to get your little brand into a Sephora bay. But now comes a reckoning. Does Sephora have too much power? Get in, loser. We're going shopping.
If you love iPhone, you'll love Apple Card. It comes with the privacy and security you expect from Apple. Plus, you earn up to 3% daily cash back on every purchase, which can automatically earn interest when you open a high-yield savings account through Apple Card. Apply for Apple Card in the Wallet app.
You think you know what working on your wellness sounds like, but there's one thing that truly sounds like the best thing you can do for your overall wellness.
Every great performance starts with a great night's sleep. And every great night's sleep starts with Natrol, the number one drug-free sleep aid brand in America. 100% drug-free and non-habit forming. Get yours now at Target or wherever you shop. These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. ♪
It's Today Explained. I'm Noelle King with Fast Company senior writer and friend of the show, Elizabeth Segrin. Hey, Liz. Hey, it's so good to be here. You recently wrote a big piece about Sephora and just how much power it has in high-end beauty. What is Sephora's deal?
Oh my gosh. I think that for all the beauty junkies out there and even people like me who casually wear makeup and don't fully understand how to apply eyeliner, I think it's really easy to understand the appeal of Sephora. It's such a fun place to shop and we love wasting hours there on the weekend discovering new brands.
But, you know, actually, all of that, all of the innovation around retail has put it in this position of being the most powerful player in the high-end beauty industry, which is worth $30 billion globally. And so we're talking about those brands that are slightly more expensive than what you would find in drugstores. And Sephora has got that market locked. It has 700 stores in...
in the U.S., as well as a thousand outposts at Kohl's. Wow. So it basically now controls the fates of
of beauty brands on the market. And that is why so many beauty founders are so desperate to break into Sephora. And even though there are other retailers like Ulta Beauty and Nordstrom that are trying to replicate the Sephora model, Sephora is just one step ahead of the competition. And I think that the reason for this is that it is able to identify and pluck
these exciting beauty brands and keep the aisles stocked with a new array of beauty brands. And so there's always something to go into the store for, something new to explore the next time you're in the store. Come shopping with me at Sephora. I want this Dior lip gloss, this pink shade. Let me take a look at some of the new stuff. Maybe there's something good over here. Ooh, the closest sun lid. Patrick Ta. I've never bought anything from Patrick Ta.
Should we get a blush? And actually, I think that what most of us don't fully understand is that, you know, we think that Sephora is out there, you know, finding these brands, putting them on the shelves, and that's the end of the story. But actually, my reporting uncovered that actually Sephora is getting really deep with the founders of these brands into shaping every aspect of the brand from,
you know, the products that they're creating to the packaging. And founders are willing to cede control over their brands, these startups that they're creating, because being in Sephora guarantees their success. Sephora will give these brands mountains of proprietary data to help them succeed.
And that's why the biggest brands on the market today, like Drunk Elephant, Rare Beauty, Sol de Janeiro, all of them got their start at Sephora. Is there a brand that helps us understand just how much power Sephora has here? Yeah, I think that the brand that kind of tells the story the best is Glossier. Mmm, Glossier. ♪
As a millennial, I, you know, I'm very, very well versed with this brand. It popped up in 2014 at the height of the direct-to-consumer movement. My name is Tia, and I'm wearing Generation G in bike. And we all know it because it is this beautifully millennial pink brand, and everything is very minimalist. So I'm using Lidstar and Slip.
I'm gonna press it right in the center of my eye. The most important part of my makeup routine, a glossier boy brow in black. And it basically pioneered this concept of makeup that looked like you weren't wearing any makeup at all, like you just woke up in the morning glowing. Rose water spray.
And so Emily Weiss, the founder of Glossier, came up with this brand and she publicly stated that she wanted to build a beauty brand without partnering with a retailer. We really wanted to offer this incredible new luxury experience. And we were able to do that by going, again, direct to consumer and not
be beholden to retail partners or wholesalers who are going to make your brand become something so that it fits on a certain gondola or a certain aisle of a store. Glossier emerged at this time when
All of these venture capitalists were just pumping money into startups. And Emily Weiss was really, really good at raising money for Glossier. In total, Glossier has raised $266 million, which is just an astronomical amount for a beauty brand. And its last valuation valued it at $1.8 billion. And so it had all of this money to pour into a
acquiring new customers, creating really innovative products that consumers wanted. Glossier sent me all of their bomb.coms. Look at how cute these packages are. Glossier Cloud Paint. I love it so much. It's just...
I feel like it looks so natural on you. And even building these gorgeous stores that we're seeing pop up in New York and in Boston and all of these different places. Basically, it's like the Apple Store where you can just try on all the products and the associates come up to you. I tried this super glow serum first and I love it.
It was just a fascinating time because the internet had created this entirely new way for brands to emerge. And so that's why all of these investors were so eager to pour money into these brands because they really thought that this was going to be the future
of the way that we shopped, that we wouldn't need retailers anymore because we could just go online or go to Instagram, discover a brand, and buy products directly from those brands. And actually, during this time, we saw just an explosion of beauty brands because it's actually really easy to launch a beauty brand. All you need to do is partner with a lab
come up with some nice branding. And there you go. You could have a small number of products and you have a beauty brand up and running. And so there were about 1,000 new beauty brands that popped up between 2015 and last year.
So Glossier is one of those companies that really makes its bones in the age of the Internet has democratized anything. We can be close to the customer. We can work with a third-party chemist. We can get the influencers to wear our stuff on Instagram. It is boom times for Glossier, but you would not be Fast Company's Liz Segrin if things had stayed that way. What happened next? So Emily Weiss was...
face of her brand, Glossier. In many ways, the success of the brand was tied to her being this charismatic female founder who was part of, you know, what we would call the girl boss era. Girl boss. Girl boss. I got excited. That's right. That's right. And at the time, that was still considered a really wonderful thing. But the whole concept of
the girl boss sort of soured because during the Black Lives Matter movement and that period where we were scrutinizing what was happening at all of the brands that, you know, that we shop from, it became clear that Glossier, Glossier,
wasn't really treating women of color very well, both in terms of its customers and in terms of its sales staff. In August of 2020, just before Glossier laid off all its retail staff due to the pandemic, the group behind Out of the Gloss published an open letter to Glossier detailing the many grievances that they had with the company and what change they would expect from the
the company. I just found an exact dupe for Glossier U because if you don't know, the girlies are girl-cotting. And it was also really hard as a woman of color to find shades at Glossier that really, you know, spoke to me and that I could use. And so I think the world sort of began to see that, you know, there were problems, right, with Glossier. And so at some point, Emily Weiss was
stepped down and brought in another CEO. And it was this new CEO who basically said, you know, let's just like rethink what we want Glossier to be. And in addition to sort of setting new policies in place,
that ensured that the brand was, you know, more inclusive across a lot of different dimensions. She also had the idea that the best way for Glossier to succeed and to grow was to give up the stance that it was just going to be a direct-to-consumer brand and just fully sort of give itself over to Sephora. ♪
So about five years after it launched in 2019, it had reached upwards of $100 million in revenue, which is a lot, especially for a beauty brand. There are very few beauty brands that are able to get to that level of scale. But
It just wasn't enough. It wasn't the kind of money that would justify Glossier getting acquired or getting a major IPO, which is what its investors needed of it. And so in order to get that kind of money, Glossier had no choice
but to enter Sephora. And so in 2022, everybody was shocked to discover that, you know, when you went inside a Sephora store, there were these beautiful millennial pink displays that Glossier had set up.
And so Glossier totally reversed its stance and suddenly it was there next to 300 of its competitors. But it realized that that was the only way for it to get the kind of scale that it needed to satisfy its investors. ♪
Fast Company's Liz Segrin coming up. What, Liz? Coming up, coming up, coming up. Okay, how Sephora is changing the way we think about beauty itself. Love it.
Where's your next vacation going to be? Well, if you're looking to have a vacation to remember for your entire family, then look no further than Virginia Beach. At Virginia Beach, you'll be transported to a place where you'll immediately feel welcomed. A place all about the good vibes, finding your tribe, and your happiness. Enjoy their long pleasure beach that hosts their annual festivals and concerts. And if you're in the mood for dinner, make sure to check out their waterfront dining made from their fresh local seafood and farm-to-table ingredients.
Plus, there are an abundance of outdoor activities that will have the whole family resting easy when the day is done. And the best part about it is you don't have to do it alone. Virginia Beach provides different activities for anyone of any age to enjoy. So if you're looking for that change of pace this year, it might be time to consider a nice trip to Virginia Beach. Go to visit virginiabeach.com to learn more. Support for this show comes from Oracle.
Even if you think it's a bit overhyped, AI is suddenly everywhere. From self-driving cars to molecular medicine to business efficiency. If it's not in your industry yet, it's coming fast. But AI needs a lot of speed and computing power. So how do you compete without costs spiraling out of control? Time to upgrade to the next generation of the cloud.
Oracle Cloud Infrastructure, or OCI. OCI is a blazing fast and secure platform for your infrastructure, database, application development, plus all your AI and machine learning workloads. OCI costs 50% less for compute and 80% less for networking, so you're saving a pile of money. Thousands of businesses have already upgraded to OCI, including Vodafone, Thomson Reuters, and Suno AI.
Right now, Oracle is offering to cut your current cloud bill in half if you move to OCI. For new U.S. customers with minimum financial commitment, offer ends March 31st. See if your company qualifies for this special offer at oracle.com slash vox. That's oracle.com slash vox.
You might have come into this year with all these big plans, but you're still scrambling to hire that open position at your company. It's time to get a big part of your to-do list marked off with the help of Indeed.
At other job sites, it's a struggle to get your job even seen. But Indeed's sponsored jobs help you stand out and hire fast. With sponsored jobs, your post jumps to the top of the page for your relevant candidates, so you can reach the people you want faster. According to Indeed data, sponsored jobs posted directly on Indeed have 45% more applications than non-sponsored jobs.
Plus, with Indeed sponsored jobs, there are no monthly subscriptions, no long-term contracts, and you only pay for results. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at indeed.com slash voxbusiness.
Just go to Indeed.com slash VoxBusiness right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash VoxBusiness. Terms and conditions apply. Hiring? Indeed is all you need. Beauty. Style. Today Explained. Today Explained is back with Fast Company Senior Girlboss Liz Segrin. Liz, you report that before Sephora was the behemoth it is today.
It, in fact, was an innovator. Tell us about the beginnings. You know, what was so interesting as I was reporting this story is that it allowed me to kind of go back to what beauty brands were like when I was in high school, so 20 years ago. And back then...
The only way for us to really get access to these high-end beauty brands was to go to a department store. Hi, can I help you? And there, if you recall, there were these beautiful glass cases and there were these brand representatives. You should try this. And the only way for you to try these different products was to have one of these brand representatives talk you through everything.
You look amazing. Of course she does. But Sephora in 1998 showed up in the U.S. with this completely different concept. ♪
And the concept was that it would put hundreds of these carefully curated brands into a single store and there would be no gatekeepers. And that meant that as a customer, you were free to roam the aisles and test all of the products to your heart's content. And it also meant that you didn't have to be loyal to a single brand.
And this was really a wild concept and it just made the store so much more inclusive. And so consumers just went wild for this new way of shopping. And other retailers quickly tried to replicate this model. Two of the biggest ones I can think of are Ulta Beauty, for instance, and Nordstrom. They're all trying to create this kind of more open, exciting,
model for shopping for beauty. But Sephora, to its credit, has managed to always stay one step ahead of the competition by ensuring that it has the coolest, trendiest, latest brands in store. And also, you know, I think that it has a role to play in actually just kind of shaping beauty trends from the ground up.
And so, for instance, I don't know if you've noticed, Noelle, but there are more expensive high-end shampoo brands than I've ever seen. I have indeed noticed. So there's like Pattern Beauty and Olaplex and Virtue. And this is not an accident. Shampoo had always been an inexpensive drugstore purchase.
But several years ago, Sephora decided that consumers actually would be willing to drop a lot of money on fancy shampoos and conditioners. So it actually went out there and cultivated a new generation of these brands. And lo and behold, five years later, here we are throwing $40 or more on a bottle of shampoo.
And so what I'm trying to say here is that it's basically Sephora's world and we're just living in it. It's a big deal to get your brand into Sephora stores. How do brands become part of the portfolio? What do they have to do? It is a rat race. If you are a beauty founder, you are devoting a lot of time to trying to figure out how to break into Sephora.
Okay, there's several different ways to get yourself in front of a buyer at Sephora. Now, we want everyone to tag Sephora right down in the comments and get their attention so we can get our brand into their store because we know it needs to be there. So I've heard all...
all kinds of stories. There are brands that are sending packages of makeup to Sephora on a weekly basis, hoping that somebody at the headquarters will open it up. There are founders who are stalking Sephora buyers so that they can start a conversation. So, you know, these brands are all desperate to break into Sephora, but actually Sephora is kind of holding all the cards and it's going out there and deciding what
which brands are going to be the next billion-dollar brands of tomorrow.
In order to be in Sephora, you have to spend a lot of money at Sephora. So if you sign a contract with Sephora, first of all, it means signing an exclusivity agreement saying that you won't sell your products anywhere else for at least two years. So that's the first thing. But then you have to pay a lot of money for the in-store fixtures. So when you go into Sephora and you see those beautiful bays of products,
The brands themselves have to pay upwards of tens of thousands of dollars, often a lot more, sometimes hundreds of thousands of dollars to have those displays. And then,
whenever you make a sale, you have to give 65% of that sale to Sephora, which is much higher than the industry average. And so brands are just paying a lot of money to Sephora in order to be in store. But in exchange for that, they're getting access to this enormous amount
audience of beauty lovers. Their loyalty program alone has 40 million members. And if you think about the number of people who are coming into store every day and going to the Sephora website, there is just nothing like it. So brands and founders are willing to do whatever it takes to be in the Sephora store, to spend all of this money because the upside is just so big.
What do the founders say when they're asked about the really big trade-offs that brands have to make in order to get into Sephora?
If you think about a brand like Sol de Janeiro, you know, a few years ago, it was acquired by L'Occitane for $450 million. And so the founder of Sol de Janeiro had a massive payday. And so it was totally worth it. But they do say that they are basically ceding control of their companies to Sephora. And that means that, you know, they're not making...
all of the decisions that a founder and a CEO typically would make. They're letting Sephora make decisions about things like
There's a brand called Soft Services that creates beautiful skincare products, and it wanted to create these eco-friendly refillable containers. But Sephora said, no, that's too complicated for us to sell in our store. So they basically had to redesign their packaging to make it disposable. These are the kinds of decisions that Sephora is helping them make. And, you know, there's a lot of pressure on them to sort of take all of this advice and
Because that's basically the only way for these brands to hit the kind of scale that they're looking for. I would imagine, Liz, that it's really hard for a company to go on record and say, you know, being associated with Sephora, being in the Sephora store was bad for us. Is anybody, will anybody talk openly about the downsides? Yes. And so the people who are willing to talk about the downsides are those who are
were in Sephora, but then got kicked out. And so I think that's another really important part of this. So there are 300 brands in store, and those brands are constantly rotating because there is a number of brands that are not selling at the rate that Sephora needs them to sell at.
And so those brands get unceremoniously kicked out of the store. One very notable brand is J. Lo's beauty brand. Even she, you know, her brand wasn't able to meet the targets that Sephora had set. And so these brands that are not able to succeed, their founders tell me things like, you know, it's kind of like a pay-to-play model.
Because you have to pour so much money into Sephora in order to succeed that you're basically kind of on this hamster wheel, you know, trying to go out and get VC funding, pouring it into your brand so that you can meet Sephora's targets. And then, you know, that keeps going on and on and on. And it's a very stressful, expensive process. And so those founders would say that, yeah, there are a couple of brands that are big winners, right?
But there are a lot of brands that really struggle to compete in this environment. And it's tough. It's tough to be independent. To be a small brand sounds great, full creative control, all wonderful. But as you've laid out, if you're not able to poke your head up above the parapets, so to speak, no one ever sees you. Exactly.
That's right. And, you know, there are thousands of beauty brands on the market today. So the market is just so crowded that it is really hard to get anybody's attention. And so in order to succeed here, you really need a retail partner.
And Sephora is known for being the most powerful of these retailers, but it comes at a cost. You're spending so much money at Sephora from the in-store fixtures to the samples that you see in stores to even training up staff who will be able to do the marketing and doing the in-store trainings.
All of this is very, very expensive. And so it's definitely a complicated calculation that founders need to make when they're trying to, you know, break into this world of Sephora. So, Liz, it was capitalism all along. Everyone listening to this episode will be inside of a Sephora this weekend. I personally guarantee it. What should we think about this when we walk in for our concealer?
I think that Sephora has created a really exciting in-store experience, and that's really hard to do. You know, across the retail landscape, we're seeing so many retailers shutter and close. And here is Sephora constantly innovating, creating these really, really exciting experiences for us. ♪
But I also think that it is creating this culture of excessive consumption. It's constantly, you know, cultivating our desire for new beauty trends, and it's making us feel like we'll never have enough makeup or shampoo or skincare to make us feel beautiful enough. And so that's really problematic as well. Fast Company senior writer Liz Segrin. Liz, thank you so much. Thank you.
Amaska Llewellyn produced today's show. Amina El-Sadi loves a red lip. Andrea Kristen's daughter exfoliates with coffee grounds. And Laura Bullard enjoys a little red light therapy. Patrick Boyd shampoos with Atelier Bloom. Most luxe on the list. Go figure. The rest of our team, Abishai Artsy, Hadi Muagdi, Victoria Chamberlain, Peter Balanon-Rosen, Miles Bryan, Travis Larchuk, and Devin Schwartz. Jolie Myers is our deputy EP, and Miranda Kennedy is our EP, also pretty good.
Keep your third eye open for Sean Ramos' firm at South by Southwest in Austin on March 8th. He's going to be talking to New Jersey native Rami Youssef. I'm Noelle King. It's Today Explained. Get the Angel Reef Special at McDonald's now. Let's break it down. My favorite barbecue sauce, American cheese, crispy bacon, pickles, onions, and a sesame seed bun, of course. And don't forget the fries and a drink. Sound good? Ba-da-ba-ba-ba. At participating restaurants for a limited time.