Birchbox, after a tumultuous 2016, has moved into to the black for the first time.
The pioneer of the e-commerce-based, beauty subscription service, which spent a year strategizing and downsizing staff to address growing pains, is entering its next chapter. This week, a second brick-and-mortar store opened in Paris, a sizable TV advertising campaign launched nationwide and a long-term partnership with MAC Cosmetics was revealed.
Thanks to a handful of restructuring initiatives, Birchbox is on an upward trajectory, Katia Beauchamp, the company’s cofounder and chief executive officer, told WWD on Wednesday. She confirmed that the firm has reached profitability.
Birchbox, which sends monthly boxes of beauty products for $10 to more than one million subscribers, was founded in 2010 by Beauchamp and Hayley Barna. It has raised nearly $87 million to date from investors that include Accel Partners, Forerunner Ventures, Glynn Capital Management, Harrison Metal and Lerer Hippeau Ventures. A spokeswoman for Birchbox declined to give specific dollar amounts, but she said the company brings in about 65 percent of revenues from its subscription box service and 35 percent from sales of full-sized products on birchbox.com, which has four million customers.
“Profitability alone is great and really exciting but it becomes more compelling when it’s profit coupled with reaccelerated growth, continued innovation and evolution of the product. It isn’t profitability in a static state of the business,” Beauchamp said.
She continued: “We have chosen a very differentiated path…because we’re focusing on a different customer than who is in the headlines today…[one who is] not currently obsessed or consuming a lot of beauty content and product. We are changing her relationship with beauty and building loyalty with her.”
The effects of Birchbox’s rapid growth started to reverberate company-wide early last year. The first sign of trouble occurred in January 2016 when 15 percent of the staff was laid off amid a restructuring. A second layoff swept Birchbox five months later when an additional 15 employees were let go. Last August, Birchbox raised $15 million from existing investors that was meant to act as a cushion as the company worked itself toward profitability in the back half of the year.
But at that time, the financial community had doubts about the viability of the company. Prior to the bridge loan, Birchbox raised a $60 million Series B round in April 2014 that valued the company at $485 million. After that, Birchbox went into retail, hiring a team in 2015 to oversee its brick-and-mortar expansion strategy.
While the seven-year-old company was unable to avoid some of the traps others have encountered while trying to navigate a new business model — scaling too fast and raising too much capital without a clear path to profitability, among them — Beauchamp managed to successfully change courses before it was too late.
“Fundamentally, [profitability was driven by] operational changes and making sure that we renegotiated contracts on fulfillment and getting boxes created so that we can realize the benefit of being a large business,” Beauchamp said.
Some e-commerce darlings have not fared as well, though. The most recent casualty is Nasty Gal, which filed for bankruptcy last November. BeachMint, among the buzziest ventures to hit the subscription service in 2010 with a handful of celebrity backers, couldn’t make it work. The company attempted to take over all operations for Lucky Magazine in August 2014, and shortly afterward closed its business.
Fortunately for Birchbox, the downsizing allowed it to do things such as up its presence on TV and focus on its physical retail footprint.
Amanda Tolleson, chief marketing officer of Birchbox, said a new TV spot that started to air this week tells the story of five different types of beauty customers — some who are “ignored by the industry.” Unlike the majority of beauty ads that are largely targeted to product junkies, Tolleson maintained that Birchbox took a different approach with this commercial, which was created in partnership with production agency The Bindery.
“She’s interested in beauty; she’s not obsessed and she doesn’t spend all of her extra time exploring the beauty world. She’s looking for efficiency in her beauty discovery,” Tolleson said.
She noted that even though Birchbox is a digital-first company, TV — a traditional media outlet — is an important part of the overall marketing strategy. The company started to air commercials in 2014 and took a break from March through May of last year to try to replace the reach and effectiveness of TV with social media advertising campaigns.
Video ads on Facebook were successful within the platform, Tolleson noted, but they failed to drive the overall boost in the rest of the digital marketing mix the way TV did.
“TV works on its own to drive performance, and it also drives efficiency across all the rest of our marketing spends. When it’s on air all the rest of our digital marketing becomes more efficient. It’s a halo effect across the rest of marketing,” Tolleson said, adding that TV is viewed as a performance channel in general, but it needs to, “on its own, drive subscriptions.”
Additionally, a key initiative for Birchbox this year is aligning with leading beauty brands like MAC Cosmetics.
For the Estée Lauder Cos. Inc.-owned brand, the partnership appears to benefit both parties. MAC is a heritage brand that gives the subscription service legitimacy and Birchbox is opening up a new vehicle for customer acquisition.
Birchbox quietly rolled out about 20 MAC products on birchbox.com in February, and by the end of this week will grow the assortment to 50 products and 200 stockkeeping units. In May, the service will begin to sample MAC’s signature Strobe Cream and False Lashes mascara in its subscription boxes, and throughout the year another five to 10 different products will be sampled in the same capacity.
Eric Neher, vice president of merchandising at Birchbox, said data found that 65 percent of the brand’s customers don’t currently use MAC. But that’s about to change, as Birchbox plans to reach 75 percent of its customer base this year through MAC sampling.
“It’s an opportunity to have a blank slate with a brand that has so much recognition…My merchandising team and MAC [worked together to figure out], ‘What does MAC look like for a totally different customer that will approach the brand in a totally different way?'” Neher said.
“The strategy is to speak to what’s core to MAC and represent all of their bestsellers in the strongest categories, but we want to use the lens of our own customer to create an assortment that would resonate with her,” Neher added.
Like Birchbox, MAC is also in a period of transition. In the past month alone, the brand named a new creative lead and a shakeup in its distribution strategy, for the first time turning its focus to the specialty retail channel by way of Ulta Beauty.
“We have a pretty aggressive sampling strategy over the next year,” said Laura Elkins, MAC’s senior vice president, global consumer marketing. “In a very short amount of time we became a top selling brand on Birchbox.com. While we piloted at first [and will start to sample next month], we’re all encouraged by the initial result. We’ve never sampled this way before.”
In tandem with sampling, MAC will kick off a full marketing strategy that includes education and tips and tricks to contextualize the brand for Birchbox subscribers.