When Il Makiage came to market in 2018, the DTC makeup company seemed to be ahead of its time with its bold proclamations. Sure, it sold 50 shades of its Woke Up Like This foundation (a standard, thanks to Fenty Beauty), but its far more compelling proposition was that it claimed to find one’s foundation shade in 90 seconds, using an artificial intelligence-backed shade-matching questionnaire. While far from the norm of buying complexion products in person, a customer’s Il Makiage foundation match was expected to be 90% accurate.
“The fact that beauty was one of the most underpenetrated categories in e-commerce was not great, so we set out to build out a company around our technology. I couldn’t understand how people were connected to their phones day and night, but were making 85% of beauty purchases offline,” said Oran Holtzman, Il Makiage co-founder and CEO, of pre-Covid times. To support that technology ambition, Il Makiage’s 180-person team (across New York and Tel Aviv) is made up of 45 data scientists and engineers, as well as 80 customer support team members in Tel Aviv; the remainder of its staff works out of its city headquarters.
Now that Holtzman has tackled makeup — more on that later — he is ready for phase two. In 2021, Il Makiage will launch Il Makiage Skin, a new skin-care offshoot; expand the existing brand into five new countries (it’s currently sold in the U.S., Canada, the U.K. and Germany) and debut a still undisclosed DTC beauty company in the second quarter. “We are going to disrupt another category and disrupt beauty all over again,” he said. “It’s a completely new company, a new team and new technology, and it has the potential to be huge. It takes all of our knowledge and capabilities, and leverages them even further.”
Holtzman is bullish, and it is easy to see why. He could not have predicted a global health crisis, but Il Makiage is now one of the few makeup brands that is veritably pandemic-proof. Il Makiage owns not only its proprietary technology, but also its customer data. In my 21-question quiz on a laptop, I was prompted with multiple choice on undertones and skin concerns, multiple pictures that could possible resemble my skin tone, and an ask around my current foundation brand. Towards the end of the quiz, skin-care questions popped up, including those on products used before foundation and products that need a revamp. The company said it has 15 million users and uses 500 million data points.
It has also proven that it can break into a tough category like foundation, which was once owned by conglomerates like Estée Lauder Companies and L’Oréal. Complexion products make up 70% of Il Makiage’s sales. Though the makeup category was down 31% year-over-year in the third quarter of 2020, to $1.4 billion, according to NPD Group, Holtzman said Il Makiage grew 100% in the last year, after “high” triple-digit growth between 2018 and 2019. When asked if the rumors that the company will hit $150 million in net sales for 2020 was accurate, Holtzman said, “Let’s say that you’re in the right ballpark.” Currently, Centerview Partners and Goldman Sachs are exploring sale and IPO options.
Though Holtzman would not disclose possible buyers, he said, “The company is hyper-profitable online and driven by technology. As expected for such a company, we’ve received a lot of inbound inquiries over the past year. We’ve hit over $100 million in revenue and have runway to get to $500 million. I think the street will love us, but I can also see us being a valuable strategic asset.”
Holly Zimmerman, partner at Centerview Partners and head of consumer innovation at the firm, agreed. She is working closely with Holtzman to explore sale and IPO possibilities for the brand. “Il Makiage has built a leading beauty brand in less than two years, which in itself is impressive. But, to have achieved this growth exclusively through their own website — that is remarkable. All brands talk about data, but few have figured out how to actually use it to drive their businesses,” she said.
It’s been a while since a beauty company IPOed. The buzz around Glossier’s proposed IPO has quieted. This is partly due to Covid-19, but also because of the company’s swell of VC funding and questions around profitably. E.l.f., which went public as a mono-brand company in 2016, went through ups-and-downs in the market, but has regained traction. This year, it has built out its larger portfolio with Keys Soulcare and W3ll People. And Hims & Hers went public this year through a suddenly popular SPAC merger.
With Il Makiage moving into skin care and launching a second company, it appears an IPO might be easier for the company, compared to other brands. Il Makiage Skin has been in the works since Il Makiage got off the ground, and it will likely use much of the data already accumulated in makeup for skin-care product and marketing. And while Holtzman would not share the five new geographies Il Makiage will be launching in 2021, he said that all of the sites will have local influencer and content strategies, alongside local PR plays and, of course, local shipping.
At the same time, the brand’s data play, which is informing its new brand and company, would be an asset for a L’Oréal or ELC. Both have been eyeing brands on the regular, according to sources, though Estée Lauder Companies lost out on Drunk Elephant and Charlotte Tilbury in the final hours.
Either way, Holtzman is keeping an open mind. And is not expecting a pandemic-related online sales boost to last forever.
“It’s important to know that when I say that we are shifting customers — millions of customers — from offline to online, it’s not just because of Covid. Almost 50% of our customers have never shopped online, period. We are fighting for online customers with all the retailers and all the brands,” said Holtzman. “Even though more headwinds are coming with Covid, like wearing less makeup and millions being out of work, I think our future looks better than most.” — Priya Rao, executive editor
The Year Ahead
Many in the beauty business can’t wait till 2021, and not just because of the old adage of new year, new you. The global beauty market is set to surpass 2019 levels next year, proving its resilience over other categories like fashion, accessories and jewelry.
Though the speed of the recovery will depend on region and category — China and mass beauty will remain winners next year — the overall outlook, for some, is a bit more nuanced than that. Ahead, Emily Gerstell, associate partner at McKinsey & Company, shared her thoughts for 2021.
Lessons from China
According to McKinsey & Co., China had surpassed its total 2019 beauty sales in the first half of 2020. It is expected to have an 8-10% average annual growth from 2019-2021, but similar growth is unlikely to come to pass for Japan, most of Europe or the U.S. In the states, Gerstell expects 3-4% growth from 2019-2021. However, companies can take advantage of learnings from China, and certainly quicker than they are.
“China’s benefiting from onshoring demand that previously had been spent abroad, but the way in which those brands have a much more playful and closer consumer connection seems to be important to driving their growth,” said Gerstell. That encompasses not just content and marketing exercises, but also to mobile payment options and even marketplaces, she said.
“Brands have been much more quick to embrace marketplaces in China than they are in the U.S., so there’s probably some question around, ‘How are you a little bit less precious with your brands?’ and ‘How do you adjust to the new reality of channel distribution here?’” she said, of options like Amazon. “Consumers trust many of these marketplaces, so [the decision not to sell on these platforms] has more to do with brand image than a sales opportunity.”
The consolidation of beauty shopping
Beauty brands’ greater consideration of platforms like Amazon, as well as specialty retailers like Ulta and Sephora partnering with Target and Kohl’s, respectively, stresses a new importance of not going at it alone.
“There is a need for increased distribution, access to the consumer and a democratization of what it means to get access,” said Gerstell, of the recent pairings.
Speciality still matters
But that’s not to say the big beauty players like Sephora or Ulta will matter less. They just have to rethink their positioning, as well. “You can have a superior e-commerce capability and experience,” like a DTC brand or a mass retailer. “But actually, consumers still care about speciality expertise and education — it’s just where they are finding it is going to look different,” said Gerstell. “They might not directly walk into Ulta, but they would head into an Ulta shop-in-shop in Target.”
She continued, “Even with a player like Target, which has invested a tremendous amount in elevating their beauty assortment over the years, there’s some recognition that actually there’s a limit to that. What the consumer wants, in terms of an experience, goes beyond just a non-beauty player investing in beauty. The consumer wants a specialty beauty experience and the way that feels.” — Priya Rao
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