The beauty industry is worth some $500 billion annually, and the Covid-19 pandemic has led to a sharp rise in the proportion of sales being carried out online. Today, a London-based beauty startup is announcing a major round of funding in hopes of reaping the spoils of that trend with a direct-to-consumer online storefront selling own-label goods.

Beauty Pie, which describes itself as a buyers club for high-end beauty and wellness products — any consumer in the U.K. or U.S. can buy direct, but when one joins the buying club either for a month (£10/$15) or a year (£59/$59), deep discounts per item kick in — has raised $100 million, funding that it will use to continue expanding into a wider set of categories, and to target users with a wider set of sales channels and more infrastructure (warehouses, more pop-up retail) to source and sell its “basics”-styled goods, typified by clean and simple, no-frills packaging with a focus on product inside.

“I don’t believe in business models where you spend tons on marketing,” Canadian founder Marcia Kilgore said in an interview. “So we want to focus the funding on opening new warehouses, moving into new territories, and maybe some pop-ups. We are Sephora meets Costco.”

The funding — a Series B — is being co-led by Index Ventures and Insight Partners, with previous backers Balderton Capital, General Catalyst and Latitude VC (a sister fund to London-based seed investor LocalGlobe) also participating. Beauty Pie, founded in 2016, has now raised $170 million to date. It’s not disclosing its valuation, but from what we understand estimates on PitchBook of $1.33 billion are not accurate (close sources tell us that the valuation is under $1 billion currently).

Beauty products are for many a very discretionary purchase, and that is even more the case for the higher end of that market — expensive and luxury brands. Skincare, cosmetics, hair products, and the rest are not in the same category of essentials as food, and if you do absolutely need a product, there are very cheap alternatives always available.

However, the last year and a half of Covid-19 living has had an interesting impact on that relationship. Many consumers have seen the opportunities to go out and spend money on activities significantly curtailed, and at the same time they have been looking for ways to pamper themselves in these complicated times. Combining that with the fact that non-essential stores were forced to close, or saw significantly reduced footfall, in many parts of the world, and that has translated to a huge boost for online shopping for beauty products, and especially nice ones. Treat yourself has become a fully-fledged beauty and wellness sales strategy. McKinsey notes in a report on the impact of Covid-19 on the beauty industry that will in-person commerce had pre-Covid dominated sales, accounting for 85% of revenues, online had taken up to 30% share in the pandemic, a huge shift in a short space of time.

The key to Beauty Pie’s model is that it sources and buys in high-end products from a range of producers and sells them under its own private label. Not unlike Amazon in its own private-label endeavors and how it combines this with its own Prime buying club model, this lets Beauty Pie sell products that compete with the best on the market, while also undercutting those high-end brands in the process. It says typical mark-ups for brands are 10x the cost of making a product.

By offering products in two tiers — one for those not in the club, and one for those who are paying a premium to be in the club — it also means that the startup still makes a margin on the items that it sells. The very simple approach is also reflected in the products themselves, which emphasize what is inside the packaging more than what it looks like on the outside, the implication being that Beauty Pie’s own focus is on the substance more than the aesthetics (ironic given that the end game is all about making us all look and smell better).

The model has so far been a successful one for the company, even with the initial stumbles it, like others, faced at the start of the pandemic. For Beauty Pie, when Covid-19 kicked off, it took its foot off ad spend, Kilgore said, because it could see supply issues shaping up, and it did so to manage how much demand it was going to get in, so that customers would not turn away disappointed. That soon got up to speed again, and now the company has some 300 to 400 SKUs on offer.

Kilgore claims that its customer retention rates are currently higher than Spotify’s and Netflix’s and twenty times higher than other D2C beauty companies, partly a result of the buyers’ club model. Members more than doubled in the last year, with revenues growing by more than 100%, and the company turned profitable last year for the first time, too.

“After only 48 months in operation, Beauty Pie‘s annual and monthly subscriber figures are incredible,” Danny Rimer, a partner at Index Ventures, wrote last December (likely a blog post that subtly kicked off the fundraising that we are writing about today). “At Index, we’ve never seen customer retention like this before.”

It helps, too, that Kilgore is not a first-time founder. She’s also the force behind the shoe brand Fitflop, Soap and Glory and other apparel and beauty enterprises.

“Marcia has spent decades building businesses that genuinely treat customers the way she would want to be treated, and Beauty Pie is the epitome of that ethos. With its transformative value chain and membership model, [it] lets members have their pie and eat it too: the best products at the best prices,” noted Rebecca Liu, Principal at Insight Partners, in a statement.

Source: TechCrunch

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