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The big players in the beauty industry have been facing tougher competition, especially in the last decade, as smaller, independent startups fight for a piece of the beauty industry pie. The direct-to-consumer approach is forcing corporates to develop brands that will be able to successfully compete in today’s competitive market.
Because of changing consumer buying trends, the corporate giants of the beauty sector are choosing to back startups and independent brands displaying potential, instead of creating their own brands from scratch. The industry has changed significantly, mostly due to consumers becoming more demanding than ever, who know what they want and seek innovation and transparency.
In the past, big brands were always able to easily pinpoint the needs of less-demanding consumers; today it’s a completely different market. Now there’s a growing recognition among the corporate giants of the beauty sector that acquisition is better than going it alone when you don’t have the competencies for the market. Smaller brands entering the market, have a passion and drive for innovation, and a direct approach to the audience.
Bigger brands have recognised this and are eager to incubate their own industry disruptors. Corporations live or die by their sales growth and the private equity community are eager to invest in the sector because it’s seeing the kind of continued recession-proof growth not seen in other sectors. This change in focus by corporations, has resulted in a significant increase in the acquisitions market.
Online visibility is another reason why big companies are backing and acquiring smaller companies. Online marketing continues to take the spotlight, creating a more direct approach to presenting new products and brands. Smaller companies have circumvented the traditional model of using celebrities and are connecting and establishing loyal communities and fans by listening and giving them exactly what they want. These smaller companies are often as much media companies as providers of products; perfecting their message in a clear, identifiable voice.
In a deliberate turn away from the old model where in-house teams worked to develop new products to complete a line’s offering, the big beauty brands are realising that it’s more efficient and more profitable to set up their own incubators and accelerators. It’s also a lot cheaper and lower risk to acquire a brand than to create a new one.
Previously the big companies were happy to sit back and wait until a brand reached a certain level of viability before acquiring them. Now they are seeing that as these smaller companies grow the acquisition prices increase dramatically. From a corporation’s perspective it makes sense to acquire these small brands earlier, at a lower cost and develop them with an incubator or accelerator programme.
Accelerators typically focus on providing short-term support in getting a brand off the ground, as opposed to incubators who get involved with a startup at an early stage, building a relationship early on. The differences between the two terms are becoming more blurred and are often used interchangeably.
Incubators are the perfect connection between the consumer and corporates, giving both companies and consumers what they want. Consumers are more demanding than ever, and startup companies are really good at identifying what the consumers need and expect. It’s the key to success, and big beauty brands know it.
Started by David Suliteanu in 2010, former CEO of Sephora Americas, today Kendo is supported by their parent company LVMH. As an incubator, Kendo’s aim is to, not only get brands off the ground, but turn them into beauty powerhouses. The brand’s name is a clever play on the words ‘can do’ and it clearly demonstrates their goals and intent to push the limits and provide innovation with each launch. Kendo brands such as Fenty Beauty, Kat Von D, Bite Beauty, Marc Jacobs, Ole Henriksen, and Lip Lab provide next-generation products and create their own differentiations within the industry.
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Kendo starts by creating stories around people, helping to create brands and amplifying their business by bringing it to life and to the market. A great example is the launch of Fenty Beauty in 2017, which initiated the conversation around the need for inclusive beauty.
Sephora Accelerate is a program that aims to build a community of female beauty entrepreneurs from around the world who show potential for innovation. Beginning with a boot-camp, entrepreneurs learn from beauty mentors and experienced entrepreneurs, to develop skills that are necessary for starting and developing a successful business.
The program invites 8 to 10 female founders to participate in the boot-camp and to receive mentorship as well, where they tackle business challenges with the help of seasoned entrepreneurs. At the end of the programme the Sephora Accelerate Demo Day provides a platform where they will get to present their company to potential venture partners, industry experts, and leaders within Sephora. It provides the opportunity for fledgling brands to get recognised globally and on the shelves of the major retailer. The 2018 Sephora Accelerate Cohort includes:
KJ Miller, Co-CEO of Mented Cosmetics, which is an upscale brand for women of colour, whose philosophy is based on giving a chance to all women to find themselves in the world of beauty.
Kylee Guenther, CEO of Spectalite, a brand that specializes in creating eco-friendly alternatives to plastic for beauty packaging.
Nelly Pitt, CEO of BeautyMix, a company that offers a hardware appliance that enable consumers to create homemade cosmetics.
L’Oreal Founders Factory
Founders Factory, the accelerator and incubator co-founded by Brent Hoberman and Henry Lange Fox, along with L’Oreal, launched their first cohort in January of last year when they selected five beauty tech startups for integration into their six-month accelerator program.
L’Oreal and Founders Factory partnered up to support the growth of five early-stage startups and co-create two entirely new businesses through their yearly incubator program. Their accelerator program will provide hands-on support to the selected startups, in all fields, in order to help them get their brand off the ground.
Some commentators have expressed a concern that when smaller brands are absorbed by the big companies that they may lose their ‘quirkiness’; one of the key features that makes them attractive to consumers in the first place.
With startups flooding the market, the corporates may find that choosing the winners and growing them successfully could be an expensive numbers game.