The 15% Pledge Is a Mixed Blessing for Black Beauty Brands

(Bloomberg Businessweek) -- Six years ago, Lauren Napier founded her namesake beauty company with her tax refund check and American Express card after she was denied a $50,000 bank loan. Today, Napier is suddenly fielding hundreds of emails and Instagram DMs from venture capitalists and retailers who once wouldn’t take her calls. The financiers want to hear about her line of makeup wipes, and the retailers want to stock it; it’s a rapid reversal triggered by the violent murder of George Floyd in May that ushered in widespread global calls to “Buy Black.”

Beauty retailers, long the arbiters of a feminine ideal that skewed skinny, rich, and White, have leaned into the cultural moment. Sephora has signed onto the fledgling 15 Percent Pledge to reserve that share of shelf space for products from Black-owned businesses, and Estée Lauder Cos. plans to more than double sourcing from Black suppliers over the next three years. Clothing chains and department stores are also reaching out to Black-owned beauty brands as they try to capitalize on the current public interest in equality.

But for Black business owners—the least likely to receive bank loans and VC funding—the cost to be in retail is a heavy burden, and a deal to supply a national chain can either make their business or tank it.

According to several Black business owners who say they’ve been approached this summer about selling their beauty brands at a major retailer, getting into the store itself sometimes means handing the retailer a 50%-to-60% cut of their sales. That quick blow to profit margins leaves little wiggle room going forward. And there’s still product to supply. Covid-19 disruptions aside, it’s rarely acceptable to not have inventory available upon request by a major merchant. That means manufacturing more product, which needs to be packaged, shipped, and delivered to the stores carrying the items, adding up to tens of thousands of dollars in out-of-pocket costs. Once in the store, the price for a display to showcase the brand can run several thousand dollars, which can quickly multiply if a chain decides to stock the products in many locations. And the retailer isn’t paying for that, either.

If smaller brands “can’t cover it, and you fail and don’t succeed in their doors, you’re out and you may never get back in again,” says Ron Robinson, founder of skin-care brand BeautyStat Cosmetics. Still, Robinson, who sells BeautyStat in some smaller mass retailers including Macy’s Inc.-owned cosmetics chain Bluemercury, says he’d be willing to dedicate a “significant” portion of his own budget to fund digital marketing to get his brand into a larger chain. “I want to win there,” he says.

Marketing isn’t cheap, either. It’s common to pay more than $500,000 in a given year, especially because major beauty merchants Ulta Beauty Inc. and Sephora prefer signing brands that will sell their products both online and in-store, meaning two separate places to spend on marketing. Then, if a brand wants to expand its audience through the retailer’s website or social media channels, promotions can run a few thousand dollars a day, brand founders say. A retailer could also arrange to run a full-page ad in a glossy magazine promoting the minority brand’s product—and send the brand owner the bill of $10,000 to $15,000.

“You’re looking at millions of dollars,” Napier says, tallying up the potential costs to Black-owned businesses trying to break into a big-name retailer and stay there long term. Napier, who sells primarily through her own website and luxury retailer Net-a-Porter, says she fears some businesses will sign on without fully understanding the risks. “My concern is that we won’t take the time, that we’ll look at the opportunity without understanding the gravity of a commitment that size because we’ve wanted it for so long.”

Sephora, a unit of French luxury giant LVMH SE, was one of the first beauty merchants to agree to the 15 Percent Pledge, a campaign started by Canadian fashion designer Aurora James. Sephora said it will also work to improve Black-owned brands’ access to venture capital and focus on women of color through its incubator program. The commitment stood out to beauty brand founders who’ve spent years vying for the chain’s attention, let alone a spot in any of its 400-plus U.S. stores.

Ulta’s own effort to diversify the roster of brands it carries is under way, though it didn’t formally sign the 15 Percent Pledge, a spokeswoman said.

But these first steps aren’t yet translating into tangible gains for the beauty brands vying for shelf space. In addition to this challenge, founders are not yet sure whether the renewed interest in their brands has staying power. Their businesses have always been in plain sight, and the calls from retailers started coming in only after Floyd’s killing in Minneapolis sparked public outrage, forcing corporate America to take notice.

Although some retailers demand an expensive in-store presence, Macy’s let Kitiya King, founder of Mischo Beauty, sell her nontoxic nail polishes only online at her insistence. And it’s working out for her, she says, especially given pandemic-related store closures and slower in-person foot traffic. “I don’t even care about being in the store too much,” she says. “People can shop 24/7 online. That’s where it is right now.”

In fact, in-store might not be as good a fit for some brand founders as it may have been even a few years ago. Covid-19 hasn’t only cratered physical stores; it’s also accelerated an e-commerce boom that isn’t slowing down, casting greater doubt on the future of brick-and-mortar.

It’s all about meeting customers wherever their shopping habits lie, says Desiree Verdejo, founder of Hyper Skin, a brand to treat skin blemishes and acne scars. “You can be performing incredibly well with your direct-to-consumer business and not give up more than half of your sales to a retailer,” she says. “Retail is a path. But it’s not the path.”

©2020 Bloomberg L.P.