Birchbox CEO on The Digital Beauty Darling’s Next Big Thing: Stores — ‘A Multibillion Dollar Opportunity’

Direct-to-consumer beauty darling Birchbox made its name online. But the prestige subscription box brand has come to realize that there's gold in them there stores.

Indeed, its partnership with Walgreens swings open the door to a multi-billion-dollar opportunity, said Katia Beauchamp, CEO, who co-founded the retailer in 2010.

Birchbox’s expansion offline to big retail, where it has launched branded shops in 12 of Walgreens’ 9,560 stores, builds on Beauchamp’s vision to court not the “passionate,” but the “passive” time-starved shopper — the everyday woman who represents 70% of the beauty market in the U.S. but is woefully underserved at the nation’s mass retailers, she said.

The move also reflects market realities. Direct-to-consumer brands might be hogging all the industry buzz, but brick-and-mortar stores still account for the lion’s share of beauty sales in the U.S. — which offers Birchbox substantial distribution potential that can’t be matched online, in what’s become an overcrowded playing field, Beauchamp said.

“We are laser-focused on reaching the casual beauty and grooming consumer, who we believe represents a massive opportunity in both the U.S. and global markets,” Beauchamp told CO—. “We're evolving what we offer — and where and how we offer it — to become a forever part of our customers' lives.”

Focus in the real world

Birchbox’s online beauty sample service will remain a key discovery tool while serving to complement and enhance the in-store brand experience. It’s also an evolution of the company that’s critical to achieving scale, sales growth and profitability, she said.

The shift follows a downsizing at Birchbox over the past few years that cut 15% of its staff as it faced a tough market raising the capital to expand. Last year, Walgreens acquired a minority equity interest in Birchbox.

Challenges revealed two main things, Beauchamp said.

“The restructuring was about changing the financials of the company, and saying, 'How do we act in a way that’s about profitability?'" One key realization: “If you’re a digital business, those channels are getting more and more crowded,” and connecting with shoppers online to build community was getting tougher, she said.

“So, while we’ll continue to be a digitally native business, we are going to focus that business meaningfully into the real world.”

For Birchbox, which operates two of its own stores in New York City and Paris, the Walgreens collaboration marks a multibillion opportunity for sure, Beauchamp said. The drugstore chain’s massive footprint, which is accessible to 78% of the U.S. population, offers an immediate opportunity to scale. What’s more, the difference in the conversion rates (the percent of store/site visitors who make a purchase) between digital sales and in-store sales are “insane,” she said. Indeed, in-store sales are more profitable than digital orders, which are saddled by shipping costs.

With an eye toward boosting profitability, Birchbox is very focused on this consumer, who represents the vast majority of women, and we have to think about serving her from a multichannel perspective, Beauchamp said. “Our mission is to build a destination for the casual consumer. We want to be the place she’s choosing to spend her [beauty] dollars.”

A ‘do it for me’ beauty strategy

While the passionate beauty shopper is lavished with attention at specialty chains like Ulta and Sephora, the passive shopper isn’t getting her needs equally met, Beauchamp said.

This is a consumer for whom the paradox of choice is all too real.

Unlike the beauty enthusiast often found in specialty beauty merchants who delights in the process of discovery, scouring and vetting thousands of products in store, Birchbox’s shopper doesn’t want to sort through the vastness of what can be a sea of confusing options, she said.

She’s not the shopper who’s watching strobing videos (the new contouring) on YouTube, Beauchamp explained.

In Walgreens, Birchbox found a like-minded partner, bonded by a core customer who craves a do-it-for-me shopping experience that takes the guesswork out of buying beauty.

Birchbox’s target consumer is a woman in her 30s with an average household income of around $100,000. While Walgreens’ shopper skews older with an income on par with the average American shopper, they share a purpose-driven kinship, Beauchamp said.

Birchbox’s shops at Walgreens aim to serve both. Ranging from 400 to 1,000 square feet, the Birchbox-Walgreens experience is designed to simplify and demystify the beauty purchase for consumers who are craving just that. “Our goal is to make it 100% clear that Birchbox is a destination designed for them by delivering a delightfully low-effort, high-efficacy way to discover the best new products,” Beauchamp said.

The shops, staffed by Birchbox trained store associates, feature a curated mix of full-size makeup and skincare from prestige and indie brands atypical of a mass retailer, merchandised according to the steps in a beauty routine.

A trip to at Birchbox store at a Walgreens Duane Reade store in New York City’s Soho neighborhood turned up in a discovery-driven space with self-navigating displays that guide shoppers according to their beauty goals, from “cleanse” to “detoxify,” marked with instructive signage like, “your everyday essentials” and, “routine add-ons: elevate your look.”

Other offerings include Birchbox limited-edition boxes and exclusive kits, as well as “Build-Your-Own-Birchbox,” where customers can “pick and mix” various products to create their own box.

Bringing indie, direct-to-consumer prestige to the masses

The merchandising tack departs from the brand-driven approach found in Sephora to department stores’ glossy big-name beauty counters, and that’s by design. Hence, products from assorted brands co-mingle on a display in service of the customer, not the vendor.

But that’s not to say that brands don’t matter at the store. They matter plenty. Birchbox brings prestige beauty brands into Walgreens stores and allows customers to discover and shop for new brands in an interactive and accessible way, Laura Brindley, group vice president of beauty and personal care for Walgreens, told CO—.

“In addition to full-size skincare, makeup and hair products from more than 40 prestige brands in Birchbox’s portfolio – [the assortment] includes a mix of innovative, indie brands and Birchbox cult favorites. Examples of brands include Sand & Sky, Wander Beauty, Beachwaver, rms beauty, Davroe, Acure, Embryolisse, Winky Lux and ARROW,” she said.

The U.S. beauty industry has long been a tale of two retail markets: prestige brands at department and specialty stores from Nordstrom to Sephora and mass products at discounters like Walgreens and Target.

“But within specialty, the blurring of channels that Ulta has brought brings mass and prestige together,” Beauchamp said. “And direct-to-consumer brands are making a lot of waves in the [long] controlled beauty channel, launching without any physical retail strategy.”

Across industries, digital-first brands from Birchbox to Casper mattresses and Warby Parker eyewear have disrupted the incumbent brands in their respective product categories.

But, like Birchbox, they are increasingly turning to traditional retail to reach new shoppers via standalone stores and partnerships with bigger, established players. Despite the steady growth of e-commerce over the last decade, brick-and-mortar retailing continues to dominate the distribution landscape, accounting for 81% of global sales in beauty and personal care in 2017, according to Euromonitor data.

An upmarket push

The Birchbox shops also come as mass retailers try to elevate the customer experience when you walk into the store to mirror the specialty store experience, said Lisa Berger, managing director of beauty at executive search firm Solomon Page Group.

“The launch of this collaboration with Birchbox marks further progress on Walgreens’ enhanced beauty offering for customers, which includes a differentiated beauty offering in approximately 3,000 stores and more than 3,500 in-store beauty consultants,” Brindley said.

Archrival CVS has its own beauty upgrade underway with its IRL format that spotlights on-demand salon services via a collaboration with Glamsquad as well as indie brands, just as Amazon launched a beauty shop last fall.

Despite the mass channel’s flirtation with prestige fare, you still won’t find a Chanel counter in a U.S. drugstore chain, as many of the traditional brands fear diluting their tony brand equity.

It’s a very different picture overseas, where Shoppers Drug Mart in Canada and Boots, the U.K.’s largest drugstore chain, sell prestige and global indie brands alongside mass-market lines.

Berger sees direct-to-consumer brands like Birchbox ushering in a new era of prestige beauty in the nation’s drugstores, she said, noting Walgreens’ 2015 acquisition of Boots’ parent company, Alliance Boots. “In 20 years, these direct-to-consumer brands [like Birchbox] will be the next prestige products,” Berger predicts.

Beauchamp says that, so far, the Walgreens shops have had a halo effect on its business. The curated assortment of brands adds value and content to buying beauty, and the reception has been great. “When we give that customer a Birchbox experience, they increase their spend significantly,” she said.

Walgreens’ Brindley said customer feedback has been extremely encouraging. “We are working to open additional stores by spring. As with other pilots, we will gather key learnings and customer feedback to determine any future steps, as well as additional collaboration opportunities.”

As Birchbox evaluates the shops’ performance and explores different iterations of the model, plotting an expansion strategy is premature, Beauchamp said. “’What does it look like to be in 100 stores?’ is the next question,” she said.

Looking five years down the road, Birchbox aims to have earned a spot as a household name for the everyday consumer, its target consumer, and what she thinks about when she thinks about buying and discovering beauty, said Beauchamp.

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