Making beauty compact
Independent makeup brand attempting to prove it can scale
Rachel Reid recalls traveling between Pittsburgh and Washington, D.C., a few years ago while working as a senior project manager for South Side-based mobile commerce company Branding Brand. She was basically living out of a suitcase.
Frustrated with the price and the sheer number of travel-sized products she’d amassed, Ms. Reid turned to an online hack that helped her carve out more space in her bags: putting a bit of each product into contact lens cases.
It’s not just mini-bottles of mouthwash that big box retailers are trying to push, she pointed out. Beauty brands are increasingly offering smaller versions of their holy grail lip stains or finishing powders to a consumer base desperate for convenience. The cost and bulk adds up quickly.
“I think it’s bull that this is the solution all of these billion-dollar companies came up with,” said Ms. Reid, a 27-year-old entrepreneur and e-commerce marketing expert originally from New Zealand. “If you look at products over time, they have barely changed. They’ve gotten bigger and more obnoxious.”
On Reddit, for example, makeup junkies like to poke fun at the monochromatic color schemes of Morphe eyeshadow palettes, which sort of look like a giant portfolio but with wells of colored powder inside. The joke being that most of the shades in the 9- by 6-inch palette look exactly the same.
To better use space and minimize waste, Ms. Reid created a company called Subtl Beauty, which sells a stackable makeup product that comes right from her original contact lens idea. She even quit her day job about one month ago to focus on the startup full time.
Small pink interlocking discs for cheek and lip tint, bronzer, highlighter, concealer and shine
control powder are twisted together into a short makeup stack that can be tossed into a purse.
Growing pains
Ms. Reid’s greatest challenge is not dissimilar to the uphill battle that automaker Elon Musk has faced at Tesla: large-scale production.
It’s really difficult to do as a startup and it’s often makeor-break for hardware companies that rely on contract manufacturers — essentially firms that produce the physical product on behalf of another.
To help fund her outsourced production, Ms. Reid raised $13,322 from140 backers on Kickstarter, a crowdsourcing website.
She’s selling each layer for $20. All five layers of makeup together adds up to $100 per makeup stack.
Although Tesla is producing its own Model 3s rather than outsourcing to a contract manufacturer, the problem is still analogous to what Ms. Reid faces at Subtl Beauty because the car company is in the process of expanding its production infrastructure.
In a 2016 conference call, Mr. Musk warned investors that the Fremont, Calif.based company was in for “production hell” as it tried to ramp up manufacturing capacity for its more affordable Model 3 cars.
Tesla predicted it could reach a production rate of 5,000 cars per week by the end of 2017. Instead, the company only produced 2,425 cars during the entire fourth quarter. Tesla has since surpassed that weekly production benchmark, per the company’s most recent earnings report.
Tesla’s scaling issue was a mismatch of demand and supply. Lots of people wanted the cars priced started at $35,000, but its factory wasn’t ready to keep up with that demand. Mr. Musk famously tweeted about having to sleep on the production room floor, he was so busy.
As an indie brand, Subtl’s beauty stacks are not facing excessive demand from consumers yet. If anything, most don’t know they exist.
And that makes it even harder to convince contract manufacturers to work with the company.
Low volumes, big dollars
Originally, Ms. Reid thought it would take a few thousand dollars and a few months to design, manufacture and ultimately put her beauty stack up for sale. Instead, it has taken about 18 months and $50,000.
Plus, she’s had to learn the ropes of contract manufacturing.
A particular barrier to entry, she found, was minimum order quantities. Contract manufacturers usually establish a minimum order size to ensure that there’s a decent profit to be made.
For Ms. Reid, manufacturers set that minimum at 10,000.
“If you’re making 100 Subtl Beauty stacks, they’re going to make pennies on each,” explained Matthew Verlinich, who serves as manufacturing program associate for North Side-based seed investor Innovation Works.
“A lot of time, you have no sales, you’re placing big orders ... it can be a pain for a contract manufacturer to take a risk on startups,” he said.
If the volume is too low for the manufacturer to make a lot of money, it may charge a premium. And that premium, in turn, makes it harder for a startup to sell at a competitive price to consumers.
“Oftentimes, I would introduce myself as the product developer for Subtl Beauty in order to make it seem like we were bigger than just me so that people to talk to me,” Ms. Reid said.
Outsourcing is in
It’s not just indie brands like Subtl Beauty turning to contract manufacturing.
In 2016, the market for contract manufacturing in cosmetics amounted to about $15.4 billion, according to a 2017 report by Grand View Research, a San Franciscobased market research firm.
The industry is expected to continue expanding through 2025, thanks to a rising trend in niche skincare products; high demand for lip colors, lip glosses and other cosmetics; as well as an increase in men using specialty hair styling mousses, hairsprays and deodorants.
“If you look at skincare and hair care, the major brands are looking at outsourcing to save on costs,” said Rohan Khade, a market research analyst at Grand View Research.
Ms. Reid plans to ship out the beauty stacks to her Kickstarter backers in time for the holidays. After that, the next batch will be available for purchase on the Subtl Beauty website, though interested buyers must join a waitlist.
And if it doesn’t all pan out?
“Financial insecurity is one of my biggest fears and I’m living it,” she said with a laugh. “If it doesn’t work, then I have however many thousand stacks.”