When Morphe Beauty hit a rough patch early in the pandemic, as masked-up consumers turned from eyeshadow palettes to niacinamide serum, it looked to some of the culture’s biggest stars for help.

YouTube sensation Emma Chamberlain signed on as creative director of Bad Habit, a skin care label that launched at the end of 2020. TikTok mega-influencer Charli D’Amelio was tapped to release a fragrance, plus a skin care line developed with the help of famed dermatologist Dendy Engelman. A Demi Lovato beauty line was put in motion.

But the “silver bullet” was meant to be R.E.M. Beauty, according to several former executives. Forma Brands, the “brand incubator” formed in 2019 to manage Morphe and a growing portfolio of sister lines negotiated the license to release beauty and skin care products for the pop star Ariana Grande in early 2021, and rushed a line of space-themed makeup into production.

The first products were released in November amid a massive marketing blitz, including a launch experience in Los Angeles where guests could get their photo taken against a space backdrop with an R.E.M. flag, like a reenactment of Neil Armstrong and Edwin “Buzz” Aldrin planting an American Flag on the moon in 1969 (but with “Interstellar” highlighter).

“[Forma Brands’ leadership] all assumed it would be the silver bullet that would save the sinking ship,” said a former Forma Brands executive who requested anonymity.

Today, Forma Brands has little to show for its efforts. Chamberlain quietly left Bad Habit when her one-year contract expired; the brand reported just $3.4 million in sales last year, less than half Forma’s projections. D’Amelio released her fragrance, Born Dreamer, in June, but the skin care line has been shelved, as has Lovato’s beauty brand. R.E.M. Beauty’s release was overshadowed by other blockbuster celebrity launches, including Selena Gomez’s Rare Beauty and Hailey Bieber’s Rhode Skin Care; it is seen by many inside Forma as an expensive disappointment, according to several people with knowledge on the matter.

Meanwhile, Morphe’s status with young makeup enthusiasts continues to slip. The brand, still responsible for the lion’s share of Forma’s revenue, struggled to adapt when maximalist makeup fell out of favour during the masked up days of 2020 and 2021. Even as that look has made a comeback, many of the brand’s customers have moved on to competitors such as e.l.f. Cosmetics and Rare.

Now, Forma is exploring a less glamorous set of options to shore up its financial position, including a potential Chapter 11 bankruptcy filing, according to Reorg Research, which estimate the company has $600 million to $700 million in debt.

“Forma Brands is reviewing a number of options that would enable us to strengthen our financial position as we focus on prioritizing the brands that are most meaningful to our consumers and positioning the company for long-term growth,” a spokesperson said in an email.

Bankruptcy could actually be a “lifeline” for Forma, allowing it to reorganise and focus on reviving its most valuable asset, Morphe, said Marie Driscoll, managing director of luxury and fashion at consultancy Coresight Research.

“It’s an opportunity to distill their portfolio down to what is really relevant to today’s consumer, get rid of the dead wood,” she said.

The Celebrity Formula

For Morphe, influencers are part of the brand’s DNA. James Charles, Jeffree Star, and Jaclyn Hill’s massive YouTube followings helped generate millions of dollars in sales and eyeballs for the brand, which sells eyeshadow palettes, foundation, highlighters, brushes and more in Ulta and Target and its own stores.

But by 2019, it was no secret that the brand was struggling to adapt to a cultural shift in beauty trends. People were wearing less makeup and prioritising skin care. TikTok surpassed one billion global downloads that year. Following an investment from the private equity firm General Atlantic, Morphe relaunched as Forma Brands, an incubator that would quickly create beauty lines, or buy existing ones, in a bid to appeal to the next generation of consumers. General Atlantic declined to comment.

In 2020, the company debuted Morphe 2, a more natural makeup fronted by D’Amelio and her sister, Dixie; Bad Habit, a skin care line, and Such Good Everything gummy vitamins. That same year, the company also bought Lipstick Queen, a lipstick label, and Playa, a hair care range.

But while Morphe continued to lose ground to other low-price competitors like e.l.f. and Maybelline, the new brands were mostly flops: Such Good Everything has ceased operations and Lipstick Queen has sold through its remaining inventory ahead of a potential relaunch. Playa was dropped by Sephora earlier this year.

Meanwhile, Morphe ended its relationships with Charles and Star, who were both embroiled in very public feuds with fellow influencers, and faced allegations of sexual harassment and racism, respectively. Jaclyn Hill’s Jaclyn Cosmetics, another Forma brand, was mired in a controversy over “hairy” lipstick shortly after its 2019 launch.

According to internal documents reviewed by BoF, Forma Brands had budgeted for over $420 million in revenues last year, but was on track to come in about $80 million short of that figure. Morphe’s revenue last year was $295 million, according to the documents, down from about $500 million cited in media reports in 2019. Ironically, Jaclyn Cosmetics was the only Forma brand that came close to hitting revenue projections last year, with $18.2 million in sales.

“They had their eyes off the ball of Morphe,” Driscoll said. “They could have been grooming it and making it more relevant to today’s Gen-Zs.”

Instead, Forma doubled down on celebrity.

A Celebrity Saviour

Morphe has always taken big swings with celebrity beauty. It was Charles, Star and Hill who put the brand on the map in the first place, and their declining relevance was the biggest problem Forma had to solve.

Much as it had a few years earlier, the company’s instinct was to sign the biggest influencers it could find. At the time of Morphe 2′s launch, Charli D’Amelio had the most followers on TikTok (she is currently No. 2). Chamberlain, who received seven figures for her year-long assignment, ranked as the second-most beloved social media personality in Piper Sandler’s semi-annual survey of American teens.

Neither venture worked: Chamberlain’s millions of fans didn’t flock to Bad Habit, while Morphe 2 was unable to recoup the sales Morphe lost.

R.E.M. Beauty was a last-ditch attempt to make the celebrity-centric strategy work, several former Forma executives told BoF.

The company hoped Grande and R.E.M. would replicate the success of Rihanna’s Fenty Beauty, which kicked off the celebrity makeup craze in 2017, or Selena Gomez’s Rare Beauty, which exploded onto the market in 2020, quickly becoming a top seller at Sephora.

“We needed this brand to launch,” a second former Forma executive said. “The thinking was, ‘Ariana will launch and probably save the company’ because none of the brands were doing well.”

Forma spent millions of dollars on R.E.M.’s marketing campaigns, according to multiple sources, including two former executives with knowledge of the matter.

“We stopped spending — marketing money, people — on pretty much everyone but R.E.M. It was all on hold,” said a third former Forma Brands executive. “Investors would not approve any budgets until they saw how R.E.M. played out.”

Forma had a megastar name in Grande, top-tier production values for its marketing and strategically timed teaser posts on the singer’s social media accounts leading up to launch. But the brand failed to articulate what made it stand out amid an increasingly crowded field of celebrity lines: Gomez has a uniquely tight bond with her fans, and the products weren’t addressing an untapped need in the market, as Fenty’s 40 shades of foundation did.

A fundamental problem with R.E.M. Beauty was its ownership structure: Grande owns the brand, according to a source close to the singer, but licenses it out to Forma, which handles product development, manufacturing and marketing. While licensing deals can be incredibly lucrative, they can also feel impersonal to consumers, who may perceive that a star is lending their name to a product but isn’t intimately involved in its development.

Forma struggled with how to position Grande, according to Tony Wang, founder of Office of Applied Strategy and part of the team who worked on R.E.M. Beauty’s pre-launch brand strategy in early 2021.

“There were discussions around, ‘Is she super involved? Is she the face of the brand?’ or ‘Is she not the face of the brand, but one of many faces?’” Wang said. “It seemed they went neither here nor there. There wasn’t nearly enough involvement from Ariana to really push it and really sell her as the face of it, and there wasn’t nearly enough of a broader community push to bring in a roster of friends of the house. It felt like she popped in for some photo shoots and major launches.”

“Ariana Grande has been highly engaged and collaborative since the beginning of the relationship,” a Forma spokesperson said.

Whatever the reality behind the scenes, both Fenty and Rare can attribute much of their success to customers’ perception that the brands feel like part of their star founders’ identities. R.E.M. Beauty has struggled to build that same bond; according to Forma documents reviewed by BoF, the brand’s sales last year were 16 percent below internal forecasts.

By at least one measure R.E.M. Beauty was a success: unlike several other Forma projects in development around the same time, it saw the light of day.

Forma spent nearly a year developing a skin care line with D’Amelio, to be named Born Dreamer, but never released it (the fragrance under the same name launched in June). Forma spent close to a year trying to build a multi-category brand with Lovato. D’Amelio, Lovato and Dr. Engelman did not respond to requests for comment.

A Change in Influence

Forma’s uneven performance as an incubator leaves Morphe where it was before its reinvention as an incubator — still dependent on its image as an “influencer brand,” for better or worse.

Part of Morphe’s magic was being relatively early to capitalise on YouTubers. Many of its best known products bear the name of various stars of the video platform. Even though the brand no longer works with Charles and Star, it remains tied in many consumers’ minds to beauty YouTubers and their drama.

Who people are influenced by has changed as much as where they are influenced. Celebrity endorsements still lead to sales for legacy beauty brands such as Dior or L’Oréal, but the young customer Forma is targeting on TikTok requires a new approach.

Beauty routines and purchases are inspired by shorter clips of video made by non-influencers, which is how TikTok’s discovery-driven algorithm is designed to work. It’s the same idea — the promotion of a perfume or a Clinique lipstick — except it’s amplified by regular people who happen to also produce great content.

Now, the real influencers are the regular people on TikTok whose videos go viral — and as the unreleased D’Amelio skin care line shows, not necessarily the ones with the most followers.

“I don’t think Forma, or Morphe in particular, really understood how to build a brand without it being off the back of a face,” said Kirbie Johnson, beauty expert and co-creator of podcast Gloss Angeles. “Not one brand that they’ve made can stand alone.”