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How Digital Beauty Brands Are Making Wholesale Work

Despite the pandemic, stores still matter in the world of cosmetics and personal care. Here’s how digital brands are working with physical retailers to make the leap.
Peach & Lily's Ulta shopping bags | Source: Courtesy
  • Tamison O'Connor

NEW YORK, United States — Launching wholesale retail during a pandemic may seem counterintuitive: beauty business has boomed online as a result of lockdowns and cautious shoppers looking to avoid visiting stores.

But in beauty, stores still matter.

Pre-Covid, brick and mortar accounted for 85 percent of beauty sales, according to McKinsey. And while online beauty sales surged during the spring lockdowns, customers quickly returned to stores once they reopened. Ulta Beauty said same-store sales were down 10 percent in July after most of its stores had reopened, a smaller decline than many fashion brands have seen this year. Retailers like Walmart and Target, which sell groceries, medicine and other "essential" products, are also doing brisk business in beauty. Target's beauty business grew more than 20 percent last quarter, the retailer told BoF.

The partnership has got to be a win-win for everyone.

For many direct-to-consumer brands, the ultimate goal is to land a nationwide or even global distribution deal with a major retailer to get a dedicated space at Target like Harry’s, or a high-profile launch at Ulta like Kylie Cosmetics.


But it’s not a transition that is easy to pull off, and brands that have made the transition say it can take years of careful planning.

“The partnership has got to be a win-win … for everyone,” said Eden Palmer, vice president of merchandising at Forma Brands, which owns Morphe. In the US, sells its products at Ulta Beauty in addition to operating its own website and over two dozen of its own stores. “Each of the retailers have their own voice and their own strategic interest. It's … almost like dating.”

BoF spoke to brands and experts to break down what labels need to consider before making the leap.

Build a name for yourself first

Brands pursue wholesale partnerships for the exposure. But they need a loyal fan base first to stand out among a crowd of rival products.

“They need a little bit of awareness before they go to retail, or they might die really quickly on the shelf,” said Mary Pickering, a beauty consultant and senior partner at Simpactful who helps start-ups and direct-to-consumer brands negotiate deals with big retailers.

Pickering advises brands she works with to achieve at least 10 percent brand awareness before branching into brick-and-mortar, something companies can measure by conducting a brand awareness study of at least 2,000 people.

They need a little bit of awareness before they go to retail, or they might die really quickly on the shelf.

Retailers pick up DTC brands to attract new types of customers, and can be willing to offer prime display space and marketing, among other support, often in exchange for exclusive deals to sell their products, she said. Sometimes the brand itself has to pay for promotions, however.


Pop-ups and trial partnerships with speciality retailers can help boost brand awareness offline. Harry’s had short-term partnerships with J.Crew, Barney’s and a string of independent barber shops before launching in Target in 2016.

"It gave us conviction that people wanted to experience our brand in a retail environment," said Co-Founder and Co-CEO Jeff Raider.

Choose your partner carefully

Don’t jump at the first retailer to come knocking. Finding the right retail partner, and one that is aligned with ambitions for your brand, is crucial. Brands need to consider the image they’re trying to portray, said Pickering.

Other considerations include whether the retailer will respect the way you want to grow, and whether they are able to sell at the price point you want.

“What you don't want to do is have the same product online that's in the store and for it to be cheaper in the store,” said Pickering. “It's like the kiss of death to your direct-to-consumer business.”

Peach & Lily began as an online Korean Beauty retailer, before launching its own household brands: its mass price point brand, Peach Slices, debuted in 2017, closely followed by a premium line, Peach & Lily Collection, in 2018. Founder Alicia Yoon thought about which retailers would be best suited to each individual brand. Peach Slices launched with CVS, while Peach & Lily Collection prioritised an Ulta partnership.

This is a way for us to drive brand awareness up [and] meet both of our customers where they are.

Skincare brand Starface turned down many retailers that approached them, knowing its end goal was partnering with a large, nationwide retailer like Target, said Julie Schott, who co-founded the brand with Brian Bordainick last year. Target, which the brand entered earlier this month, made sense because of the scale and the customer: the brand is well known for its Gen-Z audience, reaching them via text and on TikTok, but it’s also seen an increase in parents purchasing the products for their kids.


“This is a way for us to drive brand awareness up, meet both of our customers where they are,” said Bordainick.

A spokesperson for Target told BoF partnering with DTC brands gives the retailer “the benefit of adding newness and an element of exclusivity.”

While brands need to be prepared to pitch their products to retailers, they should consider carefully what they want to get out of the relationship and be prepared to make those asks upfront. Beyond the obvious, such as in-store placement, this could include points like web search terms for products on the website, and how the retailer plans to support upcoming new product launches.

Finding the right partner and hashing out the best deal for a brand can take time. Harry’s fostered its Target relationship for two years before launch. Its Walmart partnership also took two years to cultivate.

Calculate whether margins can take the extra pressure

Before making the jump into wholesale, brands need to consider if the business is ready financially, as branching into wholesale can put significant pressure on internal profit margins. Retailers can take as much as a 60 percent cut.

Reviewing and optimising ingredients purchasing is one way to boost internal margins before branching into wholesale. For others, margin pressures can be alleviated by partnerships that guarantee exposure in thousands of doors, using economies of scale to drive down production costs and keeping internal profit strong.

For Starface, entering 1,500 Target stores meant significantly ramping up production of its star-shaped pimple stickers and bright yellow moisturisers. Beyond protecting internal profit margins, higher volume orders meant Starface was able to lower the price of its skincare products for consumers too.

“As you're able to start jumping units from 25,000 to 100,000 to a quarter million, you're really able to see significant price breaks,” said Bordainick.

Make sure your supply chain is ready

Going into hundreds, or even thousands of stores requires supplying much more product. But managing inventory can be tricky. Overly aggressive forecasting could lead to stockpiles of product that’s tough to shift and bad for cash flow. With overly cautious forecasts, brands run the risk of running out of stock.

“If your forecast isn't actually right, and you don't have enough inventory, there can actually be a lot of lag on shelf, before products are available again,” Yoon said. It can be weeks before a product that’s arrived at the brand’s warehouse actually arrives on the store shelf, she said.

Even if it's more expensive, the most important thing is to be in stock again, as soon as possible.

Yoon faced this dilemma when demand for Peach & Lily’s Glass Skin Refining Serum and Super Reboot Resurfacing Mask surpassed expectations and sold out on the first day of launch. She felt it was necessary to airship more product from her manufacturers in Korea to replenish stock as quickly as possible to capitalise on buzz.

“It was painful [financially], but what we realised upfront is, even if it's more expensive, the most important thing is to be in stock again, as soon as possible,” she said.

Keen to minimise the risk of running out of stock again while still managing her cash flow smartly, Yoon firmed up relationships with her suppliers. She negotiated flexible payment terms, brought them in on her marketing plans and business projections for the brand, and convinced them to invest larger ingredient orders, reducing lead times.

Bring your DTC data to the table

A benefit of operating a digital-first, direct-to-consumer business is the closeness to the customer and access to data. Bringing those insights to a wholesale partnership can help a brand stand out and optimise the launch strategy for success.

Before feminine care subscription brand Lola launched in Walmart, 72 percent of its shoppers customised their assortment of tampons, pads and liners to be delivered each month.

“[Going into retail] there were certain limitations,” said Lola co-Founder Jordana Kier. “If you're building a subscription for tampons on the DTC site, you can actually customise down to the individual tampon to build that box that works for you. That's not something that necessarily can be replicated at the shelf.”

As a solution, the brand created mini boxes for the Walmart shelf to sit alongside full-sized boxes, allowing shoppers to mix and match the type and absorbency of products more easily, something not typically done in this category. Lola using purchasing data from its website to optimise quantities.

When Harry’s Raider met with Target, he was armed with insights on who the brand’s customer was and how he engaged with both the brand and the broader shaving category.

“‘It was really confusing for guys, they don't understand the difference between all the different products that you're selling,’” he told Target. This led to Harry’s creating a “shop-in-shop” within the shaving aisle in the store, that provided a “simple and clear and straightforward” shopping experience, that ultimately helped the brand’s success in-store, said Raider.

Prepare to redefine business as usual

When operating as a DTC brand, it’s simple to make spontaneous business decisions, such as changing up product imagery or delaying when a product launches on site. When wholesale partners are involved, implementing changes can be slow, especially when brands have to ensure this is done across thousands of stores.

“In store, how you want things to visually look like takes planning,” said Peach & Lily’s Yoon. “You get to update that maybe twice a year. So you have to be incredibly thoughtful.”

In store, how you want things to visually look like takes planning. You have to be incredibly thoughtful.

Many brands have to adapt their packaging for retail, as what looks good online won’t necessarily work well on the shelf. This means additional costs. Increasingly, retailers are also asking brands about their packaging’s sustainability credentials, said Pickering.

When operating online only, Lola’s packaging was very minimalist, using muted colours. On the shelf, however, this concept didn’t translate. Boxes needed to clearly indicate tampon sizes so consumers could quickly find what they were looking for. “We also wanted to make sure that we were visible to the consumer and we could stand out,” said Kier.

Harry’s had a similar dilemma in that their packaging didn’t actually show what the product was. The team added a paper band around branded boxes with an illustration of the razor contained inside.

Don’t neglect your direct business

Brands should be wary of becoming too reliant on wholesalers, especially in today’s climate, where shopping for beauty products looks drastically different to how it was pre-pandemic. Even if stores aren’t forced to close their doors again, safety-conscious shoppers may be deterred from visiting beauty stores.

Even pre-pandemic, in order for the brand’s direct business to remain competitive, Morphe curates an assortment of best selling SKUs for retailers, keeping back exclusive products for its direct-to-consumer audience.

“You just have to be very careful about making sure that you're still protecting your DTC business,” said Jennie Laar, vice president of wholesale at Forma Brands, which owns Morphe. “Having differentiation between your retail partner and then your DTC business is really important.”

Editor’s Note: Starface Founder Brian Bordainick is married to Rachel Strugatz, a BoF contributor.


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